Paul Ericksen of Industry Week has been writing about supply chain issues for many years. His most recent article “Supplier Goodwill toward OEMs Has Run Dry” caught my attention. The title is clearly meant to be provocative even though Paul says in his article that he is not “anti-OEM.” The article itself identifies several key business realities for suppliers, including ways that they can manage their OEM relationships.
As Paul accurately points out, for most suppliers the OEM relationship is based on leverage. If you sell a commodity you have less leverage than if you are a sole source. Further, Paul suggests that suppliers diversify their OEM relationships – certainly accurate – although not as easy to accomplish.
Paul suggests that suppliers impose 30 day payment terms, which clearly recognizes how critical having cash on hand is for manufacturers. Paul also points out something we have been talking to our clients about for years, namely, how to keep some of the revenue that comes from cost reductions. Too many suppliers sign contracts without recognizing that they can negotiate that issue.
Overall, Paul’s article is a good read for both suppliers and OEMs.