Supplier Perception: Are You As Good As You Believe?

Your business is not a single direction going from you to the customer.  If anything, you are in the center of a line between your supplier and your customer.  This means your relationship with the supplier needs to be as good as the relationship you have with your customer.  After all, the supplier has its own perception of you as their customer.

What is the supplier perception?

Relationship management is based on the direct interaction between you and your supplier.  If you are the only person making decisions and management within the relationship, it is easy to slip in to feeling everything is perfect – a classic case of wishful thinking.  It is also possible that you are treating your supplier as a partner but only as far as the partnership is a transaction agreement – product in exchange for money.  The best relationship feasible considers the supplier perception matrix, and we will be discussing this matrix in detail.

Supplier perception has a few different terms but mean the same thing.  Other names for perception matrix include:

• Supplier Perception Matrix
• Supplier Preferencing
• Supplier Perception Model
• Supplier Preferencing Model
• Vendor Perception Model

Supplier Perception Matrix Definition

Begin at the bottom left corner of the matrix.  Each quadrant represents how a supplier would see you or any purchaser’s relationship.  This matrix is often better known as the supplier perception model or the supplier preference model.

Why bother understanding the Supplier Perception Matrix?

Simple.  You need to make the determination where you stand in relation to your potential or current supplier.  Know yourself first, and you stand a better chance of positioning yourself into a better and more fulfilling relationship with the supplier.  Then, leverage that relationship into a finely-honed supplier relationship management strategy.

How do I use the Supplier Perception Matrix?

Many larger product sourcing agencies will have a set of questionnaires based around a specific industry and their customer.  The sourcing agency will have the customer rate importance and have the supplier do similar.  It is understood there is a difference in perception of the supplier and purchaser.  Questionnaires help provide a better position for both on the matrix itself.

The horizontal axis is the business value – the percentage amount of business a supplier receives from individual customers.  15 percent or more is high; five to 15 percent is medium; one percent to five percent is low.  Industry conditions can change the percentages.

The vertical axis looks at the non-monetary elements of the purchaser – how consistent the purchaser will be, finances, future potential or interest.

Attraction level example

Here is an example of how to determine the attraction level score.  Again, this can be modified and changed based on the industry and supplier considerations.

4 Supplier perception classification

Each quadrant has its own characteristics and value.

Core quadrant – Top right

Think of core purchasers as the biggest accounts out there.  These are the huge companies with substantial buying power and strong core business – think companies like Target, Lowes and the like.  Suppliers consider core purchasers as key to continued success, and these purchasers get lots of attention and time.

Conversely, the purchaser knows the supplier has the capability for large production of a variety of different products.  The outcomes are strategic partnerships, long-term cooperation and close strategic partnerships on both sides.

These major companies already know what makes a good Chinese supplier.  It is very easy for you to learn the same information.

Related: 5 Vendor Selection Criteria: Check Them Before You Sourcing Products

Develop quadrant – Top left

Purchasers here have low purchase value but high attraction through long-term development possibilities or other factors outside of payment capabilities.  This means a supplier will give this particular buyer time and effort to build a positive relationship because of the high potential of the buyer.

While there may be gaps between purchases and goals, the supplier is willing to cut the short-term for the benefit of a positive cooperative relationship.  Those purchasers who fall into this quadrant may earn preferential treatment options (pricing, services, correspondence etc.)

This will happen in the face of any other development prospects.  The goal is to build that solid business synergy designed for better objectives and long-term cooperation.

It is in this quadrant that Sourcing Nova wants you and the supplier to be.  Here is where there is room for ample growth and stellar profit margins, ideal for anyone wanting to start selling on Amazon with Amazon FBA.

Related: Amazon FBA: A comprehensive overview

Nuisance quadrant – Bottom left

The buyer has both low value and attraction.  The purchaser lacks sufficient capital to meet MOQ and little to no development.  There is very little in the way of enthusiasm about their products and business.

Suppliers faced with these buyers take little interest in establishing any sort of relationship now or in the future.  There is no practical reason to invest any resources and energy beyond what is necessary.

The buyer may not pay high prices but will also not receive any add value in personalized services.  If this is the case, it is absolutely necessary for the buyer to reconsider their position and work to improve – quickly.

Most purchasers make the same common mistakes in the supplier relationship chain.  Fortunately, these are easy to fix.

Related: The 4 Common Mistakes in Supplier Relationship Management

Exploitable quadrant – Bottom right

This means there is high value in what the buyer will buy but not much else.  There may be excellent purchases but only for a few sales or a one-time deal.

The supplier will agree to this short term deal.

Here is a potential scenario: The purchaser’s original supplier has a catastrophic accident and will need a few months to recover.  The purchaser chooses a replacement supplier for a temporary order with the expressed understanding of returning to the original supplier when they are back and ready.

It is common for the supplier to quote exceptional prices specifically to exploit the purchaser.  The reasoning of the supplier is sound.  “Why would I invest my time, effort and resources into a one shot deal?  I am going to make what I can out of this and return to my usual customer base.”

It is vital the purchaser choose wisely for risk management and being overly exploited.

