This one’s for all the suppliers out there. I’m prompted to write this after a Manager in one of our training courses aggressively argued that he considered it one of his main aims to screw all his suppliers right down to the bare bones on price, then string out payment as long as he could. The business he works for is one of the big restaurant groups in my home city, so he was in a position to apply an awesome amount of pressure to get what he wanted. Being a supplier myself, I wished him ill will at the time.
I have always believed that the relationship between a business and its suppliers should be a win/win, co-operative affair. Both parties should be satisfied with the deal. After all, if you badly erode a supplier’s margin, or force them to call you twenty times before you release payment, what is their incentive to look after your interests? Price is only one of the criteria you should use to judge suppliers. There are other things you should consider:
Terms of trade come high on the list. What’s it worth to have thirty or sixty day payment, instead of cash on delivery or seven day payment? I believe that thirty day payment is the equivalent of ten percent in price. The reason is simple: If you receive the goods and sell them several times over before you have to pay for them, you are working the supplier’s credit to your own advantage – or to put it another way, you’re using your suppliers’ capital to run your business, instead of your own capital.
Stick to your deals and make them do the same
Once you do a deal on terms of trade, try very hard to stick to the terms you agree to. Having been a supplier for twenty five years, I can’t tell you how much it gets up my nose when somebody who insists on the highest professional standards from us takes one hundred and twenty days to pay a fourteen day account. Every time my staff have to ring them to chase payment it costs us in time and money, and erodes our margin. Worse still are those customers who ask us for a free, written proposal that takes us two days to produce, then won’t take a follow-up phone call, because the answer’s ‘no’ and they don’t want to tell you – after they’ve promised to get back to you in two days.
If you pay on time and are nice to your suppliers, you also have access to what I call last resort finance, if you ever need it. This is when the banks and the finance companies don’t want to know you and your family won’t lend you money, and your suppliers extend credit, by arrangement, to help you over a difficult period. My father was a manufacturing engineer who had serious cash flow problems many years ago. The Dunlop Rubber Company set aside a sizeable debt and zeroed the account to help him out of trouble. He paid them back several years later. Relationships like that are very, very valuable – and all too infrequent in this day and age, because it’s become a game of brinkmanship, not an exercise in symbiotic relationship.
Good service is worth paying a premium for
Service and flexibility are pretty important as well. Once, when I was working for Hilton Hotels, I saw one of the senior managers from Robert Timms delivering coffee from the boot of his BMW, while in his pyjamas, at two o’clock in the morning. Someone forgot to put the coffee order in. I was mighty impressed at the time – that’s service. What would your suppliers do for you to keep you happy? Generally, you get what you pay for.
As far as flexibility, can you specify when your suppliers deliver? It’s nice if you can have all your stuff show up at times when somebody can check it and put it away promptly. I’ll guarantee that if supplies lob between twelve and two in the afternoon, you’ll lose somehow – either from shortage, poor quality or loss of shelf life due to high temperature.
What about the reliability of your suppliers? Are you immune from industrial upheavals? Are the delivery drivers or the dispatch store persons (note the reluctant political correctness) likely to down tools in support of the Amalgamated Zookeepers claim for a weekly bottle of Chivas Regal in return for putting up with the trumpeting of the elephants? It’s a bummer if your meat or seafood supply takes a sudden four day holiday (‘ . . . but they’re cheap!’).
Review your suppliers regularly
It’s nice to have long term relationships with your suppliers where you understand each other and look out for each other’s interests, but remain aware. I like to review all our major suppliers each year, just to keep them honest. I tell them up front that I’m going to shop around and see what is available in the market. I often get cheaper quotes, but weigh the price up with all the other factors before I make a decision. If I’m considering changing suppliers, I tell my existing supplier my concerns and give them a chance to respond before I make a decision. On several occasions they have saved me from making stupid mistakes by acquainting me with the finer, less salubrious aspects of their industry that enable their competitors to underquote.
I find some owners and managers have a competitive, antagonistic relationship with everyone around them, including their suppliers and staff. It’s not a game of: ‘I win – you lose’. We all form a chain, we are both customers to some and suppliers to others. The worst perpetrators of insensitivity are those who have never been in business for themselves.
Do unto others . . .