Customer-supplier relationship: can an unprofitable supplier be a good supplier?

settembre 16, 2026

Can a customer-supplier relationship truly be sustainable in the long term if one party is no longer able to generate an adequate margin? In the industrial world, we measure almost everything.

Price, quality, punctuality, response times, non-compliance , production capacity and competitiveness.

But there's a question we ask much less frequently: is our supplier making enough money to continue to be a good supplier in five years?

At first glance, profitability might seem like an issue that doesn't concern us. However, when we purchase complex industrial components, the situation changes.

Customer-Supplier Relationship: When the Market Looked Like a Prairie Full of Bison

For a long time we have treated the industrial supply market almost like an endless prairie full of bison.

You find a competitive supplier, qualify them, and start working with them. Then, year after year, you ask for further reductions. When they're no longer competitive , don't meet your new needs, or won't accept further reductions, you look for an alternative.

This logic can work with standardized and easily available products.

But what happens when you purchase a special gear, a complex shaft, or a component developed specifically for your application?

Changing vendors, in this case, doesn't simply mean changing a name in the ERP. It means, at least in part, starting over.

The lowest price does not always coincide with the lowest cost

Developing an industrial supplier takes time. Audits, sampling, PPAP, process validation, tools, equipment, sharing technical requirements, and managing initial critical issues . Then, over the years, something even more difficult to quantify is built : mutual understanding.

The supplier knows the components, understands which features are truly critical, remembers past problems, and knows how to interact with the customer when a challenge arises . The customer, in turn, knows the capabilities and limitations of the supplier's processes.

This knowledge has value and is lost, at least in part, when an established relationship is replaced solely to obtain a lower unit price.

For this reason, comparing two offers without considering the costs of qualification, industrialization, risk management and learning can provide an incomplete picture.

The price is immediately visible. The real cost of replacing a supplier is much less.

Customer-supplier relationships and savings: what happens on the other side?

Now imagine a relationship that has lasted for years. Procurement periodically obtains new price reductions.

The result on the report is positive: savings: +3%.

Whether that 3% comes from increased productivity , automation, waste reduction, or process optimization, the benefit can be real for both parties.

But if it's absorbed exclusively by the supplier's margin, the scenario changes. The customer continues to obtain the same component at a lower price. The supplier, however , sees the economic viability of that business progressively diminish.

At this point, an element that rarely appears in purchasing KPIs comes into play: resource allocation.

Will an unprofitable supplier continue to invest in the customer?

Every company must decide where to invest capital, people, and production capacity . If a supplier has two demanding customers, but one generates an adequate margin while the other has become progressively less profitable, it's reasonable to expect this factor to influence some decisions.

When an emergency arises, where will the available capacity be allocated ?
When a new project is born, where will the best technical resources be involved?
When justifying the purchase of a new machine, measuring system, or automation, which orders will best support the business case?

This isn't necessarily a form of penalty; it's normal business management. And that's precisely why the economic sustainability of a strategic supplier can also become an element of the sustainability of the customer's supply chain.

The supplier's profit is not necessarily the customer's loss

During a negotiation, we're naturally inclined to see value as something to be shared. If the supplier accepts 90 instead of 100, the customer has saved 10. But an industrial supply chain is n't a single negotiation; it's a system that must work for years.

A financially sound supplier can invest in machinery, people, metrology, automation, production capacity , and new processes. Part of the margin can then be converted into skills and capabilities that , over time, generate value for the customer. This doesn't mean accepting inefficiencies or unmarketable prices: an inefficient process must be improved. An uncompetitive price must be discussed.

The key is to distinguish between reducing costs by eliminating inefficiencies and reducing prices by continually compressing margins. The former creates value; the latter risks simply transferring it, to the point of weakening the relationship.

Customer-supplier relationship: perhaps we are only measuring half the relationship
Companies continuously evaluate their suppliers.

Quality.
Delivery.
Competitiveness.
Reactivity.
Capacity.
Continuous improvement.

Maybe we should start asking ourselves the opposite question as well: what kind of customer are we for our strategic suppliers?

Do we pay on time?
Do we share reliable forecasts?
Do we involve the supplier when the project can still be improved?
Do we manage emergencies as exceptions or have they become the norm ?
Do we create the conditions so that the supplier is interested in bringing us their best ideas?

It's not just a question of commercial fairness, it's an industrial issue: a sustainable relationship must allow both parties to continue creating value.

A saving today can become a cost tomorrow

A 3% reduction produces an immediate and easily measurable benefit. But if, over time, it contributes to making the customer unattractive to a strategic supplier, much less visible costs could emerge.

Less availability in emergencies.
Less dedicated investment.
Fewer suggestions for improvement.
Less involvement in new projects.

Until the need arises to qualify a new source and rebuild the skills accumulated over years of collaboration. At that point, the initial savings could take on a different meaning. Not because negotiating the price is wrong, but because the real goal should be to reduce the overall cost of the supply chain, not just the unit price of the component.

Can an unprofitable supplier be a good supplier? In the short term, yes. They can continue to produce compliant components, meet delivery deadlines, and guarantee the required service. The most important question, however , concerns the future: will they still have the resources to invest? Will they continue to dedicate their skills and capabilities to the customer? Will they be interested in developing the next complex project together?

Because getting a better price today by progressively compromising your supplier's ability to invest might not be a real saving. It could simply be a cost we haven't yet accounted for.

For more information on solutions for the mechanical transmission and gear industry, contact GSI Ingranaggi.

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