A member in a recent Chief Executive Boards International meeting was wrestling with a tough question. "I have a good supplier, but someone else has proposed a cost savings. How much savings would make it worth the change?"
Another member really simplified the question. He said, "I use a 20% rule. If a new supplier doesn't come in the door at 20% under an incumbent, I don't even waste the time. New suppliers are a big risk, and there are always unanticipated switching costs. If I don't think I'm going to save at least 20%, I don't look any further."
"Even then", he added, "it's not automatic, even if they present a substantial savings. We've learned over time that switching suppliers for cost savings has lots of unintended consequences. It has to be really serious money for us to make a switch."
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Terry Weaver
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.comhttp://www.chiefexecutiveboards.com/
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