Suppliers are a critical component of your growth and survival. Your approach to suppliers needs to be part of your strategic plan, since almost every company, whether product or service oriented, is dependent on suppliers. Many people seem to get this supplier issue wrong. They feel that because they write the order, they are in the dominant position and can exploit it with unreasonable demands, including personal perks. Please let's get this right! You need good and reliable suppliers. When you find them, treat them like gold. I personally don't want gifts from suppliers. For every lunch or dinner they buy me, I want to match it and buy them one. Work as hard on building a supplier relationship as with any other one. Be loyal to your good ones. They are essential to your good health and your growth. They are a nuanced Bootstrapping strategy.
HOW SUPPLIERS IMPACT YOU
Let's briefly look at all the ways they can impact your company.
- Quality. Whether you purchase a component, finished product, or service, suppliers can positively or negatively affect the quality of your product. Higher quality increases customer satisfaction and decreases returns, which add cash to your bottom line.
- Timeliness. Their timely deliveries are crucial to how customers view your reliability. Their quick turnaround becomes the key to your minimization of inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs.
- Competitiveness. They can keep you competitive and one-up on your competition based on their pricing, quality, reliability, technological breakthroughs, and knowledge of industry trends.
- Innovation. They can make major contributions to your new product development. Remember, they live their product more than you do. They are also working to be on the cutting edge of innovation of their product. The good ones will understand your company, its industry, your needs, and help you accordingly in your new idea execution.
- Finance. They can be a major and constant source of financing for you. Your payment terms to them can be an important source of money because their extended terms don't usually carry interest. If over a period of time you've proven to be a considerate, loyal, and growing customer, you may be able to tap into your suppliers for additional financing in your growth mode-or if you run into a cash crunch. It may take the form of postponed debt, extended terms on new purchases, a loan, or an investment in your company... all of which improve your cash position.
IT'S OKAY TO BE A DEMANDING CUSTOMER
Having said how valuable and important a supplier can be to you, I'll now say that you should not be a patsy. You can be a demanding customer-just be fair. State your quality and time needs clearly. Hold your suppliers to their agreements. Make sure they stay competitive. Tell them you never expect to pay higher prices than other purchasers. Let them know that you are there for the long term as long as they perform and can keep pace with your growth. There are times you need to replace a supplier because you have outgrown them and they can't perform to your new expectation. Before dropping them, however, I would try to educate them or help them change to keep up with you. Failing that, you might be able to throw them some bones in the hope that over time they can change and grow to meet the needs of your new business model. It's not prudent to rely on one supplier. If that supplier has a strike or a fire, you don't want to be in a position where you'd be shut down too. So develop a second or multiple suppliers and don't be embarrassed to tell your key supplier that you're doing so. They will appreciate your honesty. If they are savvy, they'll also know you need backup suppliers on key products or services if you are to raise money. The lenders are sure to ask this question.
HOW TO BE A VALUED CUSTOMER
These ideas assume, of course, that you are a customer that somebody out there wants. Don't take this for granted! In order to be a valued customer to your suppliers, here are a few good things you should do:
- Pay your bills on time. For the sake of emphasis, I'll repeat this one: Pay your bills on time! You can negotiate for favorable payment terms before you place an order, but once the order is placed, don't renege or attempt to change the rules. Always pay on time. If for some reason you can't, call up your suppliers and tell them why and when you will pay. Don't play games with suppliers' cash. You'll be absolutely amazed at the goodwill and benefits you will earn by observing this simple rule.
- Provide adequate lead times. Try to give suppliers as much lead time as possible on your orders. Unless there's a good competitive reason not to, share with them your honest projections of your needs, and then keep them abreast of any significant changes in that estimation. In developing your lead times, try to be knowledgeable about your supplier's production methods and needs.
- Personalize the relationship. Include suppliers in some of your strategy meetings. Visit their offices. invite them to break bread, and to meetings with your people, including office parties and picnics.
- Share information. Keep your good suppliers aware of what's going on in your company. Tell them about changes in key personnel, new products, special promotions, new markets, and so on. Many times, you'll find that good suppliers can be helpful to you in getting new customers.
Developing good suppliers and dealing with them effectively is not a complicated process. Tell them of your needs and standards, treat them fairly, be demanding, be loyal, be communicative, and pay them on time.
By Bob Reiss
Photography © Horst Petzold
Bob Reiss is the author of Bootstrapping 101: Tips to Build Your Business with Limited Cash and Free Outside Help. Bob has written a 22 page E-Guide to learn everything you ever wanted to know about Sales Reps. Click HERE for more details and to order your Free copy. To read more tips for small business success, entrepreneurs can follow his weekly blog. Bob Reiss has been involved in 16 start-ups, is a three-time INC 500 winner, a graduate of Columbia University and Harvard Business School, and the subject of two Harvard case studies. He is a frequent speaker at university entrepreneurial classes.