Strategic Suppliers vs. Preferred Suppliers

Strategic, as defined by Merriam-Webster, means “of great importance within an integrated whole or to a planned effect”. In the same respect, preferred means “to like better or best or to give priority to.” As buyers and suppliers these terms should not be unfamiliar to us, but have you considered the difference, or similarity, between them? Preferred suppliers are probably more commonly referred to as such because they provide the most competitive price or more desirable terms than others. They may also be categorized in this way based on where the spend category falls (in terms of importance) for a company. But what organizations should also consider is how this relationship is managed. It is obvious what you are getting out of your supplier (products, service, etc) but what are they getting from you, outside of revenue generation of course? Are you a “preferred customer”, a “strategic customer”, or just a “customer”. Maybe you are even a “bad customer”.

Most contracts are negotiated for at least a one year term, depending on the type of spend, category, and market. More often than not these terms are extended for several years. Your approach to supplier management should be considered a long-term relationship. Can your preferred suppliers become strategic? Just because a requirement is tactical in nature, does not mean you
cannot find methods of making the most of the relationship.

What are some other aspects to examine when determining which category your supply base falls into? Here are a few things to think about:

  • What is their level of involvement in your business planning model?
  • What type of support are they providing and to what degree?
  • What is their impact on your core business?
  • What steps are they taking to expand the relationship?
  • Is this relationship mutually beneficial? Is there potential for a partnership of
    some sort?

Based on your review of these questions you can start to develop an understanding of where your supply base is currently, where you see them in the future, and where it makes sense to convert a “preferred supplier” into a “strategic supplier”. In many circumstances your company has as much to gain from a strategic supplier relationship as they do from you. A more collaborative
approach to supplier management can help you determine new and different ways to reduce costs, consolidate products and services, and gain new business prospects.

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