Monday, April 08, 2013

Apple Gets It - Suppliers Are Critical to Business Success

Treat Suppliers Well - They Are More Critical to Your Success than Customers

Tim Cook was selected because of his understanding of supply lines

With the right amount of time, money, and energy, almost anyone can find more customers.  Most companies who need more sales to thrive are not spending enough on one of those three or making almost no effort to get new folks in the door.  There are 300 million  consumers in the US and millions of businesses who need to buy goods and services.   You do have to make some of those potential clients aware of you and your unique selling proposition in order to create sales.  But my argument is that this is the simple side of business. 
On the other hand, lining up the right suppliers of goods and services can increase your potential to generate sales.  Failure in this area can destroy your business in an instant.

How many horror stories have I lived through or heard about from others where a supplier action, inaction, or even catastrophic failure resulted in death or near death for their company.  Contrast that to a customer having the same impact.  That only happens when a company chooses to allow one customer to be such a large % of the total sales, that a decision by that customer to buy elsewhere or that customer's demise takes you with them.   My personal philosophy is simple:

Never allow a customer to represent more than 10% of your income.

Suppliers are much harder to control.  In my own businesses I have been brought to my knees or put out of business by:
  • Banks changing lending practices resulting in reduced line of credit or no credit at all
  • Insurance companies driving up rates to the point of making continuation in that line of work unprofitable
  • Single suppliers of a product having a failure to produce
  • Landlords deciding to raise rents dramatically 
  • Increased costs of energy from monopolistic source making cost to produce non competitive
  • Supplier deciding to change distribution by limiting customers or changing channels
  • Distributor changing credit policy
  • Abrupt shortage of raw materials resulting in no available material or dramatic increases in cost
  • Product defects resulting in costly recalls or loss of reputation
  • Shady business practices causing benefits to competitors

If you've been in business for a while, you have had a suppliers run out of product at the height of season, change the product in ways that crush sales, or abandon product lines that really worked for you.  I have seen manufacturers increasingly place pressure on retailers to achieve certain flooring percentages, total sales or other quotas that, at a minimum, distract from the potential of maximizing overall store success while concentrating on making those quotas. 

Next to being undercapitalized, my experience would say that supplier actions like those above are the most likely cause of business failure.  What can you do to help prevent these types of critical events in the life of your business?

Let's be real.  In some cases, there is nothing you could have done.  However, that would be a cheap excuse for an answer.  Just because you can't do anything about lightening striking your building (happened to me), doesn't mean you can't create methods and practices that will give you greater chances of avoiding supplier issues or having an option when such issues hit.  (Lightening:  Lightening rods on roof, insurance, back ups for damaged equipment, emergency funds).

Become close to your suppliers.  Show that you care.  Let them make a profit in the relationship.

It is so easy to treat suppliers with disdain.  Almost seems like the natural thing to do.  They need your business, so they should be prepared to do it your way, take abuse from you, and feel as if they are always on the defensive.  Think about that for a minute.  Unless you do represent more than 10% of their business, you are easy to replace.  Are they easy to replace in your business life?

An example of the most extreme case.  I hate buying insurance of any kind.  It is complicated, expensive, there is no immediate gratification of any kind, and I feel as if I am totally at their mercy.  But in order to do business, I have to have fire, theft, product liability, professional liability, workers compensation, health as of 2014, and the list goes on.

The good news is that unlike some supply chains, (electricity, water, various chemicals, branded products), there are hundreds and hundreds of choices to choose from.  Many agents and many companies.  When I found an agent that cared about my business, kept me completely informed about trends in the markets, and looked out for me when issues arose, I wanted to protect that relationship at all cost.  What did I do?
  • Gave him all lines of insurance, even when he was a little higher on some lines 
  • Saw him frequently if just to chat
  • Always took his calls
  • Gave him great referrals.  Today I would give him a testimonial on LinkedIn
Don't give the salesman short shrift.  Listen carefully to him.  Ask lots of questions.  Don't be afraid to ask the hard questions. Use him to keep up to date on trends and potential issues in his field.

Pay your bills on time.  If you must be late, call the supplier's bookkeeping department before they call you and, make a promise to pay that you can keep. 

Obviously, having backup for every critical supplier would be another wise move.  This may mean that you occasionally book the competitor salesman to come see you, or you look him up at shows.  Maybe you and he are really straight with one another.  He knows that his opportunity might come due to a slip by your primary supplier.  You are honest to say that for now your supplier is doing great.

Assess and reassess your suppliers to make sure you are not only using the most efficient and effective providers, but also ones that are not likely to interrupt the relationship.  This entire process is a marketing challenge. 

Go the Extra Mile with Your Supplier to Show You Really Care

Not every supplier you work with is going to get top billing in your business.  Example:  If you are a retailer, not everyone will be able to get top shelf, tons of display space, posters on the wall, and be the first product mentioned by every sales associate on the floor.  But you can make sure that this treatment happens to the critical suppliers.

Let them know that you are ready to help them move more product.   What ideas do they have to get that done.  Would they like to have content on your website, send articles for your blog, send you pictures for your Facebook and Pinterest?  Maybe they would like to be part of a clinic for your customers, or help you put on an event.

The list is endless of ways that you can work to increase the sales and profitability for your supplier.  If you are a profitable resource for them, they are going to work hard to take care of you first if there is a crisis.  

Carry Two Lines when Possible and Build Relationships with Competitor Lines if Not

Being beholden to a major product line is rarely a good idea.  When you own a car dealership you have less choices to some extent, but even then you can own a second dealership. 

Schwinn Bicycle Company is known as the company that created the first "franchise" concept stores.  They were not quite like the franchises of today, but close.  Many bike shops and distributors in the US depended 100% on Schwinn for product.  Schwinn rewarded those who were 100% on board. 

But Schwinn went bankrupt.  Emerging out of bankruptcy the new owners decided to sell Schwinn branded products to discount chains.  The choice to be single branded turned out to be a two edged sword. 

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