Navigating Customer-Supplier Relationship Post Covid-19 Era

Novelcoronavirus related disruptions in the supply chain as well as economy contractions challenged buyer-supplier relations. A battle was brewing between customers and suppliers during the last six months, and it may continue for the next one to three years before the global economy comes back to pre-covid level and growth begins. Contracts are facing off against the strengths of supplier relationships. 

Reduced spending and falling number of customers has impacted buying and relationships. Pre-covid-19 era, demand was more than supply in many sectors, but, right now, supply is more than demand in most of the sectors. Hence now, buyers have more choices about selecting suppliers and suppliers too have time to analyze their existing customers and decide which segments they want to serve in future.

Buyers (especially in the B2B segment) perform supplier evaluation/re-evaluation, supplier performance analysis and assign rating to suppliers. There are many ways to do supplier assessment, the simplest one is "ABCD Supplier Segmentation" analysis. Similarly Suppliers too (especially in the B2B segment) perform analysis of their customers based on customer relationship management systems to categorize customers. There are many ways of categorization of customers. The simplest one is "ABCD Customer Segmentation".

Customer Segment Analysis: 

All existing customers can be categorized in to 4 categories i.e. A, B, C and D. 

"A category customers" are the best customers the company can have, they value supplier's work, they pay on-time, they don't argue too much about rate/price/fees, their expectations are best and quality service, they also introduce other customers to supplier, they buy more often, they show brand loyalty, they are friendly and supplier's team enjoy working with them, they have huge potential to grow, if they grow they will buy more from same supplier, they spend enormous amount of money while buying products / services from supplier. They can be identified as "Awesome".  

"B category customers" are more or less similar like "A category customers" but missing few characteristics of A category of customers. They buy less than A category customers from suppliers. 

"C category customers" are OK to work with, they negotiate too much, they purchase almost the same volume every year, they are not committed for long term purchase, their total value of purchase would be lower compared to A and B categories, they demand too much of post sales services, and hence, not profitable. B and C categories of customers can also be called bread-winners for suppliers. 

"D category customers" argues a lot about fees/prices, too much demanding about post sale services, late payers, don't honor their commitment, don't pay for the value supplier is providing, supplier's team finds it very tough to work with as they create lot of troubles during entire cycle and are completely un-predictable. 

Supplier segment analysis: 

All existing suppliers / service providers can be categorized in to 4 categories i.e. A, B, C and D.

"A category of suppliers" are always appreciate long term partnership and are looking to work as close associate with customers, they always create "Aha" moment for customers, provide more value for money, ready to go extra mile to meet or exceed customer requirements, they are flexible and adaptable, they offer best products, highest quality and best services at very competitive price, always provide true value for money, they invest in to capacity to meet future requirements of customers. They can be called as "Ally / Associate" suppliers.

"B category of suppliers" are superior than common suppliers, they have reasonably good quality & service, achieve satisfactory performance as per customer requirements, good value provider, respond to customer needs when customer demands and ready to work with customers in price movement situation by changing price levels to remain competitive. They can be called as "Better" suppliers

"C category of suppliers" offer products of standard specification at market price, very low potential to add value to customers, mostly focus on single transaction, focus on short term business, they offer product or services very similar to many such suppliers and work under competitive pressure, not able to provide best after sales services, not flexible to meet customer requirements. Their focus is limited to only meet customer requirements in a particular transactions. "They can be called as "Common" suppliers.  

 "D category of suppliers" are suppliers who act in a manner to maximize their own sales/profits, don't think much about customer and customer needs, don't hesitate to exploit monopoly situation they might be enjoying, or even create hostage situation for customers, their attitude towards customers is "take it" or "leave it" at their terms & conditions, very poor in providing after sales services and very difficult to deal with. They can be called as "Debatable" category

Theoretically, there are 16 possible combinations of customer-supplier pairs. A category of customer may be dealing with A category of supplier, A category customer may be dealing with B category of supplier etc. i.e. "A-A, A-B, A-C.........D-D" 

There is a common perception that customers have more power in buyer-seller relationship. However, in many product/service segments, suppliers have more power. Both of these situations are not healthy for long-term sustainable and rewarding partnership. I have had several opportunities during previous consulting assignments for conducting supplier analysis, customer analysis, their segmentation and study their behavior during life cycle of relationships between them. 

I mapped the approaches adopted by customers as well as suppliers both, what they did and how they acted as customers / suppliers. Out of those 16 possible pairs, I mapped 5 (five) levels of customer-supplier relationships. Please refer image below; 

Level-1 Strategic Partnership

When A category of supplier and A category of customers enter and nurture long term win-win partnership, it becomes "Strategic Partnership". All decisions are taken jointly, customer and supplier, both are ready to help each other and take all actions keeping long-term constructive and growth oriented relationship. 

Level-2 Collaborative Relationship

This level of relationship is formed when A-B, B-A and B-B pairs of customers-supplier work together. Focus in this partnership is collaboration and supplier can take lead and nurture the relationship to move towards Level-1 strategic partnership in future. Collaboration between customer and supplier is visible on the surface, but yet to reach to level of trust, communication and collaboration required as strong partnership.

Level-3 Operational Relationship

This level of relationship is formed when A & B category of customers work with C category of supplier or A and B category of suppliers work with C category of customer. It's a relationship for achieving numbers, not profitable, but might work as bread winner, there iw slot of risk of loss, low profit, lower satisfaction, purchasing may happen only if supplier is ready to supply at target price.   

Level-4 Transaction based relationship

It is formed when A and B categories of customer deal with D category of supplier or A and B categories of supplier deal with D category of customer. It can also be called as relationship of unequal partners. Very short term transactions based deal between buyer and supplier, often ends up in loss making situation for either of the partner. Transactions happen in a very specific situation for a very specific requirements. One of the partner would not be happy at the end of the transaction. 

Level-5 Debatable Relationship

It is formed when C category of customer deal with C and D category of supplier or C category of supplier deal with C and D category of customers. Not at all healthy relationship, as buyer-supplier expectations and service levels doesn't match and ends up in to unhappy and unsatisfactory situation. 

Relationship between D category of supplier and D category of customer would not be formed. There will not be any possibility of deals between them. 

Supply chain managers, procurement team, key account management teams, sales teams and entrepreneurs can categorize their customers based on a set of criteria depending on their industry sectors and group them in A, B, C and D categories to perform analysis of their relationships with existing customers. This will help supplier to understand which category of customers they are dealing with, what are their requirements and decide action plan to move towards Level-1 Strategic Relationship. Customers or suppliers who might be interested to analyze failed relationships the past, would get many answers and reasons why relationship failed? 

Customers too can categorize their suppliers/services providers to understand which factors will pursue supplier for strategic partnership. Customer's self analysis about their own category will help them to adjust their expectations from suppliers / service providers. In partnership, both partners have to play vital role to understand who they are, where partnership stands, what are their future goals & objectives and partnership and which actions at both ends will help them to achieve desired partnership position in future.

.......................................................................................This research article is authored by Ketan Gandhi, President & CEO, KgGuruji Consulting & Services........................................