October 28, 2020

Supplier Cost Vs Added Value by Shelley Mentor

JOHANNESBURG – Any big business was once a small and every business has to start somewhere. What will ultimately get any business off the starting blocks of entrepreneurship is a paying customer. The number of paying customers you are attracting and keeping is also crucial to your success.  Let’s dive deep into the question of your suppliers either costing you money or adding to your bottom line.

The Supplier, You & your Customer

Every business is a supplier to another business or person. The reality is that choosing the correct supplier and being a worthy supplier is crucial to the success of any project.

The reason you would look for a supplier is logical, its because they offer a product or service that you are not able to supply inhouse. They either need to act as a complementary functioning service to your business or actually form part of producing a component of what you offer.

Making the wrong decision can cost you millions in delivery, growth, and profit. It will also affect a delay in your go-to-market strategy and the ability to secure future business.

Have you ever noticed when a company is pitching for your business how adaptable, flexible and willing to commit to anything in order to secure the deal? This all sounds exciting until it comes to actually deliver what was promised.

Review the obvious & hidden Numbers

Think about your costs, not only in the risk of running past the expected budgeted amount; but also in the cost of your opportunity to go to market. As well as the cost of your time to manage the incorrect supplier and brand reputational risk. 

Buying cheap can be expensive

Your decision needs to be based on many more contributing factors than just price. But once you have agreed on a price, it’s up to you to make sure you get your monies worth.

There is also a science in negotiating the best deal. However, you want your suppliers to be profitable. A supplier who is not making money won’t be around for very long.  Get the cost Vs value Vs profit stream equation correctly balanced.

Shelley Mentor Speaking to business owners in Johannesburg, SA.

Working with Small Businesses

With the increasing trend of small businesses opening up in the market, one needs to take into consideration the “what if” factor. What if they fall over, what if the one-man show gets ill. How invested are they – what’s the risk to your business if they delay delivery?

Do they clearly understand your vision and your request? Imagine dealing with a supplier that requires you to hold their hand every step of the way, it’s a waste of time.

If they are not able to implement with ease and deliver what is their line of work and expertise, it costs you.  It’s as good as you paying them to teach them how to do their job. 

What’s the financial impact of their non-delivery on you? It’s one thing to hear a supplier say “I’m sorry” or “I take full responsibility”.  Very often accepting full responsibility for something would financially destroy that supplier. So make sure they understand that upfront.

Draw up a shortlist of suppliers

Once you have a clear idea of what you require, identify possible suppliers who match your requirements. Narrow this down and if in doubt leave out. If something is not adding up at this stage, it’s going to multiply in problems down the line.

Key questions at this stage;

  1. Have they done this or something similar before?
  2. Are they financially secure enough to see this project through?
  3. How long they have been in business is not as important as how successful they have been in their endeavors
  4. Do they actually produce the product or are they passing it onto someone else? And if so, verify the “middle man”. 
  5. Don’t just ask for references, ask for proof and check it out – be prepared to ask the tough questions. You’re not referencing a finished product you are referencing the process to get to that product.

Whilst value for money is important, it should not be the key determining factor to your choice. Someone who is offering you something 50% lower than their competitor may take 50% longer to complete. And end up costing you more in the long run, not to mention the unnecessary frustration and aggravation along the way.

  • Understand their agenda, where do you sit in their picking list, are you a high priority to their cashflow?
  • What will they gain by having you as a customer and what do they stand to lose if they don’t?
  • Do they have the capacity to deliver?
  • What happens if they get more customers after you sign on the dotted line? Do they have the intention to correctly scale their business?

Once you are at the selection stage, ask how the project will be managed. 

Shelley Mentor on Alex FM, SME market interview.  [Photo by: LR Photography]

Performance measures for existing suppliers

  • Put a proper project plan in place with deliverables, manage this process closely. Often companies have very good sales teams who are highly trained to mold your requirements into what they offer.
  • It’s crucial that you know what you need so that you are not “swayed” along the way as the relationship develops, and end up buying something you do not need and pay more. Be open to advise from the professionals but stand firm in your deliverables.
  • Have weekly status if not daily updates for Key critical development areas, test and receive evidence of what is being promised is being delivered.
  • Fully interrogate their process – the salesperson is driven and paid on closing sales, who is going to see the end to end through
  • Ask them for a customer they failed with and understand why – how close is your risk-related
  • You might be the customer, in the beginning, they are willing to do everything for. But whats happens if they get too busy or the “sexy” is not so sexy anymore?

What do I do when my supplier is just not delivering

Often you are so far down the track of development or delivery when you realize that the supplier you choose in the beginning is not a perfect match. But because of the money already invested in the project, you may feel you are too deep in to pull out. It’s at this point that you need to establish, firm and committed boundaries. Also, have deliverables with penalty clauses enforced to ensure you get what you originally signed up for.

  • Don’t let your suppliers hold you to ransom, understand the legalities of what you have agreed and make decisions.
  • Don’t let your ego get in the way – if you have made a bad choice, own up to it accept it and understand ways to resolve it.
  • Don’t be hasty to appoint suppliers, rather take time to investigate their capabilities. Test before you swipe your credit card.

Choosing the correct supplier from the get-go is like a marriage if you make the wrong decision you are going to end up paying for it. At some stage, it will end in a messy divorce.

I am Shelley Mentor, a Business Accelerator Coach & Speaker.  To learn more visit http://shelleymentor.com/ or on social media @shelleymentor.

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Supplier Cost Vs Added Value by Shelley Mentor

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