Supplier Churn Analysis in

Indian Manufacturing Industry

Prepared by :
Sagar Gupta 111
Saikat Chandra 112
Vedant Vashee 126
Shubham Jain 137

Abstract
The primary goal of supplier churn analysis is to find those suppliers that are most likely to
discontinue using our service or product. In this dynamic manufacturing industry, companies
are progressively providing products with similar features. Amidst this ever growing
competition, the cost of developing a new supplier typically exceeds the cost of retaining a
current supplier. Without a doubt, suppliers are the valuable asset for any organization.
Furthermore, given the nature of the manufacturing industry, where suppliers generally tend
to stay with a company for a longer term, churning could lead to substantial revenue loss.

The Importance of Predicting Supplier Churn

The ability to guess that a particular supplier is at a high risk of churning, while there is still
time to do something about it, represents a huge additional potential revenue source. Besides
the direct loss of revenue that results from a supplier leaving the business, the costs of
initially developing that supplier may not have already been covered by the suppliers
spending to date. Furthermore, it is always more difficult and expensive to developing a new
supplier than it is to retain a current paying supplier.

The Difficulty of Predicting Churn

Churn prediction modelling techniques attempt to understand the precise supplier behaviours
and attributes which signal the risk and timing of supplier churn. The accuracy of the
technique used is obviously critical to the success of any proactive retention efforts. After all,
if the marketer is unaware of a supplier about to churn, no action will be taken for that
supplier. Additionally, special retention-focused offers or incentives may be inadvertently
provided to happy, active suppliers, resulting in reduced revenues for no good reason.
Unfortunately, most of the churn prediction modelling methods relies on quantifying risk
based on static data and metrics, i.e., information about the supplier as he or she exists right
now. The most common churn prediction models are based on older statistical and datamining methods, such as logistic regression and other binary modelling techniques. These
approaches offer some value and can identify a certain percentage of at-risk suppliers, but
they are relatively inaccurate and end up leaving money on the table.