B2B Distribution: Supplier Sourcing Strategies, Pt. 2
In part 2 of our blog B2B Distribution: Optimizing Your Product Portfolio, we identify 3 supplier sourcing strategies to achieve better pricing and availability for your customers.
1. Exclusivity with Suppliers
Establishing an exclusive relationship with a supplier means that you become the sole distributor for their products, putting you in an especially favorable position when the supplier’s brand is in high demand. Additionally, exclusive relationships enable distributors to get preferred pricing and availability, allowing them to offer products that compete more effectively against alternatives. The challenge in gaining exclusivity with a supplier lies in convincing them of the benefits of working with just one supplier. They may question your ability to achieve adequate market coverage, or ask what else can you bring to the table to make the exclusive relationship worthwhile? Joint marketing, demand planning, and information sharing are a few examples of mutually-beneficial activities that can be used to entice suppliers to exclusive relationships.
2. Rationalize & Optimize Suppliers
Rationalizing and optimizing your supplier base means that you minimize the number of suppliers you work with to meet your customers’ needs. It’s simply difficult to drive better price and availability across your entire supplier base, so you must choose who to align with. This means developing closer relationships with suppliers that have wide portfolio coverage or strong positioning, while dropping suppliers that are redundant or poorly-positioned. Rationalizing and optimizing suppliers requires a puzzle-like exercise in portfolio analysis, but it helps to consider the following key questions regarding your supply base:
- Who has the widest portfolio coverage?
- Who sells specialized products with no alternatives?
- Who is essential? Who is expendable or redundant?
- Who do I have strong relationships with? Who would I need to cultivate relationships with?
- Who are high performers? (e.g., lead times, service, support)
- Can we get access to these suppliers or are they tied exclusively to another distributor?
Ideally, the calculus behind rationalization and optimization will leave you with a supplier portfolio that is both lean and capable of meeting customer needs. Favored suppliers should be targeted by efforts to strengthen relationships through value-add activities like integrated planning, bulk purchases, and information sharing. Furthermore, ending relationships with ‘rationalized’ suppliers can be used as a chip to achieve better pricing and availability with favored suppliers. With less competition for your wallet, favored suppliers will be inclined to offer you better terms in the future.
3. Drive Competition Between Suppliers
Another tactic you can employ to realize better price and availability is to drive competition between suppliers. Instead of establishing exclusive partnerships or rationalizing their supplier base, distributors can maintain overlapping suppliers and promote competition between them. Distributors can offer incentives like preferred positioning and stocking levels as a reward for the supplier that can offer the best pricing and availability at any given time or for any given order cycle. This supplier strategy is particularly effective for distributors with high leverage and a large supplier base with significantly overlapping product portfolios.
Benefits for Suppliers
As a supplier, you want to avoid situations where you are competing with other suppliers for share of a distributor’s wallet. To sidestep a competitive environment, suppliers can preemptively push their distributors to adopt the first two strategies: exclusivity or rationalization & optimization. Rather than waiting on their distributors to approach them, suppliers can drive discussions around forming strategic partnerships and determine the benefits they would like to see.
In B2B markets where a distributor finds that neither expanding nor adding value to your product portfolio are efficient or viable ways to drive growth, distributors must consider supplier strategies that optimize price and availability. Distributors can achieve better price and availability by (1) establishing exclusivity with certain suppliers, (2) rationalizing and optimizing their supplier base, or (3) driving competition between their suppliers. While the latter creates a more competitive environment for suppliers, the first two strategies are mutually beneficial and should be encouraged by suppliers. By working together, suppliers and distributors can create a win-win outcome.