It is very easy to be exploited when you are in a hurry to order products.  There are certain methods for supplier pricing, and it is a good idea to understand them if you need products quickly.

Related: 4 Methods of Supplier Pricing – A Comprehensive Overview

Purchaser’s common perception mistakes

It is common for the buyer to say – Do I know how the supplier looks at me in this relationship?

Now that you see things from the supplier’s perspective, it is common for the procurement team to be viewed in a different way.  Expect suppliers to approach individual purchasers with different strategies depending on their quadrant in the matrix.

The entire Sourcing Nova team has spent years and considerable capital on extensive and in-depth conversations with many manufacturing companies after years of in the procurement industry.

We have established ourselves with those manufacturers.  They have classified our customers accordingly and consider what are the optimal strategies with limited resources and time for the customer who has the potential for maximum value and benefit back to the manufacturer.

Let us explain in detail.  Before we do, if you have not considered what to look for in a product sourcing agent, Sourcing Nova has the information you need.

Related: Everything you need to know about a sourcing agent

Supplier Perception Example: How does a manufacturer determine costs for its customers?

We will start with an ideal situation, removing any extraneous factors.  A supplier has a product cost of $10.00.  The sales staff have four quotes available for customers: $10.00, $12.00, $15.00 and $20.00.

What prices will the manufacturer offer to a certain buyer?  The answer: It depends on where the customer lands on the matrix.

• • $10.00 for Develop customers –The manufacturer is banking on future development and other factors. The manufacturer may make no money or even take a loss. In this particular quadrant of the matrix, the goal is to attract the customer into placing additional orders and building a business relationship. The supplier will then raise prices on the products after a successful relationship is established. The buyer will often accept the prices in the face of starting over completely with a new supplier.This is very common in the business world.
    Consider: Grocery stores have weekly ads for the same reason. The goal is to bring customers into the store with the ads but have them stay for other groceries. There is a loss on the ad but recouped in other parts of the store.

• • $15.00 for Core customers – Core customers have an agreement with manufacturers. There is the expectation the manufacturer will invest considerable factors into production, have profits to support based on management input and sales returns, have future development and interests in mind at all times.This may mean a supplier has to purchase more and advanced equipment (such as from Germany and Japan), have a need for more detailed inspections, hire more experienced labor, raw materials with considerably higher standards to include procurement pricing and waste during production and inspection requirements insisting on little to no flaws.

• • $20.00 for Exploitable customers – The manufacturer recognizes there are little to no development prospects or chances for a continued relationship. The manufacturer wants to turn as much profit as possible when the order is placed.

• $12.00 for Nuisance customers – This is the last entry because this is the least desirable customer. There is no potential with these customers. The orders are normally something common and familiar. The customer does not have significant resources nor wants to expend more than is necessary.There is value to a nuisance customer, however. The factory is able to continue regular operations, make salaries and stay viable against competition.

This should give a solid example of the supplier’s perspective. Looking across the matrix, you begin to see how the procurement party is approached by the manufacturer. It also shows how a supplier will deal with different categories of purchasers.

Strategies for buyers to move from undesireable to desireable quadrants

Based on where they may fall on the vendor-perception matrix, the purchaser has a few options in the supplier management chain.

Coping strategy for small and growing companies

It can be a difficult thing to find any manufacturers with an interest in working with any small or even medium-sized businesses. It makes good sense from the manufacturer point of view: the buyer has limited budget, uncertain future, no real idea on purchase quantity and power and potential cooperation past the first order.

Think about the supplier’s side.  They have to take a risk with a new customer, may not have tools and molds for a product that may change.  This is an investment that the supplier makes and will often lead to an increasing price.

Time and cost are vital to a new company.  Missing out on a new product can be devastating, so it is absolute to find a supplier who will support, cooperate and invest.  This cannot be overlooked or negotiated in any way.

The vendor perceived model analysis may be the solution.

Helpful tip: The better suppliers of Chinese products are often not widely known, but a good sourcing agency can find them easily.

Situation Analysis

A small and medium-sized business cannot form scale when approaching from a business value view.  There is very little value for large suppliers, the understandable information is limited and the product holds little interest for the supplier.  The purchaser is very low on the list for the supplier.  This particular buyer will position itself in the Nuisance quadrant.

It does not matter if the buyer has strong negotiation skills – there is a ceiling with their success with the supplier.  The buyer will never have full support and cooperation with the supplier.  A new buyer will also have considerable difficulty working with top Chinese manufacturers.  There is no depth of value in small buyers and do not have time to wait for a small buyer to achieve great results.

Find the right path with laser-precise positioning

Changing purchase categories and amounts are not easy for a short term deal.  For that, it is necessary to appear more attractive to the buyer and attempt to move them from the Nusiance quadrant into the Develop quadrant.

This is how small and medium-sized enterprises make their way into the same business ventures as larger businesses.

Develop a targeted strategy

Find your path to move from “How can I find a supplier to support me and my business?” to “How can I convince a supplier I am not a nuisance but a developer?”

Basically, how can you, the buyer, become more attractive to a supplier you want to work with in a business venture?

