Tuesday, June 23, 2015

How to Manage Suppliers (Without Angering Taylor Swift)

There’s nothing more frustrating than to get an order from a client that you cannot fill. Not only do you lose the revenue from the order, you also run the risk that the customer will start doing business with a competitor. If you can’t deliver a product or service when the client shows up, you may lose all future business to the guy down the street.

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The importance of suppliers

Having reliable suppliers is critically important to a business. If you manage a retail clothing shop, for example, you need quality products that your clients want to buy. You need a supplier who can provide the right styles, sizes and colors.

The supplier needs to provide the quantity of product you need- when you need it. Finally, the price you pay should be reasonable.

If you make a product, you may use suppliers to provide components for your product. A shoe manufacturer needs a leather supplier, for example. The same factors apply to a manufacturer. You need the supplier to deliver a quality product on time, and at a reasonable price.

When the product drives the business

In some cases, a few specific products drive sales for the rest of your business. We’ve all seen, for example, a display of shovels and rock salt at the grocery store before a snow storm. The grocery store hopes that you’ll come into the store because you really need a shovel. While you’re there, you’ll remember that you need bread and milk.

The shovels might even be priced as a loss leader. The store may sell the shovel at a loss, hoping that you’ll come into the store to buy other products- products that are sold at a recent profit margin.

Which brings us to Taylor Swift.

Taking a big bite of the Apple

As TimeMagazine explains:

“Apple announced on June 8 that it would launch its own streaming music service…. But its launch would come with three free trial months of service—months during which it would not compensate labels for the music it streamed.”

Once Taylor Swift protested that she was not going to be paid royalties during the three-month trial period, Apple backed down and agreed to pay the fees. Taylor Swift is not only a big draw to users of the music service- she also has influence over other artists. The supplier (Taylor Swift) is driving the business (streaming music service).

Managing suppliers

In the case of Taylor Swift, the customer demand for the product outweighs the price paid for the product (royalties). In other instances, you may determine that more than one supplier can provide the product to you.

A common mistake in business is to “chase” the supplier who offers a cheaper price. There are other considerations besides price:

·      Quality: If the product has defects, it will slow a manufacturer’s production process. If you’re a retailer, you don’t want to sell a defective product that you stock in inventory.

·      Timing: As mentioned above, a supplier must be able to ship you product when you need it. If not, you may lose business. Paying 10% less doesn’t do you any good if the product is shipped late.

·      Variety of Product: A big issue for many businesses is using too many suppliers. One way to address this issue is to find suppliers that offer many of the products you need- one stop shopping for you. If your supplier can meet this requirement, you might be willing to pay more.

Consider all of these factors when looking for suppliers. Meeting the needs to your customers is about more than just price. By using these tips, you can meet your client’s needs and grow your business.

Have you dealt with a difficult supplier situation? I’d love to hear from you.

Ken Boyd
St. Louis Test Preparation
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
Co-Founder: accountinged.com
 (amazon author page) amazon.com/author/kenboyd 

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