Dive Brief:
- Three main forms of power dynamics exist between buyers and sellers, depending on their degree of multimarket awareness and coordination, CSCMP's Supply Chain Quarterly reported Thursday.
- The types of power exerted by buyers toward sellers include: granting incentives (reward power); threatening punishment (coercion power), and executing judiciary rights ("legal legitimate" power). Mediated and non-mediated power also exist, with non-mediated meaning deferring to expertise, while mediated regards the use of promised rewards, coercion by threat, or falling back on "letter of the law" contract requirements.
- The type of power deployed generally depends on the degree and importance of multimarket awareness within the company or the type of reward promised to the buyer for pricing achievements.
Dive Insight:
As supplier collaboration can make the difference between an efficient or poorly executed supply chain, the quality of interactions between buyers and sellers is key.
If a supplier senses that he matters and is treated well, the likelihood of prioritizing your order over another's grows. Timely payments also impact the buyer-supplier relationship: instilling a sense of value in the supplier encourages a stronger partnership and thus a stronger supply chain.
Despite these motivating behaviors, buyer-supplier relationships still struggle. According to research by 3M reported by Inbound Logistics, more than 55% of suppliers report a lack of collaboration with buyers. Out of the 237 U.S. suppliers surveyed, roughly 70% reported that at least half their customers lack a system for collaboration.
An adversarial relationship based wholly on cost-reduction demands instills dissatisfaction in the supplier, and creates a power imbalance that inhibits rewarding and effective collaboration. It also prevents open communication, which is vital to innovation and can reward both sides materially. Viewing a supplier as subservient and of secondary value will result in resentment, and is highly ineffective in the long run.
