Idea in Brief
The Problem
The balance of power in an industry can dramatically shift from buyers to suppliers.
The Challenge
Companies that have gotten into a weak position with suppliers need to strategically redefine the relationship, tackling the problem as an enterprisewide challenge.
The Solution
Four approaches:
- Bring new value to the supplier.
- Change how you buy.
- Create a new supplier.
- Play hardball.
In many industries the balance of power has dramatically shifted from buyers to suppliers. A classic example comes from the railway industry. In 1900 North America had 35 suppliers of cast rail wheels; railway builders could pick and choose among them. A century later no one looking to build a railroad had this luxury, as only two suppliers remained. Today there is just one, which means that railroad builders have no choice but to accept the supplier’s price.
A version of this article appeared in the July–August 2015 issue (pp.90–96) of Harvard Business Review.
