When key suppliers have too much power over you

And they decide your margins

Do you recognize this situation?

• You depend on 1-2 suppliers for critical components/products
• They've started gradually raising prices
• If you try to negotiate, they threaten to stop supplies
• You can't switch because you're "locked-in" (processes, certifications, dependencies)
• Your margins thin while they decide how much you earn

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The prison of supplier dependency

At first it was convenient.

A reliable supplier, good products, established relationship.
You didn't have to look for alternatives, manage complexity.

But over the years the relationship has become asymmetric:

• They know you depend on them
• You don't have easy alternatives
• They raise prices, you must accept
• They dictate terms, you submit

And your margins depend on their decisions, not yours.

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What happens when a supplier has too much power

On the economic front:

• Margins compressed by unilateral increases
• Impossible to plan because prices are unpredictable
• Competitors with better supply chain steal your customers
• Profitability at the mercy of others' decisions

On the operational front:

• Supply delays that block production
• Quality drops but you can't complain too much
• Low priority: "If you don't like it, find another"
• Must keep high stock to cover uncertainties (blocked capital)

On the strategic front:

• Impossible to diversify offer (you're tied to their range)
• Can't innovate without their consent
• Growth blocked: "We only supply up to X units"
• Vulnerable to their crisis/strategy changes

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Why it happens

You haven't done strategic supply chain management.

You chose the supplier for convenience, initial price, relationship.
But you haven't built credible alternatives.

And when you become a big customer for them (but small relative to the market), they know you can't leave easily:

• You have processes optimized on their products
• You have certifications that include their components
• You have clients who know/approve that supply
• Switching would require months and investments

They know it.
And they use this leverage.

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The (wrong) path many try

Apparent solution: Negotiate hard to lower prices

But if you don't have credible alternatives, you have no negotiating leverage.
The supplier knows you're bluffing.
And can afford to say "take it or leave it".

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The 5-step method:

1. Multi-sourcing even at higher cost
   → Always have at least 2 suppliers for critical components
   → Even if the second costs more, it's insurance
   → Cost of diversification < cost of dependency
2. Product standardization where possible
   → Reduce customizations that bind you
   → Interchangeable components, not proprietary
   → Design for supply chain flexibility
3. Selective vertical integration
   → What can you internalize?
   → Not everything, but critical components maybe yes
   → Evaluate cost/benefit
4. Long contracts with price caps
   → Not year by year
   → But multi-year with protection clauses
   → You give up flexibility, gain predictability
5. Supply chain visibility and planning
   → Monitor suppliers' financial health
   → Anticipate risks
   → Plan B always ready

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What changes after

You're no longer a hostage.

You have negotiating leverage because you have alternatives.
Margins return under your control.
You can grow without asking permission from the supplier.

And above all, you sleep soundly:
if tomorrow a supplier goes into crisis, you don't go into crisis too.