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Forging Alliances: A Lesson in Vendor Relationships

(November 2008) posted on Mon Nov 24, 2008

The 'best price' is often not worth the cost of a lost relationship.


By Craig Miller

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?"

"Yes."

"Have they recommended product to you that was better for a job or was less expensive than the product we were previously using?"

"Yes."

"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’?"

"Yes."

"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.


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