Customers exercising buying power in weak economy

The deflationary economy is giving customers stronger buying power, with organisations choosing to renegotiate contracts with suppliers every six months instead of entering long-term agreements, according to new research.

A survey of 100 procurement directors from European companies by purchasing software firm Ariba found 81 per cent review terms every six months instead of three to five years.

And while cost is in important driver for this trend, it is not just about squeezing the most out of struggling suppliers. The survey found that 73 per cent of respondents based contract renegotiations on the overall quality of service and not price.

Cleone Robst, head of UK marketing for Ariba, said: "That needs to be factored in. The buyer is in more control. Now the suppliers are the ones keeping quiet and it is for the buyer to drive that renegotiation."

She said the overall trend reflects the changing way both businesses and consumers buy products and services nowadays, with people prepared to switch energy supplier or mortgage firm more regularly if it means getting a better deal.

Robst cited the example of one of Ariba's customers British Airways where it had selected a supplier for light bulbs in business class seating purely on price. When the airline had gone back and reviewed the decision it found the bulbs were the cheapest per unit but were failing more regularly, leading to seats having to be repeatedly taken apart to replace them.

The survey also found that monitoring supplier performance is becoming increasingly complicated, with 53 per cent of respondents saying professional services are the hardest to procure and manage, resulting in rogue spending and a lack of savings.