Shanu Singh Guliani

Are Your Vendors Managing You?
February 19, 2007

Vendors that manage you, rather than the other way around, can be very expensive. They can take several points of gross margin off your profitability and tie up valuable cash in unnecessary inventory. Be proactive in your expectations and hold each and every vendor to them, therefore you’ll have more time to focus on the really important things, like working with your customers, training your staff, and growing your business.

Working with branded and non-branded goods, I’ve found that there are two types of vendors. There are vendors who are even smaller than you are and seem to want to do anything and everything to earn your business. They will offer lenient terms on payment knowing you will pay them, yet they seem to have little understanding of customer service. When you take the time to lay it out for them, they quickly say, “Don’t worry Mr. Jones; it can be done.” If only they could deliver merchandise as quickly and consistently as they deliver responses. Unfortunately, the one thing these vendors almost always have, in addition to all the answers in the world, is a killer item or line that you simply can’t live without. Or so you think.

Then there are vendors that are larger than you. They usually have a brand name that they say you can’t live without, and are constantly reminding you of that. Possibly, you can’t because of the draw of customers, but whether you can live without their products may be another thing altogether. Their idea of customer service is that you will do it their way…their huge order quantities, their payment terms, their return policies, your name hidden in the background with their advertising, etc.

So, with all that in mind, here are a few thoughts on managing your vendors:

• The Mutual Relationship. If your relationship with your vendor isn’t mutually profitable, you need to renegotiate. You can bet is the relationship was not profitable for your vendors, you’d be hearing from them. It needs to be a win-win.
• It’s All About Your Customers. You are the reason there are numerous “designer brands” out there. You’ve been able to develop a market demand for their products in your store. The vendor may have spent oodles of money building their brand in advertising, but you have proven that customers will buy their products in your store. The proof is in your re-orders to the vendor. Remember the vendor doesn’t want to lose your account. If they lost your business, they’d have to find another account to replace you, without assurance that their new retailer would be able to do as much business as they’ve been able to do with you. When you’re negotiating with a branded vendor, don't be afraid about insisting on what you need. They need you as much as you need them.
• The Small Vendor. A small vendor who can’t perform…deliver on time, produce a quality good each and every time, replenish on time, trade in old stock, etc. is a small vendor who is likely to become even smaller. Before tying up your money in profits that are minimal to the draw of potential customers from a larger brand consider; what marketing initiatives have they made or are willing to make? What is special about their line? Can you get their non-branded goods from a manufacturer in Hong Kong, China, India, or elsewhere? When you are negotiating with a smaller vendor, don’t settle for less than you need. Make it clear that you want to do business with them, that they are the vendor-of-choice, but if they can’t deliver what you need you know other vendors who can. And, if necessary, don’t be afraid to take your business elsewhere.
• The Large vendor. If you are working with larger vendors your costs of doing business with them will likely be higher than with other vendors. So, there needs to be a compelling reason to deal with them at all, and that reason will probably have a lot to do with the intrinsic value of their products. If that’s the case, then be sure that you offset the higher cost of doing business with a higher than usual margin on their items. Get exclusivity in your area. Make sure to be listed as an authorized retailer on their website. Request terms that are equally advantageous. Find out about the amount they participate in marketing. Request in-store material…brochures, an Ad you can place in-store, specialty pieces for your grand opening or an in-store event.

By managing your vendors, rather than the other way around, you save time and energy for other things -- like growing your business.

Posted by Shanu Singh Guliani on February 19, 2007 | Comments (0)