What Are the Disadvantages of Strategic Supplier Selection?

One way to maximize profits is to minimize costs. Creating special arrangements with a few key suppliers not only helps organizations get better prices, but guarantees a steady flow of important supplies. When examining the potential cost savings of exclusive strategic supplier arrangements, leaders can easily see the perks. However, there are tradeoffs. Exclusivity could eliminate better options down the line that could prove useful and even profitable.

Selecting one or a few suppliers for dedicated use can greatly reduce the cost of common items your organization needs. If you only require a select few items that are unlikely to change, then exclusive arrangements have few drawbacks. However, having limited suppliers also means restricting your selection. If other suppliers offer a more diverse array of products that yours don't, you may be cut off from getting the things that you want and need.

Just like you can depend on steady supplies and better prices from an exclusive supplier, the supplier can depend on your business. That's the crux of the arrangement. Of course, such a dependable arrangement can also remove the impetus for responsive service and concern. A supplier that knows you're a guaranteed customer may not work as hard to keep your business as it did to get it. Suppliers without guaranteed repeat business have more incentive to serve customers.

Certain industries are particularly affected by innovation. Medicine, for example, takes advantage of new medical equipment technology and pharmaceuticals all the time. Likewise, different companies come up with new products all the time, and no one supplier holds all the latest advancements. Therefore, medical providers who form exclusive arrangements may have difficulty obtaining the new items they most desire. This holds true in any industry where advances in technology and design affect business operations and competitiveness.

During the course of a contract period, your supplier may undergo changes. A sale or merger could mean that your supplier joins a new parent company or merges with a competitor. However, many contracts carry over. You may find yourself dealing with a different supplier than you had originally signed with, or that the way your supplier does business has changed unexpectedly. In many cases, the only way out of a bad arrangement is to wait for the contract to expire.