Digital transformation of procurement also transforms supplier relationships

Don’t expect that all your suppliers willbe happy when you let them know about the digital transformation of your procurement processes. Every new beginning is hard. The implementation of a procurement system is a kind of shock for both sides: procurement professionals and suppliers. Fortunately, in most cases supplier relationships became even betterafter implementation. But, what about less ideal situations that we avoid talking about? Why procurement digitalization has a negative impact on supplier relationships sometimes?

A supplier sabotaged the electronic reverse auction

We recently experienced an unpleasant situation with a supplier in a company with an annual procurement value of several billion kunas. Despite the complexity of the procurement process, digitalization of their procurement has progressed excellently. Problems started when  suppliers become involved in the digitalization process. We came across an “angry” supplier and our customer support had to deal with them. The customer ran a tender through Ensolva and it went great. After analyzing the bids, the client found that only one vendor met the criteria. The goal was to get the most realistic price on the market, so the logical conclusion was to performa reverse auction. Since there was only one supplier, we created a Japanese reverse e-auction.

In that moment the supplier started to protest. They wanted to know more details and they set their own conditions for participatingin the auction. The buyer was forced to comply with all supplier’s requirements as they could not do business without that specific supplier and their service.

The auction failed.

WHY? Let’s compare two different perspectives!

Supplier’s perspective

They collaborated with the Buyer and had a secure job for years, without competition for their services. Once the buyer digitally transformed their procurement process, the situation changed drastically for them. The electronic e-auction raised suspense and the supplier took a negative view. They knew that the customer depended on them, so they began to behave irrationally and recklessly. In the short term, this secured them the job, but in the long run it was not a good move because good relations were irreversibly broken.

Buyer’s perspective

The buyer relied on one supplier for years. They did not conductany market research and had no insight into the market situation (offers, prices, other suppliers) and became dependent on one supplier for a service that is essential to their daily business. Tender conditions were met by only one supplier that was aware of their position. Due to all circumstances, the buyer was forced to accept the supplier’s terms and the auction failed.

Communicate with your suppliers!

A new way of doing business means uncertainty for suppliers: fear of competition and possible job loss. Prepare your existing suppliers on time, get them acquainted with the new way of doing business. Present to them how digitalization of procurement will affect your relationship and explain what this means for them. Don’t ignore your suppliers, they are your partners!

Get customer support for them!

The procurement system is as new to suppliers as it is to your company. Provide quality instructions and provide them with customer support. Don’t let them be afraid of not being able to submit an offer on time!

Don’t depend on one supplier! Never!

Take the time to research the market and always have an alternative solution! With the procurement system, you can afford the time you need. Depending on one supplier is a big risk, especially when your business depends on theirgoods or services. Imagine your supplier going bankrupt, what would happen with your company?

Boost competitiveness

Provide your company with a supplier base and continually improve it. Many e-procurement systems provide a supplier portal for suppliers, but the best solution is having a specialized e-procurement system that has a supplier network with new and safe suppliers that you can start using.

What happened with the  supplier from our electronic auction?

The supplier still does business with our client, but the relationship is permanently broken. The client intensively researches the market and looks for new opportunities. The supplier is adapting to new ways of doing business. On the next tender they will have to provide more value because there will be other suppliers as well.

However, all of us are customers in one moment and suppliers in another. We must be prepared to respond to new trends if we want survive on the market.


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