There are a few things you can do:

• Strategic consistencey
• Be the best customer you can be (Pay on time)
• Be on the cutting edge of the industry and production

Establish yourself in these, and strategies will come from there.  Strategies like:

1. Strategy – Suppliers as investors
   We mentioned above on how you should consider your supplier as a venture capitalist.  Many companies getting started look to and put investors who agree with their company philosophy, objectives and profit models into positions of high regard.  Suppliers are rarely given this same treatment.
   Tip: If you are serious about a supplier and want your business to be successful and give you support at the outset, you need to provide a chance for the supplier to be a part of your overall vision. It is also important to share expectations – the goal is to have the supplier see the entirety of the buyer’s vision. Doing so creates positive behaviors and opens better venues of cooperation.

    

   If you think you can get away with treating your Chinese supplier poorly, you may want to rethink that position.  It is a good way to be blacklisted across the entire industry.

    

   Related: China’s manufacturing industry is largely divided into clusters.  These clusters mean everything from raw materials to shipping is contained closely.  A good example is the Chinese knife industry.

    

2. Be the customer you want the business to have
   It is important to remember to have the supplier on the same level as the buyer.  Many who are sourcing products from China adopt, “I am spending the money here, and this means you do what I say.”A business just getting started is in no position to make such demands.  Doing so will only alienate the supplier and push them away.  Remember – Chinese manufacturers are often tightly knit.The procurement party does not have the credit built with the manufacturer to afford making demands.  Treat the supplier fairly and equally.  Be clear with all communication.  Let professionalism work.    This way, even with small purchases, the supplier will be willing to step back, listen and accept some compromise now and certainly into the future. 

   Basically, check the ego at the door when starting out.  Always be thinking down the line.  The supplier you have today can help you make good money later, and this will be a two way street.

    

Exploitable customer strategy

The next sourcing type are those customers who fall into the exploitable quadrant of the matrix.

Here is a common scenario: The business is well established in their specific industry.  Direct competition has new product designs or entered new fields, but the original business maintains its position within the industry.

Suppliers and their buyers are also engrained with one another.  They have worked together for some time and are comfortable with their relationship.  Problems emerge: competition is increasing and profit margins are decreasing.  It is time to review the source and supply chain, open sources and save costs where possible.

Situation Analysis

Reviewing the procurement cost analysis, the buyer realizes vital information.  They have long cooperation, relatively large purchase volume but lack advantage in sourcing costs.  This directly affects product cost and could be quickly overtaken with competition’s products.

Find the right path with laser-precise positioning

Looking at the relationship via the vendor perception model, the value of the buyer’s business is high, and there is a successful relationship history with the supplier.  Looking at the appeal of the buyer, it is lower than other, similar customers of the manufacturer.

The reason: multi-brand and multi-niche buyers communicate with the supplier, and look into new directions and fields for products.

Return to the exploitable quadrant customer.  There is no advantage in working with them from the point of view of the supplier.  The supplier has its core customer base.  There is no need for the supplier to stretch themselves for the benefit of a customer interested in one or two orders.

Looking at the Supplier Preferencing matrix, a customer in the Exploitable quadrant needs to break into the Develop or Core quadrants through attraction.

Develop targeted strategies

Find your path to move from “How can I reduce sourcing costs?” to “How can I convince suppliers of the company’s future and vision, thus ensuring better pricing and resources for my products?”

1. Strategy – Mutual trust
   Buyers and suppliers are not on the same page when it comes to exploitable customers. There is no long term relationship or familiarity of trust that the work be done well. The purchaser has not asked the supplier to take any initiative to improve the optimization of the products.
   There is no depth of communication and as such, there is no degree of trust. Looking at this through the Vuca ERA, the development strategy and focus of the procurement needs adjustment.Start with a clear and open communication mechanism. Ensure both parties have consistency within the core strategies – the goal of long-term support.
2. Find potential partnership space
   No matter what the outcome of the relationship, the buyer should be aware of the development potential of the supplier and look into other directions where a relationship can be fostered. This means looking over and above the base relationship of sourcing. It means looking at the opportunity for new business niches, thus giving the supplier a chance at more and better prospects.
3. Replace the supplier
   The original supplier cannot meet the resources and prices. Communication is still lacking and stalling. It may be time to look into other suppliers within the industry nice and start relationships as a road to becoming a core partner with these suppliers.
4. Re-examine the personal strategy
   You should not be seen as an exploitable quadrant customer by many different suppliers. If you are, it is time to step back and re-examine your sourcing. What is the issue at hand? Is it:The direction is not parallel to the supplier
   or
   There is conflict within the directionHere is an example: The purchaser has a product close to its terminal use. The product is about to be eliminated or is eliminated. Management needs to re-evaluate the direction so the strategy will advance and advance quickly.

Final thoughts

As we said previously, Sourcing Nova is looking for the buyer in the Develop quadrant.  We want to work with those businesses who are looking to establish themselves in a niche with products made from the same OEM and ODM manufacturers and suppliers as top brands across the world.

Ready to get started?  Contact Sourcing Nova today.