Keep Your Suppliers Eager With a 70/30 Split

To keep your suppliers on their toes, try this smart tip I learned from the Group Purchasing Manager of Asia Pacific Breweries.

Whenever he contracts to purchase items from more than one supplier, he gives one vendor 70% of the total purchase, while a second vendor gets 30%. And he tells them both exactly what he is doing.

Why this unequal split? And why tell the two suppliers about it? Here’s why:

If the first vendor does a good job, she knows she is keeping well over half the total purchase volume. But if she does a poor job, she knows she stands to lose more than half of what she is currently supplying.

On the other hand, if the second vendor does a great job, he knows he could more than double his orders if he takes over from the first vendor. However, if he does a poor job, he knows he is dispensable as he supplies less than half the company’s required volume.

This is an interesting technique for motivating supplier partners that smart purchasing managers understand. Now you know about it, too.


Key Learning Point