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Managing Your Distribution Chain

Establishing and maintaining positive relationships with your suppliers leads to a successful workflow.

As a business owner, one of your biggest headaches can be trying to manage things that you may not have complete control over, such as the various distribution networks of your business: raw goods suppliers, outsource suppliers, and shipping and logistics providers.

Supply chain management can be a very complex business operations process. But perhaps the most critical part of your supply chain is your purchasing network of raw goods. Without materials, you have no production, therefore your materials suppliers will always be important to the success of your business. Establishing valuable relationships with your key suppliers is paramount to maintaining a successful workflow.

When working with suppliers we often fall into the trap of focusing solely on price. While securing the best pricing from your vendors is obviously important to the financial success of your business, if pricing becomes your only priority, you may find yourself in a situation where you get what you pay for. Sacrificing service and quality for price will typically end up costing you in the long run.

Let’s assume you’re a very shrewd, tough customer when negotiating price with your key suppliers. This approach may push you toward leveraging your competing suppliers against one another. You may even change vendors regularly, depending upon the pricing you are getting from them. Then, one day, you find yourself in a situation where you need your supplier to jump through some serious hoops to help you out on a project. Perhaps it may be securing inventory on a weekend for a rush job, or trying to locate specialty materials in large quantities, requiring your supplier to negotiate deliveries from various destinations. Whatever the problem, you need their help in a serious way. I can assure you that if you have spent months, or perhaps even years, beating them up over price, they probably won’t be willing to come to your rescue. They may just simply tell you that they can’t help you out. Again, sometimes we get what we pay for.

To be clear, I’m not saying you can’t secure great pricing from your suppliers by utilizing the marketplace. In fact, you can, and you should get the best pricing possible from all of your vendors. What I’m saying is that the best vendors will always need to be competitive in the marketplace with regards to pricing, but they may not, and most likely will not, always be the cheapest. Excellent service and high quality will always be worth more money. Not necessarily a lot more, but maybe a little extra to ensure top service and quality.

Outsource Suppliers
The companies providing you with products or services that go directly to your customers with your name on the product are your outsource suppliers. Graphics hardware, software services, products you don’t produce but are reselling to your customers, and installation services all fall under this category. These distributors are unique to your business in the sense that they provide a finished product to your customer with your name on the product, yet you have no control over the manufacturing process. Because of that, qualifying these vendors is critical to your success.

If you fail your customer with a product supplied by an outside supplier, you cannot just throw the blame on the other guy and expect your customer to understand. In most cases, your customers already know that the products are being produced by another supplier. The problem is, they just won’t care. Indeed, that’s why they hired you in the first place – to manage the distribution chain properly so they don’t have to. Your customers certainly have the capability to order hardware or arrange an installation or find another source to manufacture a product you don’t produce. They just don’t want to. They pay you to manage that process. Take great care in finding the best companies to utilize as your outsource distribution channels. Just like your material suppliers, balance pricing with quality and service to ensure the best results.

Shipping and Logistics
Clearly, the companies responsible for the delivery of your products are vital to the success of your business. Nothing is more frustrating than trying to produce a job accurately and on time, only to have the delivery arrive late or damaged. This invariably results in an unhappy customer, particularly in a time-sensitive situation. It then becomes irrelevant whether the quality is great or not – the focus is now on the missed deadline. Of course, shipping problems will always exist and will continue to be a challenge for your business. The trick is to keep these issues to a minimum. Work with your shipping and logistics providers to ensure that your packages are being prepared in the best possible way in terms of both labeling and packaging. Use them as consultants in your process. They will have some great ideas about how you can improve your systems to ensure the best possible outcome for your deliveries.

I also recommend a regular pricing review with your shipping and logistics carriers to determine whether you qualify for better rates based on the volume of your business. We have a quarterly review with our major shipping suppliers and typically renegotiate rates semiannually. If you are growing, you should continually secure better rates from your carriers.

When managing your various distribution networks, implement a vendor review program with your key suppliers. It doesn’t have to be complex. Outline some specific criteria that are important to you, such as price, quality, service, flexibility, turnaround, local vs. remote inventory supply, etc. Then schedule either a quarterly, semiannual, or annual (at the least) visit to review this program. Grade them on each criterion and share those grades in a discussion of possible improvements over the coming months. Your suppliers will appreciate the process and will likely work with you in becoming a better supplier. Establishing more effective relationships with your distributors will always have a positive effect on your business and offer you a much better chance of future success.

Read more from our May 2016 "Running the Tables" issue or check out more business and management advice.

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