Do you, the customer, take steps to ensure your suppliers’ margins are satisfactory? The subject of supplier margins was a recent article from Directworks, a company that provides sourcing and supplier management solutions purpose-built for manufacturers. The main point was that just like the customer, the supplier company must be profitable. Accomplishing that should be in the interest of BOTH sides if there is any interest in a long term healthy relationship. Our opinion on that follows, and we would encourage you to share yours via our blog. (Donna-feel free to edit that blog comment)
Suppliers are chosen for many reasons, and price is a primary one. In the competitive job shop world, most companies know they must offer superior performance with good pricing in order to win, let alone hold, good customers. It is also true that price relative to the competition is easy to determine; other factors may take more time to emerge.
Proficient Sourcing has invested significant time and effort to create a network of suppliers that have a history of on-time delivery of parts/assemblies built to specification with excellent service and competitive pricing. This means if you try one of our recommended suppliers you should get not only good pricing but all those other valuable properties as well. We believe you will find this a great value over time.
We are well aware there are companies who use price as the sole selection criteria. In the main, this is what occurs with government contracting by design, even though our experience suggests other factors are in play. Nonetheless, we have seen inquiries where the final decision was solely price based. While this can be an effective strategy, it may also be a double edged sword situation.
One example might be the lure of increased revenue and volume when a small supplier gets an opportunity with a major corporation. A supplier presented with such an opportunity may have difficulty recognizing the potential trap of such a relationship. In some cases the long term results may be wonderful for all sides, and that is a result we are all in favor of achieving. However, some giant corporations have policies that dictate the supplier provide annual cost savings, perhaps even specifying a percentage reduction requirement. This, too, can be a double edged sword.
Given experience, all suppliers rank their customers by profit potential (along with many other factors, such as reasonableness of communications). If you (the customer) are not profitable, despite large revenue, the supplier will surely begin to seek better customers. Once the supplier becomes less responsive, there is little chance of good news down the road.
The unwanted loss of a useful supplier, especially if abrupt and a surprise, can wipe out any savings achieved during the life of the relationship—and more. This is especially true if the supplier provides an unusual capability, even if the revenue involved is relatively small. There are cases where a giant company, faced with such a loss, had to buy a failing company or face the worse problem of quickly replacing a critical supplier.
Directworks summarized all this perfectly: “The best outcomes in business occur when everyone at the table is pleased with the deal. Suppliers who make a reasonable profit margin will serve you better and be there when you need them. Forcing suppliers into unreasonable profit margins may result in the lowest price, but that low price may ultimately come at a very high cost.”
So…when you find yourself in need of a manufacturer for some custom item please keep Proficient Sourcing in mind. If we can help you with a supplier you are very likely to find a company that helps your profit, and we would hope your business would help them as well.