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Alliance on the Rocks: How to End a Supplier Relationship

ISM's 93rd Annual International Supply Management Conference

St. Louis, MO
May 2008


Lorrie Mitchell, C.P.M., A.P.P., Partner, Mitchell Enterprises

Would you know when the time was right to terminate a supplier relationship? Even if you did, would you know how to end it, and then seamlessly transition to another supplier? Workshop presenter Lorrie Mitchell, C.P.M., A.P.P., partner at Mitchell Enterprises, recognizes these as two of the most difficult situations facing supply management professionals today.

To help them navigate these challenges, Mitchell showed attendees why establishing the relationship in the first place is a good idea, reasons why it might deteriorate, determining alternatives in these instances, protecting themselves, dealing with "hostile breakups" and more.

"I think we don't want to think about ending a supplier relationship, but we've got to," Mitchell told attendees. "That's why we're here today."

As Mitchell points out, supplier relationships do not always end because someone did something wrong; instead, the breakup could be due to an organization changing its focus, a supplier not being able to accommodate an organization's needs, and an organization shifting its overall focus, resulting in changing needs. But it is another scenario — when a supplier relationship is "just not working" — that causes the most anxiety for supply management professionals, Mitchell said.

So, what goes wrong? According to Mitchell, common culprits are communication breakdown, broken trust, personnel changes (i.e., your point-of-contact changes), the suppliers' urge toward continuous improvement wanes or they start "nickel-and-diming," and deliverables start declining.

If the pros outweigh the cons when determining whether or not to stay with a supplier, supply management professionals must develop a plan of action for them and their supplier, identify concerns and steps both sides can make toward improvement, define goals and assign dates and benchmarks for their completion, and develop performance measurements both sides can agree on.

For situations in which a change is in order, issuing solicitation — usually by RFP — is the first step. Documenting your needs and specifications follows, and then finding out if the supplier is qualified and capable of meeting them. Mitchell said the final decision should be based on total cost of ownership (TCO), no matter how many other criteria are met. "Just because a relationship is bad doesn't mean you should pay any price to move on," she advised.

Mitchell also offered points to consider if the supplier relationship cessation could be hostile and legal, confidentiality and intellectual property issues — what to do when a breakup is inevitable or a contract is in place for years to come, for example.

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