Mega Supplier Strategy
It sometimes happens that two divisionally structured groups of companies have a mutual business volume worth dozens of millions of US dollars, but are virtually unaware of this fact. This can happen when the customer-supplier relationship is handled on a decentralized basis on both sides— for example, when a local profit center of the supplier serves a local profit center of the customer. If these profit centers do not operate under the group name and the spend is spread over many different product groups, it can be challenging, even with the best efforts and intentions, to determine just how big the business volume actually is.
If most of these relationships are not on the radar screen of top management at both groups, it will be extremely difficult to achieve any real optimization at the level of procurement. This is precisely where the mega supplier strategy comes in. By making transparent the huge procurement volume transacted with a big, divisionally structured supplier ("mega supplier"), the many-to-many relationship is turned into a one-on-one relationship.
The essential step in creating a mega supplier strategy is to determine the mutual interests of both sides. This means determining the degree of dependence on the mega supplier for each product group and identifying the special concerns associated with each group. These concerns may encompass a large number of topics, from the urgent need to cut costs to a requirement for product innovations. Thus scenarios for future business development will have to be presented to the mega supplier. These scenarios can range from the total loss of a prestigious reference customer to highly attractive sales growth.
Following an internal consultation process, the customer ’s top management should then meet with that of the mega supplier. If the meeting is well prepared, it usually turns out to the customer ’s advantage.