What if the supplier is a large, successful corporation with multiple customers, and therefore able to make a choice whether to ‘pay’ or not? Is pay to play acceptable provided that all parties have balanced power between them? Perhaps, but this is not straightforward either. The risk of negative publicity still remains, so there needs to be a clear strategy should the supplier just say ‘no’ and refuse to play. If that area of supply is critical, then the only option is to find an alternative or be faced with having to back down and lose credibility in doing so. Even if the supplier offers to ‘pay’, imposing a pay to play initiative will inevitably damage the relationship and erode trust, a factor that must be considered if the relationship is important for the future. This suggests that a detailed risk analysis should be conducted prior to launching any pay to play initiative. Even if we plan and consider our approach carefully, there is still no certainty that pay to play will deliver a successful outcome. In my experience, what tends to happen is that a few suppliers, who either see themselves in a vulnerable position or know they have enjoyed good margins, will ‘pay up’, seeing the scheme as a means to secure their position. Others may hold firm, watching to see what the rest do, especially if they feel that ‘paying up’ would be unsustainable. Some will counter and offer something less than what has been demanded and the remainder will make a positive stand and decline to participate, being prepared to risk losing the account. Interestingly, many companies that run such initiatives are unprepared for the lack of positive response and the initiative often just fades out as, ultimately, companies need quality suppliers. Read more about dealing with suppliers:
Pay to play schemes don’t tend to deliver the benefit across the board that they claim to be seeking, and enforcing the threat is usually unworkable. However, they do seem to work well to identify those suppliers who have something to give and are prepared to invest in maintaining their relationship, so they do deliver some short-term margin benefits. Businesses must be aware that this comes at a price and certainly introduces risk, as well as inevitably weakening relationships. The bottom line is that any company contemplating a pay to play scheme must be very confident of their position and carefully consider who should or should not be targeted and evaluate the consequential risk such a scheme could create. Most importantly, there should always be a plan B or at least an elegant way out. And remember—you can really only do it once! Jonathan O’Brien is CEO of Positive Purchasing.
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