Great Idea to WOW your Suppliers

When I blogged my earlier post on Suppliers, I received a great comment from Pierre Martell, the CEO of Martell Home Builders in Moncton, Canada, that I want to share with everyone. Their mission is to build customized homes in 99 days on budget. Their website is their primary selling tool.

To accomplish this, they use a network of subcontractors. As a start up in a very competitive industry, Pierre quickly realized how critical the performance of his suppliers was to his success — thus his 100% agreement with my supplier post.

So to attract maximum supplier cooperation over his competitors, he came up with what I think is a simple but brilliant concept. I know from experience that the single best action you can take to be a great customer to a supplier is to PAY YOUR BILLS ON TIME.

Pierre brought this maxim to a new level by creating the idea of paying all of his supplier invoices via Electric Fund Transfer (EFT). According to Pierre, this has worked to perfection and helped propel his company to formidable success in a short period of time.

Many times in my life, I have heard of a new idea and said to myself, “This is so simple, why didn’t I think of it?” This is one of them. I would have jumped on this idea in my earlier businesses. Where were you Pierre?

I can just imagine the suppliers’ reactions. They had their payments much sooner as there is no mail delivery time which historically gets slower, no clearing the check time, no running to the bank to deposit time, etc. It also clearly sends a message that this customer is committed to pay their bills on time. The end result is loyalty to the customer and 5 star service to satisfy him. Pierre tells me that as of this date, none of his competitors have adopted electronic payments. Amazing, as surely they have heard about it from the suppliers.

You might want to think of another way to employ this idea. Reward your best suppliers by creating a special club for them that you could call Suppliers Platinum Club. (My guess is you can come up with a better name.) You could spell out the criteria for the supplier performance you expect. These special suppliers will feel honored, while getting their cash faster.

This is an example of the Entrepreneurial thinking that Small Businesses need to adopt to better compete with their wealthier rivals.

Thanks for sharing, Pierre.


Don’t Overlook Your Suppliers

Don’t overlook your suppliers–they are hidden assets and can help your business grow.

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 business owners seem to get this supplier issue backwards. They think that because they write the order, they’re in the dominant position and can exploit it with unreasonable demands, including personal perks.

Let’s get this right–you need good and reliable suppliers. When you find them, treat them like gold. Work as hard on building a good supplier relationship as you do building a relationship with your customers.

And be loyal to your good suppliers. They are essential to your business’s good health and growth. They are a nuanced bootstrapping strategy.

Let’s briefly look at all the ways suppliers can impact your company.

  • Quality: Supplier components can positively or negatively affect the quality of your product. Higher quality increases customer satisfaction and decreases returns, which adds cash to your bottom line.
  • Timeliness: Their timely deliveries are crucial to how customers view your reliability. A quick turnaround can become the key to minimizing your inventory, which in turn translates to less risk of inventory obsolescence and lower cash needs.
  • Competitiveness: They can give you the one-up on your competition based on their pricing, quality, reliability, technological breakthroughs and knowledge of industry trends.
  • Innovation: Suppliers can make major contributions to your new product development. Remember, they live their product more than you do; they’re working to be on the cutting edge of innovation for their product. The good ones will understand your company, its industry and needs, and can help you tweak your new idea.
  • Finance: If you’ve proven to be a considerate, loyal and paying customer, you may be able to tap into your suppliers for additional financing once you hit growth mode–or if you run into a cash crunch. That financing may take the form of postponed debt, extended terms on new purchases, a loan, or an investment in your company.
    All of these improve your cash position.

It’s OK 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.

There are times you need to replace a supplier because you have outgrown them and they can’t perform to your new expectations. Before dropping them, however, you might try to help them change to keep up with you.

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 keep a second or multiple suppliers on hand, and don’t be embarrassed to tell your key supplier that you’re doing so. They will appreciate your honesty. If your supplier is savvy, they’ll also know that you need backup suppliers on key products and services if you ever plan on raising money (lenders are sure to ask that question).

How to Be a Valued Customer
These ideas assume, of course, that you are a customer that somebody out there wants. In order to be a valued customer to your suppliers, here are a few things you should do:

  1. Always pay 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. If 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.
  2. 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 an honest projection of your needs, and keep them abreast of any significant changes in that estimation. When developing your lead times, it helps to be knowledgeable about your suppliers’ production methods and needs.
  3. Personalize the relationship. Visit suppliers’ offices. While you’re at it, include them in some of your strategy meetings. Invite them to break bread and invite them to your office parties and picnics.
  4. Share information. Keep the good suppliers aware of what’s going on in your company. Tell them about changes in key personnel, new products, special promotions and so on. Many times, you’ll find that good suppliers can be help you find new customers.

Developing good relationships with suppliers is not a complicated process. Be communicative, tell them of your needs and standards, treat them fairly, be demanding, be loyal, and pay them on time. It’s that easy.

This article was written for April 6, 2010

FACTORS: How They Can Help Your Cash Flow and More

Factors finance $120 billion in receivables, yet most small and start-up businesses are not aware of them. Business schools rarely acknowledge them. However, they can alleviate your cash flow problems. They can loan you or advance you money against your receivables and in some cases against your inventory. In other words, your receivables are an asset that the lender (Factor) purchases.

The Advantages of Using Factors:

  • You get payment for your invoices within days. This allows you to pay your suppliers on time, to build trust  with them, and to take advantage of their cash discounts. It is a financial tool that speeds your business’ cash flow. Factors do not lend money on purchase orders.
  • All your costs are variable.
  • Factors check the credit of all your customers and would-be ones. Thus, you get more accurate and current information than if you performed this function on your own. More money is saved by eliminating the need to hire a credit checker.
  • Factors collect all your receivables. In today’s world, the majority of customers like to stall the payment of their bills. Some will not pay until someone calls them for payment. The Factors have more leverage than you as an individual have. They may represent 50 suppliers of one customer.
  • Factors act as insurers of the receivable. If after you ship a customer and the customer goes bankrupt, the Factor may be stuck, depending on your contract, not  you. This feature can help you sleep better as well as eliminate your bad debts.
  • The Factor can take over some of your administrative functions and save you the resultant labor costs. On one of our game companies that was created around a licensed product, the Factor supplied us with data on monthly shipments which acted as our Royalty statement. They also provided us with total shipments by territory or account which we used as our Sales Rep commission statements.
  • You can get money even though you don’t have a good credit rating. The Factor is only interested in your customers’ credit ratings.

The disadvantages of using Factors are the costs, which can be high in some cases, and they may alienate some of your customers with their collection techniques. You need to read and understand their contract carefully.

You can locate an appropriate factor by going to the website of the International Factoring Association or ask your local banker, SCORE, or SBDC office.

(This post is excerpted from Chapter 11 of Bootstrapping 101.)

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