Are You a Preferred Customer?
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional
We all know about preferred suppliers but what do we know about preferred customers? A well written cover story in the November 2012 edition of Supply Chain Management Review entitled “The Wisdom of Becoming a Preferred Customer” offers superb insight into why supply chain executives should add this goal to the top of their priority list.
It begins with well known stories involving giants of industry and which dynamically illustrate the importance of being a preferred customer.
Ford and Toyota
Each was competing to become the world leader in hybrid vehicles. As market demand increased, Ford complained that the transmission supplier favored Toyota . Unfortunately for Ford, the demand for transmissions exceeded supply and Toyota was the preferred customer who received the supply it needed.
Airbus and Boeing
In another famous example, Airbus publicly accused General Electric of favoring Boeing in the development of engine technology for the next generation of airplanes, a market estimated in the hundreds of billions of dollars. The story says that Airbus complained, “The problem we have with GE is they go to Boeing and say ‘what type of engine should we design for your airframe” and then come to Airbus and say, ”here is the kind of airframe you need to build to fit our engine”. Further, GE is the sole supplier of the largest Boeing next generation plane, the 777, and GE will not build an engine for any Airbus plane that would compete against Boeing in that market.
Applied Cost and Price Analysis online course
This is stunningly clear evidence, on an enormous scale, of the value of being a preferred customer. But there are thousands of other examples, large and small, throughout all industries and amongst businesses of all sizes. Customers who do not actively manage their supplier relationships may incur nasty or unforeseen consequences when suppliers explicitly or tacitly decide that we are not a preferred customer.
One common example is the case of allocation in product shortages. A shortage need not involve high tech jet engines to cause great economic upheaval. Construction supply houses go into panic mode when dry wall sheets become scarce. Interruptions of supply can be caused by a gypsum plant going off line for any number of reasons. When this happens, some manufactures sell to supply houses based upon allocation while others, with more advance partnering relationships, continue uninterrupted supply to preferred customers.
Reverse scorecards
In a study conducted by supply chain professors at Lehigh University who authored the story, some interesting findings emerge. Taken as a whole, they recommend using a score card system similar to a supplier scorecard. These are some of the macro positions.
- Supplier satisfaction relates directly to customer performance and behavior rather than demographic or other attributes.
- The relationship between supplier satisfaction and viewing a customer as preferred is extremely strong.
- Suppliers indicate clear agreement regarding the customer performance attributes that are most important to them.
- Satisfied suppliers are more willing to provide valuable kinds of preferred treatment to their preferred customers compared to less satisfied suppliers.
- There is a strong relationship between a supplier’s satisfaction with a customer and the level of trust the supplier perceives within the relationship.
- Satisfied suppliers are much more likely to view their relationship with their customer positively along a relationship continuum, perceive that the relationship has perceived that the relationship has improved over the last three years, and expect the relationship to improve further.
There is a great deal more of value in this story and we urge you to study it.