Several years ago, a contractor client was struggling with inventory management. I set up a meeting with their primary supplier to discuss how the supplier could essentially take responsibility for all aspects of their inventory. We discussed seasonal planning, min-max trigger points, racking and slotting, order management, receiving management and more. This strategy had the potential to streamline the contractor’s daily work flow plus reduce the contractor’s headcount by half a person … a part-time person they had hired who was trying to solve problems that were created by the inventory chaos.
The supplier was asked to provide this support in exchange for a business commitment to all of the contractor’s business. They agreed that this was reasonable as long as the supplier kept an eye on their pricing to ensure that they were kept “competitive” in their market. Their understanding was that “competitive” meant being within a percent or two of the best pricing that similar contractors received.
The supplier performed as promised, and the contractor benefited from the reduced overhead costs that come from dealing with a single supplier.
Several years passed,and the contractor experienced significant growth. Their warehouse manager left the company to move back East with family, and for the first time in several years, the contractor’s top manager had reason to assess how things were going. He was disappointed to find that the original plan wasn’t working,their inventory was ill-managed, and the warehouse manager had taken over some tasks that had been the supplier’s responsibility.
The supplier hired a new warehouse manager, and part of his initial steps included checking on pricing. Other suppliers were happy to provide their best pricing to win new business, and it quickly became clear that the current supplier had not honored their promise to keep the contractor competitive. This was enough information for the contractor manager to cancel their commitment to the supplier.
The contractor now has a purchasing agent who is buying from the lowest price bidder. I am starting over, trying to convince them once again that this added purchasing and management overhead is costly and unnecessary if they can find the right supplier. Given what has happened, I’m not sure they can be convinced to try it a second time.
What a shame. The supplier had all of the contractor’s business and lost it because they either got complacent or greedy. There is little likelihood that they can ever regain this relationship. Worse, the contractor now feels that all suppliers can’t be trusted and has hired a purchasing agent, representing $50,000 in overhead that they must pay for… by pressuring suppliers to provide lower prices.
The Proposition Selling process will help you establish long-term customer relationships that earn commitments to significant new business. It is vital that you don’t take your commitments for granted and, in fact, continue to look for ways to strengthen them. Don’t let complacency or greed ruin what took significant time and effort to create.