The good folks at Amazon are once again demonstrating the lost art of winning friends and influencing people.
Or perhaps not. The e-commerce behemoth has once again been playing hardball with its suppliers by removing the pre-order option from its site, for books associated with the Hachette Publishing house. Their goal, as always: – to drive down costs and optimize their margins.
Now, Amazon is one of the biggest commerce players in the world so when they lean on a supplier, you can bet your bottom dollar that the supplier will take notice. You can also bet your bottom dollar that your business just can’t operate the same way.
You should always be looking to take stock of your supplier relationships and drive down your Cost of Goods Sold – but your overall goal should not be to ‘squeeze suppliers’ – it should be to create trusting, mutually beneficial relationships with your supply chain. Don’t get me wrong, it’s important to negotiate fiercely but remember that you’ll be better off in the long run with a happy supplier.
Here are some tips on how to approach your supplier relationships:
Dealing with suppliers is about relationship building. Think about things from their perspective. They want to see that you are going to be a reliable, long-term customer. You want to see that they deliver high-quality supplies, on-time. The best approach therefore is to negotiate at the start, but plan for a renegotiation. If you can, agree on a time-frame for when you’ll look to discuss improved terms. This can be a time-based agreement, i.e. ‘we’ll talk again in three months’ or it can tied to a certain volume, i.e. once I’m ordering above x widgets per week, we’ll renegotiate the price.
You Don’t Ask, You Don’t Get
Even during your very first negotiation with a supplier, you have to be bold enough to push for the best possible terms – on every aspect of your deal. Of course, price is paramount here but you’ll want to also push for longer payment terms. If they ask for payment upon delivery, you should push to pay a week later. If they ask for payment 14 days after delivery, you should push for 1 month, etc. This will improve your cash-flow and give you room to breathe when unexpected expenses come up during the month.
Reliability, No Matter The Size of Supplier
Both parties should work hard to be reliable. Size can actually matter in this regard, according to Entrepreneur.com. Large suppliers have more resources at their disposal that they can devote to things like accuracy of delivery manifests. A lot of smaller suppliers operate using pen and paper to track all of your orders, so if you’re technologically minded, you may prefer to interact with larger suppliers.
That doesn’t mean you should discount smaller suppliers entirely. Smaller organizations may have time to dedicate more attention to you along with better service. Whatever the size of the organization, demand punctuality, reliability, and accuracy from your suppliers.
And remember, this cuts both ways – small business owners need to show they are reliable as well especially when it comes to payments. You need to show them you can pay for everything exactly when you say you will.
Note: If operating off credit terms with a supplier, it can be beneficial to your credit rating to pay slightly in advance of your due date as this shows you can manage credit properly.
Stability & Location
These two factors are no-brainers. Small business owners want to work with suppliers that have stellar reputations. In order to find them, ask around. See if other customers speak highly of them. Also, find out if they have tenured executives. That is another good sign because it shows that competent and capable leaders are managing the company. The ability to consistently stick to delivery deadlines should be another factor you look for as well.
Suppliers are going to want to work with stable small businesses too. These companies are going to be curious about professional history. Certain entrepreneurs tend to start multiple small businesses because the fail rate can be very high. A supplier could be scared away if they know an owner will give up fairly easily.
Location can play an important role in the decision-making process. Try to work with a supplier that is located reasonably close to your store. A long-distance delivery can quickly incur several freight costs making the shipment pricier than you may have wanted. This can be avoided if you figure out appropriate freight policies. Teaming up with a supplier that is located closer to your business means that you may be eligible for certain perks such as free shipping on some deliveries.
Triage the ‘Essential’ from the ‘Nice to Have’
It’s a good idea to break your suppliers out into two lists, ‘essential’ and ‘nice to have’. Essential guys are those who, if they didn’t deliver, your business wouldn’t open. Everyone else is a luxury. At some point, you’re going to be short of cash-flow and you’ll need to make intelligent decisions about which suppliers to delay payment to. This list will help.
Remember: a great relationship with suppliers will improve your customer facing products, save you money, save you time on inventory checks and generally avoid headaches. Let us know if you have any best practices for supplier management that you’d like to share below.