Customers are adding suppliers because incumbent suppliers failed them

Symptom: Customers are taking on more suppliers.

Implications for the market:

• A customer's large suppliers effectively invite in other suppliers when they do not fulfill all of the customer's relationship needs, such as feature choices, product availability, reliability of delivery, fast order cycle time, or competitive price.

• Customers allot to their new suppliers some of the volume previously allotted to their larger suppliers. The result can be an important shift in market share and relative power.

  • The change can be long-lasting. Once a customer picks up a new supplier to protect against failure, the other suppliers often have a permanently lower share with that customer.

  • New suppliers can use their toehold to grow. Once in the relationship, companies entering in lower positions in the customer relationship have the opportunity to increase their share at the expense of the larger suppliers either by overperforming on benefits or by continuing to capitalize on the failure of the large suppliers.

• This turn of events is either a threat or an opportunity, depending on a supplier's position and viewpoint.

  • New suppliers have the opportunity to gain significant volume, and even to target the primary supplier role.

  • Incumbent suppliers, in turn, risk losing substantial volume. The role of primary supplier is especially important to protect because it ensures the largest part of the customer's volume. And a company must fill this primary role with many of its customers in order to be a significant player in the marketplace.