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Balancing Competition With Supplier Relationships

One of the more polarizing topics within outsourcing is the impact of competition on your suppliers. While few argue against the benefits of a highly competitive outsourcing industry, there is great disagreement around the benefits of leveraging competition as a sourcing and management tool within a company. On one side, the "Sourcers" see numbers, percentages and commodity services. These are the people who argue for a highly competitive and authoritative sourcing environment. The "Managers" see people, processes and highly specialized services. These are the people who argue for one, or a very small handful of flexible supplier relationships.

So who is right? Neither and both... The reality is that healthy competition and beneficial relationships are not mutually exclusive. If managed properly, you can absolutely have your cake and eat it too!

So Why Have A Competitive Environment?
There are a number of arguments in support of a competitive supplier landscape. The "Sourcers" most common rationale is that competition reduces price. Whether or not a buyer of services merely mentions a competitor, or conducts an all-out bidding war, price reduction is the principle lever used by suppliers to make their offering more attractive. This principle also applies to added services, more favorable payment terms, or virtually any other parameter in play. Competition also provides buyers with a "credible threat" to an incumbent or perceived front-runner. In addition to favorable contract terms, the presence of competition can help ensure ongoing quality and service level compliance. Internally, the capability to bring on new suppliers, or even switch if necessary, allows you to make outsourcing decisions with significantly more confidence - and with significantly fewer compromises.

But What About Supplier Relationships?
There are plenty of valid reasons not to introduce competition. "Managers" are generally concerned that competition can put stress on a relationship that they feel needs to be a strategic partnership. However, a "partnership" implies equitable sharing of risk and reward. Few suppliers enter into agreements that are even remotely equitable on this front, and buyers must remember that they are a customer, not a partner, first. Managers may also be concerned that a competitive environment will not be 'flexible'. No party benefits from a contract so rigid that even small service modifications require a trip back to the negotiating table. However, such contracts are a product of ill-advised relationship managers on both sides - not a competitive environment. Managers may worry that ongoing competitive threats can distract a service provider from focusing on the core tasks at hand. Most service providers have a discrete line drawn between their sales and execution teams. While there may be some carry-over in smaller service providers, competition should not affect an existing service in medium to large outsourcers.

So How Can I Have Both?
The ultimate goal of any approach is to meet your pricing, service and quality goals with as little risk and overhead as possible. The mere presence of a competitive threat is good - but the ability to actually leverage that competition and use other suppliers puts a buyer of services in a much stronger position. In the words of ex-U.S. President Teddy Roosevelt, "Speak softly and carry a big stick, and you will go far". It is absolutely true that relationships are vital - particularly in complex engagements. Therefore, a competitive environment should be a foundation to your approach - not a weapon wielded at the first sign of struggle. And remember that in days like these, few suppliers will shy away from doing a little extra to acquire or retain a client. 

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