Becoming the preferred customer allows you to better leverage your supplier business relationships. Establishing the mindset and goal of being the preferred customer is an important first step in creating long term value through the customer/supplier interface. This mindset will enable you to build the capabilities and meet the prerequisites to create continuous improvements and innovation together with your suppliers, thus generating value which is passed on from your company to the end consumer.
It takes time and effort to build a business relationship and climb the ladder to number one customer. Without awareness of what it takes, you are unlikely to get there.
The foundation to build upon
Before you focus on the preferred customer concept, there are some foundational areas that need to be addressed:
- Attractive volume - Without offering the suppliers an attractive volume you will not reach the position of the preferred customer
- Long-term perspective - If the supplier does not see a long-term business relationship with your company, you will never be ranked number one
- Fair profitability - A long-term perspective and an attractive volume go a long way but without offering the supplier a fair profit over time, you are unlikely to complete the journey
Leverage your opportunities to reach top ranking
In addition to the three key areas mentioned, there are ways to make your company stand out from other customers, boosting your chances to be the preferred customer. These areas are linked to your approach and collaboration.
To leverage your supplier business relationship, the relationship should be built at different organizational levels with dialogue among key stakeholders in both companies.
Cooperation with the supplier needs to be structured in a way that allows them to stay updated on current initiatives, future outlooks and supplier performance (Quality, Delivery, and Cost). The consequences of good and bad performance should be clear to both the parties.
Having an effective organization and a structured way of working will save time and money for your own company but also for your suppliers. Just as your company would prefer to deal with a supplier who is organized and easy to work with, Suppliers prefer low maintenance customers. Suppliers often note that this characteristic will contribute to a customer’s movement toward the top position.
Your branding as a company is not only important to your end customers but also for your suppliers, especially small and medium sized suppliers. If your company is seen as prominent and respected, you will have an easier time becoming the preferred customer.
Face the facts
There are no shortcuts to becoming the preferred customer. In the long run, suppliers require business volume, a fair profit and a long-term relationship. Remember, it might not always be the short-term, lowest cost supplier that brings you and your customers the most value at the end of the day.
Building a broad relationship with good structure and clarity are ways to become a customer in focus, enabling you and your suppliers to work on improvements and innovation. If you succeed, you can move beyond capturing marginal value through negotiations. You and your suppliers will have the platform to work on total cost through design, production and quality.