Switching costs are incurred when the purchasing organization changes suppliers. These costs affect the Postal Service decision of whether to consolidate suppliers as part of its sourcing strategy and will also influence supplier development activities.
The exercise of evaluating the extent of competition in the market, combined with internal research, can lead to new findings on market dynamics, such as:
While those observations need confirmation under a host of other operational and organizational factors, they warrant consideration to switch suppliers or consolidate them to reap better terms for the Postal Service. From a purchasing perspective, the purchase/SCM team needs to recognize how switching costs arise and how to minimize them in the purchasing process, specifically in its decision to consolidate suppliers or develop new ones.
