No love lost between OEMs and suppliers

Hundreds of studies show it’s so much easier to keep an existing customer than to get a new one, but it can cost your company plenty if you use the wrong supplier.

Dan Heber, PE, Senior Technical EditorBy Dan Hebert, PE, Senior Technical Editor

HAVE YOU ever used a supplier with great products, but whose service and support were so dismal that you were forced to switch to another vendor? Often, the most interesting thing about these episodes is the reaction of the “jilted” supplier.

Suddenly, they have all the time in the world for you. Their owner/CEO/founder and his posse visit you personally, and plead to get your business back. This, from the same supplier that wouldn’t return your calls when you desperately needed help.

That was the gist of a recent conversation I had with an automation professional at a major machine-builder company. He and his company were spending seven figures a year with a major, market-leading, automation supplier. However, as often happens with market leaders, arrogance and complacency had set in, especially with existing customers. While they aggressively pursued new opportunities, no one was minding the store with respect to existing customers.

"The best course of action might be to pull some purchases from a supplier, and make sure that supplier knows they lost business to a competitor."

This machine builder took his seven-figure account to a new supplier, and the founder of the now ex-supplier was soon at his door. “Too late,” replied the disgruntled machine builder. “Where were you and your support staff when we needed you these past few months? I requested a badly needed custom component from your salesperson, and was told you were too busy. Our new supplier quickly made the component for us, and we’re using it now. You have lost our business for a long time, maybe forever.”
The bottom line for the supplier company? It spent ten of thousands of dollars in a vain attempt to regain lost business, when it could have instead spent a lot less to keep this major customer satisfied.

Hundreds of studies show it’s so much easier to keep an existing customer than to get a new one. It’s even more expensive to win back a disgruntled customer. Most of these studies are done in consumer markets, but the results are even more compelling for the machine builder market. After all, it doesn’t cost a consumer much to try a new brand of cereal, but it can cost your company plenty if you use the wrong supplier.

During my conversation with the machine builder who switched suppliers, another bewildering tidbit came up. He was spending almost seven figures annually with another supplier, and he had some issues to discuss with that supplier’s senior management too.

Both the machine builder and the second supplier’s senior executives attended last year’s CONTROL DESIGN AutomationXchange, our annual event that promotes high-level interactions between machine builders and their key suppliers. The machine builder requested a meeting with the second supplier’s executives. They refused, saying their time at the event would be better spent pursuing new opportunities. This is a true story.

Why do some suppliers take existing business for granted? It’s human nature to take what we have for granted, and lust after what we don’t have—even when what we have is better than what we lust for. Learned psychologists refer to this as the Hugh Grant Syndrome. A more economics-based rationale for why a sales rep neglects existing accounts to concentrate on new prospects is to maximize sales commissions.

What else can a machine builder do when a major supplier starts to take his business for granted, ignoring requests for service, support, and face time with senior executives?

The best course of action might be to pull some purchases from the supplier, and make sure that supplier knows they lost business to a competitor. Perhaps you can continue to use the main supplier’s products in your highest volume machines, and install the new supplier’s products in another line of machines.

This should instill a sense of urgency in the main supplier, and it can help you practice regularly investigating alternative suppliers and maybe better solutions. This is often the low-risk way to manage the problem. After all, you don’t want to jettison your current supplier until a suitable substitute is found. And, let’s face it, the only real test of a supplier’s products, service, and support comes when you actually purchase and install their components in your machines. Everything prior to that is just hearsay and rhetoric.

If the new supplier’s products and services check out, then you’ll have a primary and a backup supplier. This can be an excellent way to keep both on their toes, and prevent either from risking the consequences of taking you for granted.

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