Your suppliers are not vendors; they are critical business partners.
We are tempted to think our clients are the most important stakeholders in our distributorship, but without our suppliers, we have no product to sell. An obvious statement, but many distributors think they maximize the benefits of strong supplier relationships, but one secret the pros know: investing in your supplier partners pays dividends that directly impact the bottom line.
Here are three benefits to partnering for more profit through your supplier partners:
I ran a report to see which suppliers we were spending most of our money with, and I was shocked. Over the course of six months, we had used over two hundred different suppliers. Do I need to explain the cluster that it caused? Over two hundred relationships! This meant over two hundred terms negotiated, over two hundred product lines and capabilities learned.
This example is extreme, and you might think you are faring better with half that number, but even with half, you cannot master their lines nor manage (efficiently) the deluge of payables paperwork.
I know a distributor with over $20 million in sales and 70% of their spending goes through less than 30 suppliers. Now, can you imagine what their training process is like? The mastery their salespeople can attain by focusing on 30 key suppliers? They will learn more, sell better, and strengthen their relationships by channeling both their time and money.
And remember that 30% of the business is apparel, which usually means managing multiple apparel and decorator relationships that need concentrated attention to keep things simple and efficient.
If you haven’t taken the simple step of streamlining your spend with a select group of partners, do so, soon. It will save you time, money, and will add more profit to your bottom line. But beware! Don’t let minimizing your partner list hinder your creativity. You need fresh ideas from new suppliers in your system, and you should always remain open to new relationships.
For the average distributor, joining a buying group is not an immediate answer to your pricing problems. The raw truth is, even those that join aggregators that help combine spend for leverage have barely tapped the full benefits of true supplier partnerships.
Getting better pricing and negotiating favorable terms should not be the immediate goal of your key supplier partnerships. Learning their product lines so you can sell better should be your priority.
I asked Samantha Kates, (whose extensive experience as a successful supplier and distributor speaks volumes), what was one of the most important things a distributor could do to strengthen relationships with their key suppliers. Sam immediately replied, “Get to know key people within each organization, from your front line sales contact to those at the very top. People do business with people. You should not only have a strong relationship with your frontline sales rep but with your inside team and the executive team, particularly the executive team.”
I discovered, after years of working with supplier partners, that there are a few keys to a long and fruitful relationship: excellent product, exceptional service (both of those are expectations today) but also a strong outside salesperson, a strong inside person at the supplier’s factory, and a strong relationship at the top. Those relationships are three strands of a very strong cord. In this business, at some point, you will need the strength of all those relationships, whether it’s a problem resolution on an order, or working through terms on a major project you are both trying to land.
Not only should you invest more in your suppliers by spending more of your dollars with fewer, you should invest more of your time by learning -not just their products- but their capabilities as well. For example, I highly recommend factory tours to distributors. After years of being against them (I couldn’t see the value) I now see I was wrong. We visited Snugz, a company I thought I knew well, and the custom capabilities that opened up my mind were immense. Their capabilities ignited my imagination about what was possible. You cannot process all that your key partners are capable of in a simple tradeshow visit or over a few product knowledge sessions.
Take the time to sit down with your key contacts at all your top supplier relationships and ask, “How can we do more business together?” The answers will surprise you. I recall a lunch I had with a supplier partner. I brought our business numbers to lunch, our historical sales and our sales year-to-date. I shared with him our purpose, our profit, and our progress, and I asked him to do the same about his business. We were no longer a supplier/distributor; we were two professionals trying to learn how to build better businesses, together. We spent six figures with this supplier each year for over a decade. Your suppliers are also a wealth of knowledge about the industry and the market. They interact with hundreds of distributors and are founts of wisdom about the competitive landscape. They have more to teach you than mere product if you will listen, engage, and learn.
Mutual respect is what drives innovation in our industry. You can’t foster the best of imaginative collaboration between distributors and suppliers without respect.
Rod Brown, CFO of MadeToOrder, Inc. hosts a supplier dinner each year. The company votes for their top supplier of the year, choosing a supplier who brought the most value to the business. Rod flies the supplier’s key contacts in -at his expense- and they reward their partner with praise, recognition, and, you can be damn sure, more sales.
That's the attitude we should have toward the most important partners in our business, recognizing that, without them, we have nothing, are nothing, and sell nothing. And make no mistake: Suppliers know the difference between true partners and distributors who could care less about engaging in a long-term, profitable way. When you invest in your suppliers, you will reap the benefits of selling more, adding more profit to the bottom line, and nurturing strong relationships, and moreover, your suppliers will surprise you, with that kind of commitment, they will, in turn, invest in you.
This post is the fourth installment in our series, The Path to Profit, the previous posts are: The Real Business of Winning,4 Keys to Focusing on the Most Profitable Clients and Four Ways to Uncover More Profit with Existing Clients.