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JANUARY/FEBRUARY 2006                                                                                   VOLUME 122, NO. 1

supplier side...

Buyer vs. Supplier

Constant pressure to control and reduce costs has driven a destructive wedge between manufacturers and their suppliers.

by Jerry Davis

A recent article in Industry Week magazine explored the “negative shift” in business relationships between North American manufacturers and their suppliers during the past 20 years. It focused on the move away from buyer/supplier partnerships built on mutual health and success toward arrangements that, at times, look more like one-sided “I win, you lose” relationships.

Numerous examples were given in the article, to which many of us in the paper industry could add more than a few of our own, especially those who remember the “good old days” of the 1960s and 1970s. Do you remember, for instance, when a handshake was sufficient to seal a new agreement, and how hard you worked to be a good supplier because the buyer always paid you a fair price for your goods and services? Do you recall how both parties in those days stood by their commitments to one another because, after all, “a deal was a deal?”

As a buyer, do you remember the days of overwhelming service and attention to detail, when every phone call was answered by a person, not by voicemail? Do you recall when negotiations had an honest, overriding “win/win” goal for both parties, equally? Do you remember the days when your sales force could raise the price of your product to offset fair and justifiable costs passed on to you by your supplier?

Unfortunately, too many industries in North America have moved from a mutual interest based philosophy towards a more transactional and sometimes adversarial business relationship with suppliers. Too often, when asking for price relief, we are told the Wal-Mart story, e.g., “if we raise our prices, Wal-Mart will throw us out for the next lowest price supplier. All we can offer is volume. Your costs are not our problem, they're your problem.”

With this dramatically negative shift in manufacturer-supplier business relationships, something had to give, and it has. Today there are significantly fewer paper industry suppliers, forced to consolidate to find cost saving “synergies.” The paper industry in this country continues to get smaller and smaller, with no prospect of a reversal in the next few years. Inevitably, the level of service that can be provided by the supplier sector has come under increasing pressure, worse yet at a time when paper mills continue to downsize their staffs, driven by their own internal pressures to reduce overhead and fixed costs.

Earlier this year I had the privilege of listening to the remarks of an extraordinary corporate executive, new to the paper industry. This charismatic and inspiring senior official shared her views and philosophy about the buyer/seller relationship. She clearly understands how a real partnership works.

Addressing some 150 key supplier companies, she emphasized the need to restore and strengthen the paper industry's basic relationship with its key supplier partners. Who knows more about Best Practices, she asked, an individual paper company or a supplier that deals with most paper companies in the industry? She challenged her leadership team to embrace their key suppliers and restore the partnership ideals that have worked so well in the past. She challenged her suppliers to become more familiar with the buyer's needs, so as to better serve them.

She firmly believes that customers will pay for value, so why not focus on delivering value instead of yielding to the never-ending demand for lower prices and concessions. If you view your product as a commodity, then the customer will want commodity prices. If you sell a high quality custom product built to a customer's needs for consistent high quality and dependable deliveries, that customer will pay for value delivered. I hope she succeeds and that others follow in her path.

With all of us feeling the impact of foreign imports on our markets, it's time to come together and reestablish the strong partnership philosophy that made our industrial base so powerful in the past. The financial health and stability of both papermakers and suppliers depends on finding a better way, together.

Jerry Davis is VP, strategic business development, AstenJohnson.

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