| Preferred suppliers are often seen as the main | | | | 3. Type of relationship. Often the goods and services |
| sources of goods and services that your organisation | | | | supplied by preferred suppliers fall into the tactical |
| buys and have been sanctioned by Procurement. | | | | profit or tactical acquisition quadrants of your supply |
| There is usually a contract in place which has been | | | | positioning matrix (in other words low risk items). |
| exchanged for some concession (such as lower | | | | Your strategy here is to buy efficiently and let |
| prices or volume discounts) and which has been let | | | | market competition drive prices to a minimum level. |
| through a formal tendering process. It does not, | | | | The type of relationship this calls for is an |
| however, mean that these suppliers are to be used | | | | arms-length one. Interaction tends to be an annual |
| exclusively or given any preferential treatment such | | | | negotiation or quality audit with little or no other |
| as being given the first opportunity to bid for future | | | | involvement from your organisation. |
| work. So, how do you recognise a preferred supplier? | | | | 4. Cost requirements. There is usually little or no cost |
| Here are six characteristics to look out for. | | | | transparency with these suppliers. You might |
| 1. Selection criteria. These suppliers tend to provide | | | | occasionally ask for information on fixed and variable |
| the every day, run of the mill items that keep your | | | | costs to allow you to benchmark cost and prices. |
| business going. They provide no strategic benefit and | | | | Otherwise your cost are minimised by achieving |
| usually there are many willing and able suppliers in the | | | | lowest price through the tendering process and |
| market place and switching costs tend to be low. | | | | occasional negotiation. |
| They are usually selected on the basis of lowest cost | | | | 5. Information exchange. The nature of the |
| (other factors such as quality, service and delivery | | | | relationship and the low significance of the goods or |
| times being equal). | | | | services to your organisation (they are non-critical but |
| 2. Role of supplier. The role of an approved supplier is | | | | necessary business expense type items) means that |
| to supply goods and services that you cannot | | | | little or no information is exchanged with them. |
| provide in-house. This could be because you do not | | | | 6. Number of suppliers. The need to use competition |
| have the capability or because it is not part of your | | | | to drive prices to the industry optimum means that |
| core business. It is cheaper and less complex to | | | | the number of suppliers available to you is usually high |
| source them externally. | | | | and stable. |