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16 On Subcontractors and Suppliers
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THE OLD WAY: Subcontractors and suppliers are expendable.
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Buyers have been trying to get a better deal from their suppliers ever since the beginning of commercial activity. This is understandable of course. We all have to make the most of things, and squeezing good deals out of subcontractors and suppliers seems like the logical thing to do. (Dangers of Excessive Supplier Diversity) |
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If your source will not give you the deal you want, all you have to do is take your business elsewhere. Better still – get organized and structure a competitive bidding process that pits different suppliers and subcontractors against one another. Let them out-bid and undercut each other until only the cheapest bidder is left, then give them your business. |
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Better still, get one bidder to bear the cost of prototype production, learn the refinements, then give another bidder the new specifications. In this way, you can push off the costs of prototyping and testing onto one of your hapless suppliers, and they will just have to bear it. By pitting various suppliers against each other, and playing them off of one another, you can reduce your costs and increase your buying power at the same time. |
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Whatever you do, do not lock yourself into any long-term contracts, because you may want to go through the entire bidding process again some time soon to get an even better deal. And another thing — do not give them too big a piece of your final product or service, because they might use that as leverage to squeeze more money out of you. |
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Above all, remember that it is a dog-eat-dog world, and if you are going to survive, you have to take every advantage you can. For your company to do well, your subcontractors and suppliers must do poorly. That is how it goes. After all, there is only so much pie to go around. If you want the big piece for your company, others are going to have to go hungry. |
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Truth be told, however, this is an atrocious, horrible way to manage relations with subcontractors and suppliers. When companies focus on cost control, instead of quality improvement, they tend to look at their subcontractors and suppliers as costs which should be minimized. Getting a good deal means getting a cheap deal. |
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But when buyers disallow their subcontractors and suppliers adequate profit, they also jeopardize the reliability and quality of their own supply, because subcontractors and suppliers will lack the necessary funds to maintain and improve their operations. Squeezing "deals" out of suppliers and subcontractors is a shortsighted practice that is very much like sawing the tree branch you are sitting on. |
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More importantly, the damage this process does to the working relationships between subcontractors, suppliers and their buyers is titanic. When the low bidder eventually wins, chances are pretty good that they have won by bidding at a loss, with the hope that follow-on business will make up for it. (Supplier Cost Control) |
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In an effort to stay afloat, subcontractors and suppliers start cutting their own corners by letting their standards slip, putting off reinvestment and development, and delivering borderline quality. When these subcontractors and suppliers do make a genuine improvement in their own operations, the last thing they will do is tell their buyers about it, because this would only motivate them to demand an even lower price. Either way, it is not likely to work to the supplier’s or the subcontractor’s benefit to share the fruits of their labour with their squeezing, manipulative and dominating buyers. |
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Subcontractors and suppliers learn to work in secrecy, keeping their customers at arm’s length, hiding innovations and problems alike, lest they get squeezed further, or dropped altogether. Through it all, costs are minimized at the expense of quality and innovation. |
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