Supplier relationship management is often overlooked (compared to Customer Relationship Management) – do you manage yours?
We talk a lot about customer relationship management – and this can of course include leads and prospects – and small businesses spend a lot of time (and effort, and money) managing their sales pipeline, and nurturing their valuable contacts – the ones who will buy from them! And there are a multitude of “CRMs” out there – tools (and that’s all they are) which help you to do all that!
But let’s go back to basics – my tagline is “I help business owners build profitable relationships”. And in that process we look at the customers who buy your products and services – but we need to identify which customers also generate the biggest contribution to the bottom line. So part of that process is to look at the product costings – the cost of raw materials (and labour if applicable) – whatever goes into making a product ready for sale – and all the other costs (including an allocation of the business’s fixed costs). There is no point having what appear to be lovely customers who may bring in a ton of revenue but who purchase products that don’t make you any money!
The pricing matrix I put together last week allowed you to show what would happen if you changed the variable cost of a product and this got me thinking about supplier prices. Many of my clients’ suppliers offer incentives such as volume discounts – so that if you buy in bulk you can make a decent saving. You might even offer terms like that to your own customers?
However, I have worked in Purchasing. I used to buy packing materials (including printed matter, bottles, tubes and labels) and the services to fill those bottles, apply the labels, put the bottles in cartons, pack and ship – you get the drift.
And here’s the thing. I spent all my life on the phone! Email did exist (we still used fax machines too!) but there was no substitute for getting on the phone and talking through all the logistics. We didn’t want to hold a massive inventory of raw materials and packaging, or indeed of finished product – Because Stock Is Money – so the trick was to get materials purchased and sent to the packer just in time for them to put the job on the line and get the finished product out (and generally shipped direct to the retailer!).
And when it came down to it, the supplier who could shave 0.01p off a lid wasn’t really very good – he would deliver late and keep the packing line waiting. Or we would have to order in advance and tie up OUR money in inventory.
So – my question to you is – do you manage and analyse your supplier relationships? Do you even think about what a good supplier relationship looks like? They may offer extended payment terms – tick! They may hold your inventory for you – okay you may still have to pay for it (although not always – some suppliers will invoice you as you call off) but then you don’t need to pay for your own warehouse space? Do they work with you to innovate? Will they squeeze you on a line at short notice, simply because you kept in touch with them and worked out the best solution for everyone?
So when you are looking to build profitable relationships don’t forget your suppliers!