Forging Alliances: A Lesson in Vendor Relationships
The 'best price' is often not worth the cost of a lost relationship.
Just like in nature, symbiosis can be magic in business. To be worthwhile, the relationship must be judged by both parties to be mutually beneficial, a true win-win. A sure formula for a print provider to have short-term, no-win relationships with their vendors is to make it all about the two Ms: money and me.
The two Ms may blind print providers into reducing many of their supply vendors to a faceless group of order takers. Print providers may overestimate the true profit impact of media price and underestimate the bottom-line value of a vendor’s service. It is in this service relationship that a vendor becomes your ally.
My company has been in this business for 15 years. Strategic alliances at multiple levels of our industry have nurtured and reinforced our business. Forging these relationships may have been one of my most significant contributions to our company. In these dangerous economic times, I believe supportive relationships are more important than ever.
Once upon a time, our company hired a purchasing manager in an effort to "professionalize" our media buying. Our staff had long-term relationships with vendors and handled the buying ourselves. Like many purchasing professionals, our new guy subscribed to the "price is everything" philosophy. I think this is fine if your job is to buy paperclips, or paper cups, but not paper for our dye-sub. To help our new purchasing manager understand our company’s philosophy, I decided to provide him with the following object lesson.
"Yesterday I sold a $10,000 vinyl banner job. I asked you to buy the material, and I got your e-mail on the product you bought," I said. "Did you get me the best price on the vinyl?"
"Absolutely," he beamed.
"Do you remember I provided you with a list of vendors when you first started?"
"Yes, I have it."
"I told you that I considered these companies to be good and loyal partners, that we have a sense of loyalty to them. I noticed that you didn’t buy this from anyone on my list."
"The closest one of your preferred vendors was three percent more expensive for the same banner vinyl. I found a new guy with better prices," he reported proudly.
"How much do you think this will improve our profit?"
He looked at me perplexed, "Three percent."
"Not even close."
I live and die by the spreadsheet, bought my first in 1979. I sat our purchasing whiz down at my desk and opened up an Excel document on my computer. "Let’s start out with what we know. You can see here your vinyl is approximately two-thirds of our total media cost with solvent ink making up the balance. This cell tells us media is about a quarter of our cost of goods sold, with labor and overhead accounting for the rest. Here is my sale’s price based on a projected 20 percent net profit.
"I’ll cut to the chase: saved us exactly $5.63 out of ten large. That’s about a half of one percent. Now I am not saying that saving the company six bucks is bad, but let’s look at the big picture."
The value of vendors
Why is it important to forge relationships with a select few vendors? As print providers, we need to contemplate just what business needs a good vendor partner can fulfill.
* Product knowledge can make a vendor invaluable. After you describe a live project, a competent vendor can recommend the best product-as well as production and installation methods-to help ensure the finished job will be a success. Vendor reps, who know their products better than we do, can be one of our most important industry assets.
* Vendors who are willing to stand behind their product as reliably as we stand behind ours earn trust. If a product fails, we need a vendor who has our back.
* A valuable vendor will question us about our needs and be willing to stock product locally that is in step with our demand. This can significantly reduce wait time for product and eliminate costs for expedited shipping.
* Time is money. It takes time to call multiple vendors for media quotes. It’s valuable to have a vendor we can trust to consistently provide us with competitive prices without the need to shop around.
* Proven vendors are more likely to do whatever is necessary to deliver product on time. It would take an entire column to tell the stories of what our vendors have done to get us product over the years. The vendors you don't want are good at delivering excuses.
Although we don’t expect this from our vendor partners, they have carried us during hard times longer than sound business practices would dictate-by continuing to sell us product even when we couldn’t keep our account current and trusting my word that the money would follow. That earned our loyalty for years.
If we had not developed an alliance, we would have been toast. In this economy, when you have a downturn in sales, you run out of cash. Right now, no one is lending operating capital to small businesses. If your vendors cut you off, you can’t produce product even when business picks up.
Back to the object lesson
"You passed on a vendor we have been doing business with for five years," I pointed out. "I want you to walk a mile in their shoes. You need to understand the three percent savings that dictated your buying decision is a relatively insignificant benefit to us, but it is a huge sacrifice for them."
"How can that be? Three percent is three percent," said my new purchasing manager.
"They are working on a 10 to 15 percent gross margin. I would be willing to bet their net is three percent, with seven percent tops. So that small percentage could be all of their profit, a big chunk in any event. Do you want to beat up our vendors to the point where they can’t be profitable?"
"That’s not my problem. My job is to get you what you need for the best price."
"No, if you work here it is your problem. A vendor can’t provide us with great service if they aren’t making money. Let me ask you a question: The vendor who was too high, do they stock material here in Vegas for us?"
"Have they recommended product to you that was better for a job or was less expensive than the product we were previously using?"
"I rest my case. Just one overnight shipment of a roll of vinyl makes that six bucks look like chump change. Ever heard the phrase ‘penny wise and dollar foolish’?"
"You just lived it."
A shop’s responsibilities
Quid pro quo. They help us meet critical business needs; we have to give something in return.
At the risk of stating the obvious, we must reward their services with purchases. Although we can’t rely on one vendor, we need to make the bulk of our purchases from those who have proven themselves to be allies. In those purchases, we need to avoid grinding them on their price to the point where they are not benefiting from the transaction. We typically have an understanding on price with our vendor partners. If we have a job that’s only feasible if we quote it with a razor-thin margin, we will ask a vendor in this instance to cut their margin as much as they reasonably can. However, when we buy those same products again, we pay the regular price.
We use our industry networking to refer as much business to a partner vendor as we possibly can. If they have earned it, we speak glowingly of them at industry functions and in normal conversations with colleagues. Growing their business and services helps us grow ours.
Like any good thing, this kind of relationship takes time to develop and is tested by time. It’s like the winner of Dancing With the Stars; I’m sure it took the couple who glides across your TV screen countless hours to dance as if they were one. Toes were stepped on before they got it down. When it finally clicked, she made him look good and he made her look good. They took their cues from each other and they were great together.
Craig Miller is president of Pictographics (www.pictographics.net) in Las Vegas, a large-format-graphics service bureau that excels in digitally dyed textiles, wall coverings, and custom applications.