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Is there such a thing as too much leverage?

By December 6, 2022April 9th, 2024No Comments

A couple of weeks ago, Philip Ideson posted a LinkedIn snap poll about procurement’s negotiating leverage. He asked whether it is possible for procurement to have so much leverage over a supplier that they ‘force’ them to agree to a price or set of terms that is unsustainable?

You can hear what Philip and I thought about the poll results and the comments we received in this week’s podcast, and there were good arguments made on both sides.

Here are a few examples of what we talked about and what we heard from you.

In favor of protecting suppliers, the winning group in the poll, were reasons like:

  • Preserving competitive alternatives in the market, as opposed to over concentrating volume with just a few very large suppliers
  • Forcing suppliers into an unprofitable situation just sets the stage for a friction-filled contract term
  • It does procurement no good if they negotiate extremely competitive prices with a supplier that then goes out of business
  • The potential brand damage associated with negative press about how procurement’s company manages their supply relationships

On the other hand, people pointed out that:

  • It is challenging for procurement to know when suppliers are actually on the brink of losing money and when they are just working to conceal their costs and overheads
  • Suppliers probably don’t have any qualms about allowing procurement to overpay when the shoe is on the other foot
  • Suppliers have a responsibility to walk away if a deal is not in the best interests of their company

What is your opinion? Have you found yourself in this position? Click here to join the discussion on LinkedIn.

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