Question

During the last meeting of your management team, the chief financial officer presented a plan to phase out the airline’s major supplier of expendable supplies (such as oil, tires, hydraulic fluids, and other non-engine related parts). He had received a bid from a competing firm, Apex, to provide these supplies at an annual savings of at least $10,000. The director of maintenance spoke against the proposal: “I know that Apex Suppliers are a little less expensive, but our current supplier, Vest Brothers, which has been a very dependable supplier; they’ve shipped items needed in an emergency on Saturdays, Sundays, and holidays. They’ve always taken back any overstock item and given full credit to us. Although Apex Suppliers has a decent reputation, I don't think they’ll give us the same service we’re currently getting. It takes a long time to learn to work together like we do with Vest; price isn’t everything.” The financial vice-president responded, “Well, Apex has assured me they will give even better service and provide electronic data interchange (EDI) for ordering and billing; this will reduce lost or misplaced supplies and parts by 10%. If they don’t perform as promised, we have a 30-day cancellation clause built into the contract. Remember, we’ve given Vest Brothers a chance to bid again, and they’ve told us they’re at rock bottom prices now. But I personally think that if we continued to play one against the other we could get even lower prices.” The worried maintenance chief retorted, “I sure like the idea of saving 10%. But if it doesn’t work out with Apex and we want to get Vest back, we’ll have to start building the relationship again. And anyway, don’t we have some responsibility to suppliers as well as our other publics?” “Not if the suppliers can’t meet the competition’s prices,” countered the VP. What should your firm do?

1. Exemplary service pays: Keep your current supplier, Vest.

2. Business is business; the bottom line is all-important: Switch to the low bidder, Apex.

3. Attempt to continue to work with both suppliers, working one against the other until an even better deal emerges.

Answer 1

Exemplary service pays: Keep your current supplier, Vest.

Different people might have different opinions.

Here's a few reasons to support my answer-

Your approach to suppliers needs to be part of your strategic plan, as almost every company, whether product-oriented or service-oriented, is supplier based. Many business owners seem to backtrack on this supplier problem. They assume they're in the dominant position because they write the order, and can manipulate it with unfair requests, including personal advantages.

You need reliable, good suppliers. Do treat them like gold when you find them. When you develop a relationship with your customers, it is necessary to build a good supplier relationship. Also, be loyal to your good suppliers. They're important for the good health and growth of your company.

Here are the ways suppliers can affect your company-

• Quality: Supplier components can influence the quality of your product in a positive or negative way. Higher quality boosts customer loyalty and lowers returns, adding cash to the bottom line.
• Timeliness: Their timely deliveries are critical for how the value is perceived by customers. A fast turnaround can be the secret to reducing your inventory, which in turn results in lower risk of product obsolescence and lower cash requirements.
• Competitiveness: Based on their pricing, efficiency, reliability, technical breakthroughs and awareness of market developments they will give you the one-up on your competition.
• Innovation: Suppliers will make a major contribution to the production of your new product. Know, they live their company more than you do; they are fighting with their company to be at the cutting edge of creativity. The good ones will understand your business, your industry and your needs, and they can help you tweak your new idea.
• Finance: If you have proved to be a considerate, reliable and paying client, you will be able to rely on your suppliers for additional funding once you reach growth mode—or if you run into a cash crunch. That funding may take the form of deferred debt, extended terms on new purchases, a loan or an investment in your company.

In choosing a manufacturer, an significant consideration is to specifically state the price and time needs. Hold their accountable to the suppliers. Secure that they stay competitive. Make it crystal clear that you will never pay more than rivals would ever pay.

Creating strong supplier relationships isn't a complicated operation. Ask them of your expectations and requirements, treat them equally, be polite, be cooperative and pay on time.

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