【正文】 ge for accepting different levels of risk. Above all, it should make its minimum (or walkaway) prices clear to its sales reps so that they don抰 create new options on the spot during negotiations.One metal pany that supplies the aerospace and automotive industries, for example, developed a deep understanding of the costs and risks of its customers?supply chains, from raw materials to inventory control. It also calculated its own costs in the same areas. After analyzing the two positions, it proposed to some customers that it assume, for a reasonable price, the risks inherent in the entire supply chain. These moves actually thinned the supplier抯 margins at first but also locked in customers for the duration of their product programs梪 p to a decade in aerospace梐 nd allowed the supplier to eventually increase its margins by improving performance all along the value chain.To meet the sourcers headon, suppliers must be willing to make these tough decisions. The trick to getting this approach to pay off is knowing how much flexibility you have instead of making 12 / 14uninformed tradeoffs, under duress, that are almost guaranteed to be disadvantageous.A COURSE OF ACTIONMany panies will find that defining the level of threat posed by sourcers is the starting point for deciding on a course of action and its tempo. In the worst case, the sourcers?tactics will affect most of a pany抯 business, and executives may well feel that the whole enterprise is under attack. In this event, the supplier should immediately move to build a knowledge base that will allow it to go headtohead with sourcers as soon as possible. Thereafter, it will know enough to drop customers that ask for too much and to take a firmer stand in negotiations. Shifting to value selling will be a secondary priority. In the hardest cases, where the margins of the core business have been cut to unsustainable levels,5 management may have to consider more fundamental changes, such as forming joint ventures 渨 ith service panies, buying distributors to gain better access to customers, or selling portions of the pany.A pany less severely affected by sourcers can take a more balanced approach, not only by developing an improved knowledge base but also by making the move to value selling. In this case, a supplier has more time to preempt some of the pressure sourcers could bring to bear in the future梐 strategy that would set the tone for discussions with them and uncover new sales opportunities. Still, the pany must be ready to counter more aggressive demands from its customers by holding firm to its pricing policy and resolving to walk away if the full cost of serving them is unacceptably high.13 / 14Sourcers have only begun to pressure basicmaterials suppliers and to threaten their longstanding relationships with customers. To counter these dangers, suppliers and others must consider the sourcer抯 mindset by selling their products in a betterinformed, more valueoriented wayNotes:John Abele is an associate principal in McKinsey抯 Cleveland office, where Eric Roegner is a principal。 Brian Elliott is a consultant in the New Jersey office。 Ann O扝 ara is a consultant in the Stamford office. 1Companies that produce refined raw materials such as chemicals, paper, and metals or ponents such as ball bearings and gaskets. 2In the past, indexed and volumebased contracts were more mon. In volumebased contracts, prices梑 ased on an industry average, particularly for purchases that are large, infrequent, or both梐 re negotiated for each order. Indexed contracts base prices on a standard index reflecting current supply and demand. 3The invoice price less discounts and rebates, freight charges paid by the supplier, advantageous payment terms, and all other costs to serve the customer. 4See John E. Forsyth, Alok Gupta, Sudeep Haldar, and Michael V. Marn, Shedding the modity mindset, The McKinsey Quarterly, 2022 Number 4, pp. 78?514 / 14