Operations management and protecting suppliers

I taught Operations Management for a number of years. One of the hardest concepts for me to get across to my students was that of protecting one’s supply line. Many students flatly rejected it.  

For example, let’s say you work for Mr. Big.  It is well known that one of your suppliers makes the finest widget in the world in his garage.  It is also a key piece of the main product Mr. Big produces.  One approach might be to negotiate the lowest possible price for the widget. Encourage the maker to expand his operations. Have him go in debt…then demand he lower the price. He will have no choice but to do so. Then, fall behind in payments. The next move is to agree to pay 75% of the amount owed if the rest is waived. Of course this drives your supplier into bankruptcy. But you have the option moving onto the maker of the second best widget. Yes, it does lower the quality of your product, but it lowers production costs.

I, and many others, hold that if a small supplier is making is quality part critical to making my product, it is in the best long term interest of my organization to help him stay open and to continue to produce that product.

As a homesteader, I find myself having to make similar decisions.  While I will not roll over and be taken advantage of, I do often make the decision to purchase at my small town hardware store rather than buy on the net or wait for my next trip to the big city.  It is in my long term best interest to keep that little hardware store open….even if I pay a few Pennie’s more.