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Brick No14: Treat your suppliers the way you would treat your customers (Part 1)
By Matt Weston, Tuesday 4 November 2003 Treating your suppliers the way you treat your customers will help you build valuable, trusted relationships that will in turn help you achieve your business goals. It will give you a real edge over the many companies that still cling to outmoded 1970s principles of squeezing suppliers hard and stringing out payment for as long as possible. As a small business owner, you are the face of your business, and you have a unique strength: the ability to get close to your customers and suppliers, and to work together to help both your business and your suppliers'. The closer you get to your suppliers, and the stronger the relationships, trust and respect you build, the better your chance of business success. The long-term upside in terms of costs and word of mouth far outweigh any short-term relief the old approach might have given you. Today, I want you to do just one thing – make sure you jettison the 1970s concept of supplier management in favour of this new, better approach. On Friday I'll follow up with 8 practical ways to put this 'Supplier as Customer' ethos into practice. Don't treat your suppliers like this 1970's style supplier management is built on these 4 crumbling pillars – – Squeeze your suppliers, keep them on their toes, make sure they know they're expendable – Keep your distance, don't build personal relationships, business is business after all – String out payment days for as long as possible to boost your balance sheet – Remember you're the customer, so be as demanding and as unreasonable as you like This approach should be dead in the water, yet many companies, large and small, stick to it like superglue – because it helps cashflow and the balance sheet, albeit artificially. But stringing out payments gives the impression that your business is in trouble – both to suppliers and your staff. It's a waste of management and staff time – I've worked in companies where staff have been unable to finish crucial must-finish tasks, because they've had to deal with the constant distraction of angry calls from suppliers who haven't been paid. Under the old approach, your relationships with your suppliers can only do one thing – disintegrate. I've seen relationships go down the toilet because of consistent late payment, and poor supplier management. If you treat your suppliers badly you drop from the front of the queue of priorities to the back. You'll find yourself having to pay for 'extras' that would otherwise be thrown in as goodwill, and suppliers will stop bending over backwards to deliver on time and in emergencies. You might find your credit terms are tightened up. It’s no longer that unusual for suppliers to 'fire' poor customers. Conversely, you might drive them out of business through harming their cash flow. Fine, take your time paying the big, faceless utilities, but do you really want to send another small business to the wall? What's more, bad news travels fast, if you're a late payer and poor customer, you can be almost sure that you're being badmouthed in industry circles. First-hand, I've seen credit ratings suffer because of the 1970s approach – the more you stretch out your creditor days, the more likely your credit rating will suffer, and the more likely new suppliers will offer you unfavourable credit terms. How M&S turned on its trusted suppliers Marks & Spencer's problems didn't start with its suppliers. It simply lost touch with what its customers wanted. Then, in a kneejerk reaction, M&S turned on its trusted suppliers. The company had built a wonderful reputation on the quality of own-branded product manufactured and delivered by a core group of chosen suppliers. It had invested vast amounts of time and effort to help suppliers – for the previous half-century it had been the holy grail to be a M&S preferred supplier. But when the business started to go the wrong way, what did M&S do? It squeezed the suppliers hard (because it knew its suppliers depended on M&S business), demanding they cut prices. Ending 30 year contracts helped put companies like the bra and knickers supplier, Williams Baird, out of business. Now prospective suppliers must think 'Do I really want to supply M&S?' Supplier as Customer I'm in good company. Management guru, Tom Peters, who first vaunted the idea of getting close to the customer, is also a disciple of the value of 'Supplier as Customer' – as an approach, attitude and ethos for doing business. If you put your supplier first, and try to understand his or her business, you stand to benefit like this – (1) If you care about your supplier's business, he or she will care about yours. If you care about helping them achieve their goals they will feel like a stakeholder in your business as well (2) The closer you are to your supplier, the less likely communication errors are to occur. Your supplier is more likely to be open and honest about problems, and you can work together to tackle them (3) Build a close relationship with your supplier, and you'll get a deeper feel for market and industry trends – changes in raw material prices and new technologies for example (4) Good news travels fast – you're likely to get positive referrals, and good word of mouth due to your strong supplier relationships (5) If you have a personal 1-to-1 relationship with your supplier, you'll always have a friend in a tight corner (6) If you're able to pay consistently early or on-time, your supplier may be able to pass on a discount, particularly if there are up front raw materials costs In the next brick – 8 ways to put this approach into practice In the next brick I'll put forward 8 ways that will help you put this 'Supplier as Customer' approach into practice. If you put them into action, your supplier relationships and your business will both become measurably stronger. 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