Such programs are often highlighted by awards dinners along with naming certified suppliers or “suppliers of the year.” While employees tend to highly value this type of formal recognition, I’m not sure that all suppliers do.

Many suppliers are primarily motivated by purchase orders. While they may enjoy being “wined and dined,” what suppliers really prefer from their customers as reward for superior performance is additional business.

One thing which is not often found in a supplier recognition program is guidelines for increasing a supplier’s portion of the business for superior performance. There is usually a general intent; unfortunately, that intent does not always translate into increased business.

On the contrary, there are many horror stories about suppliers that, having been recognized for outstanding performance, have their business reduced shortly after!

Some might think this is improbable since that would be the antithesis of what’s needed to motivate a supply chain to perform at the highest levels. Let me relate a couple examples and then ask yourself if you know of any company who has ever acted this way.

An acquaintance once worked for a multinational company with several manufacturing divisions. One of their suppliers jumped on the bandwagon of this company’s supplier continuous improvement program. At significant cost, over a short period of time, they improved their performance to the point of being recognized as Supplier of the Year simultaneously by multiple divisions, which had never previously happened.

Within a year, one of their customers’ divisions resourced most of their business to another supplier. This was not due to poor performance or a lack of price competitiveness. In fact, as their award signified, no other supplier in their commodity—domestic or foreign—could compete with them based on performance.

The reason turned out to be that all divisions were under a corporate mandate to annually source a certain dollar amount of their business to low-cost country suppliers, and the path of least resistance for this division to meet their mandated number was to resource overseas business from their recently recognized Supplier of the Year.

The result was that while prices mostly stayed the same, this large multinational company incurred significant unexpected costs (both direct and indirect) due to lengthening their supply chain from a couple hundred miles to over 6,000 miles! The Supplier of the Year recipient suffered for a long period after losing a significant part of their business.

A second acquaintance worked for a company with a similar Supplier of the Year recognition award process. Historically, in a commodity important to this company’s product, a single supplier had a dominant share of their business.

Competitors were reluctant to enter their domain because of the significant capital investment required. A previously minor supplier, at the urging of this customer, took up the challenge to upgrade their performance, at significant expense, such that they could contest the dominant supplier’s position.

As their performance soared, this previous minor supplier was rewarded with an increasing slice of their customers’ business. In fact, after a few years, their efforts culminated in them being named Supplier of the Year. At the awards dinner their representatives were able to sit at the same table as their customer’s president and senior vice president.

While this was all happening, behind the scenes, the former dominant supplier could see their business eroding and decided to act.

Shortly after the awards dinner, the former dominant supplier submitted a low-ball quote for their competitor’s portion of the business. The strategy worked, with the joint customer unable to resist the pricing windfall. No more than one week after being named Supplier of the Year, they were notified of losing the bulk of their business.

Two things happened as a result. After expending large sums of resources, at the urging of this customer, the recently named Supplier of the Year was left “holding the bag.” They could not offset the significant loss of business and eventually shut down their operations, adversely affecting a lot of workers and secondary suppliers. This also eliminated a valuable secondary resource for the customer.

The low-ball quote returned the other supplier to their position as the dominant supplier in their commodity. They have not been seriously threatened since. With their major competitor shutting down, they’ve been able to make up for any short-term loss by buying back their business through increased pricing!

You might think that examples like these are the exception, but they are not. The incentives for the suppliers’ customers taking actions like these are almost always the same. It’s either a windfall financial gain or one needed to satisfy some tangential metric that was never meant to result in the inevitable repercussion.

It only makes good business sense for suppliers’ customers to provide for potential growth through recognition for superior performance. This strengthens a win-win relationship. The customer (purchaser) receives higher quality, shorter cycle times, and lower costs. The supplier is motivated to provide high-value products at an acceptable profit. They are also motivated to build customer loyalty and create a close-knit relationship to secure a long-term business strategy that works for both entities. A winning combination!