As with so many other facets of business, the 80/20 rule applies to cataloger/vendor relationships: 80% of your sales are likely to be of products from 20% of your suppliers. So working well with those key suppliers is critical — especially for business-to-business catalogers, which often rely on special services such as just-in-time delivery or highly specialized and customized merchandise.
Solidifying relationships with your most important suppliers can help to ensure that your company — and not a competitor — receives priority treatment. Let’s say your key manufacturer of widgets finds itself temporarily unable to fill orders from all its customers right away. If your company has cultivated a strong relationship with the manufacturer — one that borders on a partnership — chances are excellent that you will receive the widgets before its other clients do.
But developing an airtight relationship with a supplier doesn’t just help you to stave off disaster. It can also give you access to “new, innovative, products that no one else has,” says Mary Ann Kleinfelter, vice president of sales and marketing for the Nashua, NH-based Delta Education, a direct marketer of math and science products for teachers.
Delta worked with one supplier for more than a year to develop a classroom ecosystem — a combination garden/aquarium. While the ecosystem was just recently offered for sale, Kleinfelter predicts that it will become one of Delta’s top 50 sellers, out of thousands of products.
Share and share alike
To make the most of your relationship with a key supplier, you need to share company information with the firm. That’s a switch from the traditional mindset of giving suppliers as little information as possible, notes Philip Russom, a Waltham, MA-based business consultant. Companies used to worry that if a vendor knew how important it was to a client, it would use the knowledge as leverage in pricing discussions.
Now, though, companies are recognizing that if they want better service, such as just-in-time delivery of parts, they need to let their key suppliers know the inventory levels. Similarly, collaborating with a supplier on product improvements means sharing information on what works and what doesn’t. In the case of highly sophisticated products built to a cataloger’s specifications, the company may ask the supplier to sign confidentiality agreements.
Operations employees at New Pig Corp., a Tipton, PA-based manufacturer/marketer of industrial cleanup supplies, speak to key suppliers on the phone daily, says vice president of manufacturing Doug Horrocks. New Pig also schedules quarterly meetings with each of its key suppliers. Executives bring each other up to date on events and trends in their businesses and review ongoing projects. And New Pig’s owner meets once or twice a year with his counterparts among his top suppliers, to maintain a personal as well as business relationship.
Upbeat, a St. Louis-based cataloger of outdoor furniture and accessories for property managers, institutions, and local governments, shares with vendors information such as whether its competitors are shortening delivery time frames. Although not every vendor can make a corresponding change, those that don’t have this competitive information may be at a disadvantage, says vice president of sales and marketing Pamela J. Hutchins. Indeed, if a vendor is unable to keep up with the advances made by its competitors, Upbeat may drop its line.
For all the advantages of developing strong relationships with key suppliers, depending too heavily on a handful of vendors can be financially risky. If a supplier that provides a critical part of your product offering goes out of business or suffers a fire in its plant, its woes could threaten your own business.
“If the supply [from a key vendor] stops for a day, you can lose millions of dollars” in potential sales, says Randy Covill, senior analyst with AMR Research in Boston. “It can be the profit or loss for the quarter.”
For that reason, “we try not have any one supplier control too much of sales,” Hutchins says. Upbeat makes a point of selling merchandise from at least two suppliers in every product category.
New Pig sometimes finds it necessary to rely on a single supplier for certain products, especially if it worked closely with the vendor in researching and developing the merchandise, says the cataloger’s manufacturing purchasing manager Curtis Douglas. To mitigate its risk, though, New Pig has its supplier sign a contract that, among other things, spells out how the vendor would handle an unplanned shutdown due to a natural disaster in its plant.
For instance, the supplier might plan to shift the manufacturing of New Pig’s merchandise to another plant. Also, both New Pig and the supplier typically carry a few weeks’ overstock inventory to help them get through a shutdown.
Getting Off to a Good Start
When working with a new supplier, even one you suspect may account for a significant portion of your sales, take things slow and steady. That’s the advice of Pamela J. Hutchins, vice president of sales and marketing of outdoor supplies cataloger Upbeat. When beginning a partnership with a supplier, the St. Louis-based cataloger spells out the service level it expects. As a marketer, Upbeat’s ability to provide immediate responses to customer’s questions is its point of differentiation; if Upbeat’s customer service employees need additional product information, they’ll often put the customer on hold while they call the vendor.
“We tell [suppliers] it’s a big responsibility on their part,” Hutchins says. If the supplier can’t deliver, it’s better for the companies to postpone working together. While Upbeat is approached by 30-50 potential vendors each year, it enters into alliances with only two or three.
After spelling out its expectations, Upbeat buys only a small amount of a new supplier’s products, closely monitoring the company’s service and quality levels, as well as the sales generated by it products. “If the resulting service passes our test and the sales volume warrants it, then we will ask the vendor to present more products to us for consideration,” Hutchins says.
Close vendor supervision is important every step of the way, agrees Mary Ann Kleinfelter, vice president of sales and marketing for Delta Education, which sells teaching supplies. Set clear deadlines, Kleinfelter advises: “You want benchmarks that say ‘In two weeks, we’ll have done A, B, and C, and in a month, D, E, and F.’”
— KK