Value-based Differentiation In Business Relationships: Gaining And Sustaining Key Supplier Status [article]

Wolfgang Ulaga & Andreas Eggert Value-Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status Many business customers today consolidate their supply bases and implement preferred supplier programs. Consequently, vendors increasingly face the alternative of either gaining a key supplier status with their customers or being pushed into the role of a backup supplier. As product and price become less important differentiators, suppliers of routinely purchased products search for new ways to differentiate themselves in a buyer–seller relationship. This research investigates avenues for differentiation through value creation in business-to-business relationships. The results suggest that relationship benefits display a stronger potential for differentiation in key supplier relationships than cost considerations. The authors identify service support and personal interaction as core differentiators, followed by a supplier’s know-how and its ability to improve a customer’s time to market. Product quality and delivery performance, along with acquisition costs and operation costs, display a moderate potential to help a firm gain and maintain key supplier status. Finally, price shows the weakest potential for differentiation. end of 2003, Sony Corporation announced Transformation 60, a global program intended to boost operating profit margins from 4% to 10% over a period of three years. In a strong move of reforms, the group planned, among other measures, to reduce the number of suppliers for components and raw material from 4700 to 1000. Over the same period, the number of registered parts was to be reduced from 840,000 in 2003 to 100,000 to achieve cost reductions and quality improvements. Such a profound shift in the management of buyer– seller relationships raises several challenges for customers and suppliers alike. From a customer perspective, firms need to differentiate among qualified suppliers and identify vendors that will form their consolidated supply base. This is particularly relevant for key components, for which single sourcing or multiple single sourcing tend to become the norm rather than the exception. Consequently, customers rely on performance evaluation tools and vendor development programs to strengthen their ties with preferred suppliers. In turn, with growing supply base consolidation, many suppliers are challenged to move into a main supplier position and to defend this top spot against competitors. In short, vendors face the alternative of either gaining key supplier status with their customers or being pushed into the role of a backup supplier, capturing only a small share of a customer’s business. This