Do buyers initiate new supplier relationships with the long term in mind or is a request for quote simply a low price search? There are lots of opinions on this, and situational circumstances vary widely.
Proficient Sourcing deals with situations involving custom manufacturing of parts, assemblies, and occasionally building complete products and equipment for others. As is the case with many markets, we believe there are indisputable benefits to long term supplier-buyer relationships. Getting there, however, is problematic, with the initial selection being especially difficult.
On occasion we observe an obsession with price; obviously a vital part of any supplier relationship and an essential metric for sure. However, in several metalworking situations, we’ve found competition bidding on work with pricing less than the purchase cost of the materials involved. This means the company may have an existing inventory or is using off-fall from some other work—or just trying to buy the business. While it’s a good deal for the buyer, we wonder what happens if and when time erodes those advantages? The buyer may then have a big problem.
If you can enlighten us on this point, it would be an interesting blog subject. If the buyer has knowledge of material pricing, is it wise to enter a relationship where the numbers are, well, just a bit suspicious? In particular, if the material pricing is evident this question might be worth considering. Is this a good decision for your business, especially if some long term relationship is sought?
We recently found a London-based company, Old St. Labs, who’s blog gives thoughtful comments on the potential longer term value of supplier-buyer relationships:
Think of suppliers as essential investors in your business venture. Not only can these suppliers create quality products and store them at affordable rates, which in turn can expand your business; but, they can also be the key factor in a business’s failure if they fail to meet expected deadlines or produce bad quality products.
What Benefits do Suppliers Bring
- Satisfaction through high quality finished products, which results in higher customer satisfactory rates. This also decreases overhead costs as businesses are less likely to have to refund customers for returns.
- Timely delivery, which increases the customer’s satisfaction and their reliability in the business.
- Lower overhead costs from consistently offering fair pricing, timely delivery and their knowledge of your particular industry. So long as your fair with your supplier and they’re fair with you, they continue getting business and your business continues to grow.
The Importance of Supplier Innovation
Lastly, and most importantly, suppliers indirectly grow businesses through innovation. Most businesses struggle to keep up with the changes in their customers’ needs and wants. Most businesses put a handle on these changes by offering ways for customers to interact and give feedback on their products and services. In the wake of social media, many businesses offer customers the platform to give feedback whether good or bad in a public forum. They also offer customer surveys following customer service phone calls or emails to get an idea of what the customer needs. However, the most untapped source that could hold the key to containing all of these answers is your supplier.
One thing we believe might be interesting is to structure your RFQ to require a price with and without the material. This is especially suggested when the buying company is already buying that particular material. Those quotes will tell a story you may find very helpful.
We think it ‘s appropriate to be suspicious of pricing too good to be true over the long haul—unless your needs are short term or one-time. Just beware: ultimately you may be sacrificing those overall benefits you may value in long term relationships.