Start by shifting your perspective on unbeatable suppliers. Over the last decade, we’ve seen a rise in the number of unbeatable suppliers across multiple industries, even those that do not have natural monopolies. They’re also different; they don’t think or operate like other suppliers. Therefore, they require a different strategic approach.
Most supplier relationships offer areas for improvement, so it’s important to start here. There are three ways to improve supplier relationships: Develop a win-win solution by offering value to the supplier in exchange for a specific benefit or discount; rebalance the relationship by countering the supplier’s demands with facts; and use external events like a merger to effectively hit the reset button.
If the first strategy fails to deliver results, keep in mind that you still control one thing: demand for your supplier’s products. Altering demand can take a variety of forms: reduce demand, eliminate demand, unbundle services, or create a buying consortium with other companies to influence the supplier. Changing demand while dealing with an unbeatable supplier can be challenging, but it typically involves less risk than trying to change the supply market or playing hardball with the supplier.
This strategy can be very effective but it requires changing the supplier market. Is there a new supplier you can bring in with a multi-year contract, thereby reducing costs and encouraging your former supplier to renegotiate? Or should you create plans to integrate vertically to supply your own needs? Vertical integration requires careful consideration, of course, but often, just a credible threat can create the leverage needed to renegotiate with your supplier.
If all else fails, then it may be time to litigate (or threaten to do so). Playing hardball entails significant short- and long-term risks. Carefully weigh all potential advantages and disadvantages first, consider alternative scenarios, and be prepared to follow through on your strategy with clear communications and careful execution.
To help tilt the balance of power in your favor, each of these four strategies needs to be supported by seven key enablers: