Saturday, September 10, 2011

The High Cost Of Loyalty - Supply-Side Risk

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In very uncertain economic times, prudent business and project planners and managers must often sacrifice loyalty to a particular "preferred" or "sole" provider or supplier, in the interest of "hedging" his or her company's or clients' exposure to the growing risks of: supplier bankruptcies; shortages; increasingly aggressive collection policies and tougher credit terms (i.e., for smaller businesses with greater cash flow challenges); or uncontrollably spiraling costs coupled with declining service (i.e., where vendors are very powerful regional monopolies with large, captive user bases and no fear of immediate regulatory intervention or sanction -- example: look at your cable bills, cellular telephone bills, bank and credit card charges, logistics and other "critical path and organizational survival" bills laden with unexplained increases, new fees and other pickpocketing).

Dependable sources of supplies and services are growing increasingly difficult to find as your favored resources either choke (the 'little guys') or become uncontrollably gluttonous (the 'big guys'). You are obligated to constantly research and cultivate relationships with other potential vendors even if you, and your company are major proponents of loyalty and long-term relationships. It is an ethical dilemma when every dependency must become the target of scrutiny, re-auditioning (evaluation) or of constant re-negotiating.

It's equally ironic that your need to diversify vendors in order to mitigate supply-side risk is directly in opposition to your own goals of establishing customer and client loyalty.

The current economic environment and its anticipated continuation or worsening is discouraging a policy of B2B brand loyalty while it is encouraging the creation of a spate of business-to-retail-consumer "loyalty rewards" and other customer-retention programs.

In summary: Your two new objectives are to: 1) constantly seek to mitigate your risk with respect to any source of supply ( hedge your"supply-side" or "supply-chain" exposure), while simultaneously 2) innovating and investing in promoting brand loyalty amongst your company's and client's customers.

While it seems hypocritical at first glance, the above objectives are actually integrally basic business practices:
  • maximizing revenues;
  • minimizing expenses;
  • reducing or containing risk by diversifying revenue sources and sources of supply.
As a great U.S. Statesman once said..."Trust, but verify." Taking risks is an integral part of business -- but those risks should be identified, mitigated and contained to the greatest extent possible.

Be brave. Be bold. Be Prepared.

Douglas E Castle

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