Competitive Advantage To save your company money, you should consider doing several things. First, periodically evaluate suppliers’ performance and your relationship with those suppliers. Second, learn to negotiate. Third, make a point of becoming friendly with the decision-makers at your supplier companies. Get to know the principals well enough that they will return your phone calls.
Here’s an example: In spring I received a letter from a supplier indicating that the company’s prices would be going up 4.5%. That’s not a huge amount, but I did not anticipate these increases. My response was to call the president of the company. I reminded him that his company had raised prices not long before this, and that the effect of the additional increase would hurt my company. He said, “What would you like me to do?” I told him that I’d like him to consider moving the date for the price increase by several months. He agreed to do that. As a result, we saved thousands of dollars.
Another example: I have a window supplier that gives us a 2% discount on service costs. I have a full-time in-house service technician, and three-fourths of his salary is paid through service credits that have been negotiated with my suppliers. My service costs run about 1.5% annually. But why am I not entitled to the full 2%, especially when we’re often required to do service as a result of something the manufacturer did? Say we go to the house and unwrap the window and the grids are missing. The homeowner wants the window installed that day, meaning that the service guy has to make a second trip. I ask the manufacturer to pay for the cost of that second trip.
A third example: My siding supplier has no formal co-op program in this area. So I asked for, and got, a per-square discount, issued against purchases, to help offset my advertising for their product.
If you don’t ask, you don’t get.
Have a Backup I have primary suppliers for windows, siding, and roofing. I also use secondary suppliers for those products. That doesn’t mean I’m going to spread my purchases equally. What it means is that I give the bulk of my business to my primary supplier and a small percentage to the other suppliers. That gives me leverage with the primary supplier, who knows I’m not locked in. It also gives the second- and third-source suppliers an incentive to give me their best price and service, since they hope that my primary supplier will screw up and enable them to get the bulk of the business.
I’m a believer in dual sources. If you’re not using multiple sources, how do you know you’re getting the best price and service, since you have no benchmark to compare things to? Moreover, say you commit to a single supplier at good terms and are enjoying excellent service. Three years pass, and things have changed. The supplier has become big and powerful and is, in effect, running your business. You decide this is not good, but changing is tough if you’ve burned your other bridges. It’s relatively easy to build relationships if you’ve been doing business with a second and third source all along.
When to Change The chief question you need to ask about suppliers is simply whether or not you have a good relationship. If you don’t, you need to either work on it and make it a good relationship or figure out what is wrong and look for alternatives. Sometimes management changes at a supplier. You may have had a positive relationship with one of the principals, but now he’s gone and you have to figure out if you want to continue with that company. Sometimes a supplier’s business philosophy changes over time. We’ve had several suppliers that seemed to value the home improvement dealer’s business, then turned around and began selling directly to big boxes or large lumberyards — and suddenly you’ve lost the value you had to them.
Changing suppliers is a weighty decision. Why would you want to do it? Sometimes there are problems, and the problems won’t be fixed. Say that, as a result of something the supplier is doing, you no longer have a competitive edge. Or say you’re not being treated the way you should be treated. This can put you at a disadvantage in the marketplace — and no home improvement contractor can afford that.
Making the Change Changing suppliers — especially if it’s a manufacturer relationship — isn’t easy. Think about all you have to do. You’re changing not just your product, but also your pricing, your literature, your samples. For years you’ve been telling your salesmen that the product they’re selling is the best in the business, and tomorrow you’ll be telling them that everything you said yesterday is no longer true.
You have to begin planning several months ahead of the actual change. The important thing is that you do it at the optimum time for you. Don’t do it during the busiest time of the year or when you owe the supplier or manufacturer a lot of money. Maybe you’re owed credits, services, or rebates. Clean up that side of your ledger. For instance, many suppliers have a 2% year-end credit. If you break away in November, that wipes out the 2% credit you were going to get. (I negotiate credits for the month, not the end of the year.)
The fact that you’re serious about switching may prompt your supplier to look at you and your business differently. In fact, if you do it right, the supplier may start offering you things you were never offered before. You’ll start getting phone calls wanting to know what it will take to retain your business or to get it back. If you haven’t made the change yet, you’re in the best possible bargaining position.
But say you choose to proceed. How would you, for instance, select a new windows supplier? You could simply sign on with the company that offers the best price. Or you could compare suppliers in more detail. I created a grid to help me do this. I evaluated six companies and came back to the manufacturer I had originally favored and said: This is what you have to do to get my business. The manufacturer said: I can’t. I said: These three companies can.