Supplier Becomes Competitor

Issue:
A local supplier of diode array boards decided to compete with one of its biggest customers. The customer felt that it was very important to cut the supplier in order to remain the industry leader. The boards were necessary and sole sourced, so the customer had no choice but to seek new suppliers. The boards were made in two sizes with the same price and volume.

Action:
Company officials asked that an out-of-state affiliate be given priority as a new source. Test information and part specifications were incomplete and outdated. After much research, the necessary documents were revised and submitted to the affiliate. Since this particular partner was only a suggestion and not a necessity, strategic sourcing revealed three additional qualified board suppliers. Due diligence and sample testing produced additional technical specifications, options, and helped lower the cost.

The customer approved an out-of-state original equipment manufacturer (OEM). Two more sources were soon approved. All boards were interchangeable and of improved quality. Fierce bidding among suppliers continued one year after acceptance of the first alternate.

Results:

• $246,000 (53%) annual savings for the smaller boards.
• $246,000 (53%) annual savings for the larger boards.
• Revenues of the original supplier/competitor were cut by nearly $1 million a year.