Operations Management

Are You a Valuable Customer To Your Suppliers?

Written by Andrew Goldman for Gaebler Ventures

We spend so much time evaluating our suppliers' performance, we often forget to measure ourselves. Are we being a good customer to our suppliers? This can greatly impact the way we are treated by our suppliers.

We often measure ourselves in terms of customer service.

We want to know how well we are serving our customers and how we can improve. Any company that plans on succeeding understands this.

We also measure our suppliers in terms of reliability and performance. We expect our suppliers to perform and when they don't deliver or meet their promises we expect an explanation.

While these are all appropriate areas for metrics, small businesses often ignore a key element of tracking our performance. Are we a good customer to our suppliers? This is an important question and should be analyzed.

If we are not a good customer to our suppliers, we might be less likely to get the exceptional service that we might expect. Material may be delivered on time, but will our suppliers bend over backwards if we have a shift in demand and need a favor? Chances are that if we are not a valuable customer to our suppliers, we are less likely to receive this "exceptional" service.

How do we determine if we are a valuable customer to our suppliers? Well, valuable is not necessarily a financial term. We can be a valuable customer and not purchase millions of dollars of product from our supplier. Just because we are a small business and do not purchase in large quantities does not mean we cannot be a valuable customer.

In fact, in many instances a small company can be more profitable to a supplier due to higher margins. If a larger company is ordering the same material in huge lot sizes, the margin per piece of material will be higher with the small business.

Simply buying products or materials that have a higher margin does not necessarily make us a valuable customer either. By being a valuable customer, we are living up to our end of the agreement in a supplier-customer relationship. This means we give ample time to place an order, we follow the supplier's buying procedures and we pay our bill on time.

Paying the bill on time is a crucial element of living up to our end of the bargain. Occasionally with small businesses cash flow can be tight and a bill cannot be paid on time. If we have a positive relationship with our suppliers, this information can be relayed and we're likely to get cut some slack. If we do not have a good relationship with our suppliers, we might not get the extra wiggle room.

I consulted for a company that did not emphasize being a valuable customer to its suppliers.

When I came on board, cash flow was tight and the suppliers would not deliver any new material until the overdue bill was paid. This put the company in a major jam. They needed new material to produce product to get the money to pay off the old bill. While this is obviously an example of dysfunction, it illustrates an important point about good supplier-customer relationships. Had the company maintained a positive relationship with the supplier, I am certain the supplier would have helped out during the cash flow crisis (I know, because I asked).

You should ask your suppliers how you are performing as a company. They will provide you with honest feedback and you can understand things from their point of view and seek to improve the situation.

It's important to remember that our suppliers are not our enemies. They are an extension of our company and a crucial link in the supply-chain.

Andrew Goldman is an Isenberg School of Management MBA student at the University of Massachusetts Amherst. He has extensive experience working with small businesses on a consulting basis.

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