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).
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