Supplier Switching

One sourcing policy issue related to supplier relationship strategies is the extent to which the buying organisation is prepared to engage in Supplier Switching.

Supplier Switching = Dropping an existing supplier or deciding not to renew a supply contract in favour of a new or alternative supplier. 

There may be a range of reasons for changing or switching suppliers:

  • Problems with performance and reliability of the existing supplier.
  • A new supplier offering a more competitive bid (better solution or value).

Risks of Supplier Switching:

  • The new supplier may fail to perform.
  • Process incompatibility.
  • Cultural or interpersonal incompatibility.
  • Loss of knowledge.
  • Learning curve: time for the new supplier to achieve peak performance.
  • Exposure to new and unfamiliar supply risks.
  • Exposure of intellectual property and confidential information.
  • Problems of adversarial hand-over from the old supplier to the new.

Costs of Supplier Switching:

  • Identifying and qualifying new suppliers.
  • Administrating tender exercises.
  • Settlements from old suppliers.
  • Change of internal systems and processes.
  • Training staff on new supplier systems, procedures and requirements.
  • Risk mitigation measures (insurances) and corrective measures (teething problems).

“Create – Deliver – Inspire”

Luminary Group Ltd ©

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