Better BuyingTM has released its third in a series of Special Reports focused on how suppliers and supply chain sustainability are being impacted by the purchasing practices of brands and retailers, and what changes suppliers want to see as the industry recovers from COVID-19. The latest findings reveal that the high-pressure cost negotiation strategies most frequently used by buyers also have the greatest impact on suppliers’ business profitability. Downward pressure on suppliers’ profitability then overflows onto workers and the environment, putting all forms of sustainability at risk. New pricing and ordering strategies emerging since the onset of the COVID-19 crisis highlight the financial hardship the industry continues to face – as well as the prevailing strategy of offloading financial pressures onto suppliers.
The two high-pressure cost negotiation strategies most frequently rated as having a high impact (a 4 or 5 on a scale of 1 to 5) on suppliers’ business profitability included “demanding level prices be maintained from year to year – no consideration for inflation” (rated high impact by 65% of suppliers) and “take it or leave it – meet the target cost or supplier cannot win the order” (rated high impact by 64% of suppliers). These and other strategies that involve pressuring suppliers through price competition have the highest average impact on suppliers’ business profitability. Furthermore, 55% of suppliers reported that their business profitability has a high impact on their ability to provide good working conditions and wages, while 44% report a high impact on their company’s environmental performance. Most suppliers (93%) confirmed their buyers have started placing new orders since the onset of COVID-19. The most frequently reported changes to buyers’ pricing and ordering strategies include:
- An overall decrease of order volume relative to previous orders or seasons (59%)
- Smaller volumes at the same price (51%)
- Lower target prices from previous orders (40%)
As for best practices, 33% of suppliers reported increased dialogue with their buyers – a practice Better BuyingTM has advocated for throughout the pandemic. Suppliers also reported methods their customers use to lower costs without creating additional pressure on suppliers.
- Providing long-range buying plans (62%)
- Taking suppliers’ suggestions in altering product specifications to reduce costs (61%)
- Providing accurate forecasts in advance (57%)
- Meeting minimum order quantities when placing orders (57%)
“These findings demonstrate the varied ways that cost pressures can be reduced for suppliers” explains Marsha Dickson, President and Co-Founder of Better BuyingTM. “While in some cases, buyers may need to pay more to cover the costs of everything they are asking for, planning and forecasting, design and development, and other practices beyond cost negotiations can help them reduce operational costs and support win-win solutions with their suppliers.”
The opportunity for our industry to shape a new standard for purchasing practices extends to the area of costing and cost negotiations. 69% of suppliers participating in the survey believe there should be minimally acceptable costing practices for buyers. The highest priority practices to implement as standards are:
- Providing a reasonable target price (90%)
- Not requesting price reductions after an order is placed or shipped (85%)
- Avoiding making changes to order details once the price is confirmed (84%)
“These priorities are not unreasonable—in fact, it is hard to understand why they aren’t already standard practices,” said Kelly Allen, Strategic Partnerships Manager for Better BuyingTM. Listening to suppliers and working with them toward win-win solutions can help raise the bar for how costing is carried out, eliminating impossibly low target prices and the high-pressure cost negotiation strategies needed to reach them.