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The most valuable suppliers often become the hardest to replace. 

That is not necessarily a failure. 

Expanding a business means relying on other companies. Software gets connected to workflows. Components get designed into products. Suppliers accumulate knowledge, data, access and responsibilities. Projects move through stages that make earlier choices harder to undo. 

Trying to avoid these dependencies would make growth almost impossible. 

But supplier relationships change. The company that had five credible alternatives when it signed a contract may discover, several years later, that none of them is particularly easy to use. Dependence becomes a problem when the balance of power shifts without anyone noticing.

The supplier learns. The customer unlearns. 

IT outsourcing provides a good example. 

At the beginning, the customer usually understands the work reasonably well. It knows its systems and processes. It can evaluate the supplier because it knows what good looks like. Then the supplier starts doing the work.

Five years later, the systems are more complicated. The supplier has solved hundreds of small problems and accumulated knowledge about how everything fits together. 

Inside the customer, the opposite may have happened. People have moved on. Documentation is incomplete. Nobody has actually performed some of the work for years. 

The supplier has learned. The customer has unlearned.

Changing supplier now requires more than finding another company with similar capabilities. The customer needs enough knowledge to specify what it wants, judge the alternatives and manage the transition. Can part of the work be brought back inside? Can another specialist take over one activity while the existing provider continues with the rest? Will the provider help manage that transition?

Or are they the jealous type? 

That is partly something to put in a contract. It is also something to look for when selecting a partner. 

Projects have another problem 

Edward Merrow has spent decades studying major projects. His research pays particular attention to contracting strategy, incentives, responsibility and the stages through which projects move. Those stages can be useful moments to stop and reassess.

Design leads to procurement. Procurement leads to construction. Keeping the same parties involved can preserve knowledge, but somebody still needs to decide whether one stage is sufficiently complete to begin the next. 

In one property project, the building manager also managed the tenant and became involved in managing a renovation. 

There was one complication: the tenant wasn’t leaving.

Somehow, this rather important fact had not stopped the project from moving forward. Nobody needs to behave badly for this to happen. 

A service provider has an interest in doing useful work for its customer. It also has an interest in continuing to have work. Those interests usually coexist perfectly well. But sometimes, they don’t. An independent architect or project manager can help precisely because they stand somewhere else in the picture. They can retain knowledge of the whole project while still asking whether the next step makes sense.

Sometimes the answer to supplier dependence is therefore not another supplier doing the same thing, but it is another pair of eyes.

Sometimes the dependence is built in 

Manufacturing provides a more literal example. 

A machine builder selects a pneumatic component and designs the machine around its dimensions. Years later, the component manufacturer changes those dimensions by a few millimetres. The old component remains available, but perhaps at an increasing premium. The machine builder can switch brand. It just has to redesign part of the machine first.

There may be no clever contractual solution to this. Redesigning a successful machine every few years merely to maintain bargaining power could cost considerably more than paying the premium. 

Sometimes dependence simply has to be recognised and managed. 

There isn’t one answer 

Purchasing researchers have been studying power and dependence between customers and suppliers for decades. The work associated with Kraljic and developed further by researchers including Arjan van Weele provides ways of thinking about precisely these differences. 

Not every supplier relationship needs the same response:

Sometimes two suppliers are better than one. Sometimes an independent party should oversee an integrated provider. Sometimes the work should be modular, so individual parts can move between internal teams and external providers without rebuilding everything around them. And sometimes the dependency is worth accepting. 

Contracts matter. Exit clauses matter. Specifications matter. But none of them freezes a relationship in time. Suppliers accumulate knowledge. Companies lose knowledge. Software becomes integrated. Projects move into new stages. Components become part of designs. 

So the more useful questions are dynamic ones. 

• What has become difficult to replace? 
• Where does important knowledge now sit? 
• Can we still change one part without changing everything? 
• And who is looking across the whole arrangement rather than only at their part of it? 

The aim is not maximum independence. Nor is it maximum fragmentation. 

Good suppliers should be allowed to become important. The mistake is becoming dependent without noticing.