Where is the line drawn in business? (Long)

[84porsche]

Here is my question, where do you business guys drawn the line in dealing with your vendors/distributors? A little background is that my company orders from a particular vendor and merchandise we ordered was defective. We returned 12 (approx $150 value each) of these items to the vendor over 9 months ago and they still have not got around to providing us the credit. We held on to another 6 that were also defective becuase I figured that they should credit the first batch before bothering with the 2nd batch. But today they call me and tell me that they refuse to take the 2nd batch back because I waited so long to do anything about it. I have called repeatedly, faxed and emailed consistently over this time period trying to get something done. I would love not to deal with the vendor but the product(s) they carry are at good prices and specialty items. Is this the cost of doing business. Opinions please.

[dhoward]

Sounds like they have you over a barrel and know it. Not a good position. Any other suppliers of the product?

[M.D. Holloway]

84porsche:
I am responding becuase this is my passion! Keep in mind, this is my 778 post - read the 777 thread and you will understand that I should have quit at 777 to preserve the glory - but alas, I must respond...it is my undoing.

Selecting products and vendors on price is never a good idea for several reasons. If you think of it like this, how many things do you buy on price alone? Orange Juice? Tee Shirts? Cookies? Cars? Houses? Nope, maybe gas, but I bet sometimes when you buy the cheapest gas you may wonder if it is any good or did they water it down (and yes, some jobbers do this!). My point is this. You rarely if ever buy anything on price alone, so why the heck would you (or purchasing) consider buying anything related to your business based on price? I will tell you why, becuase many times the only gauge business has is the diect cost pooll or the apparent bottom line. Job goes to the lowest bidder. Many folks do know know how to qualify performance and justify the higher priced item becuase they have never been taught how. Well, my brotha, help is here.

First and far most - what I am sharing with you is information I would normally charge for. I will leave out the details but will share the over all concepts. My billable rate is $700/hr plus expenses. Your a pelican brotha so it is gratas.

Here is what you have to do. I will use a simple example but the concept can be translated into anything - goods or services.
Lets take a silly example such as light bulbs. Every plant uses them, they buy many a year and typically they go with the cheapest. But that is not the smartest way becuase they may be spend much more in the long (or even short) run. So, how do you buy light bulbs for your plant?


Step 1) ID exactly what you need in product performance detail. That means the amps, size, durability, life, are a few examples but those are considered hard facts that can be easily quantified with product performance data. This may seem striaght forward but it is not. You have to establish what is critical to the quality (CTQ) and set up a quality function deployment (QFD). In this step you will need to identify the way in which the performance criteria is measured. ASTM is a great beginning source for this. They have been around for 100+ years and are in the business of setting up all sorts for testing and performance measurements. Check out their website at www . ASTM . org (maybe .com). Painstaken but incredibly valuable.

Step 2) Determine the value requirements needed for ultimate performance as it relates to your application. For instance, our light bulb example, prehaps one of the reasons why you buy so many light bulbs is beucase they tend to break easy when in transist or when being installed. This would mean that durablity is an important criteria. The best way to understand this is to track why these light bulbs are failing (burn out, break, short out). This will require a Failure Mode Effect Analysis (FMEA) to be carried out. Easy enough to do, just have to get the info from the guys that repalcing them, chart it up, identify the "signficant few" occurences.

Step 3) ID the non-direct cost pool influeneces, this has to do with things that are non-performanc product related such as does the light bulbs get shipped on time? does the vendor allow for on-line purchasing? Does the vendor allow for consigment purchasing? Do they charge for shipping? What are the minimums? What are the return policies? Does the vendor fix a price for a certain time frame? All these thisngs ahve to understood before the next step is taken. Also included are understanding what "Value Added Contributions" the vendor provides. If it is a light bulb, prehaps the vendor provides energy audits?

Step 4) Establish a Purchasing Specifacation: This is where you take all the info from the previous steps and lay them out in a document that has minimum requirments. Make the PS available for bidders and wait.

Step 5) When the PS due date is up, chart the performance criteria and non-direct cost pool influenes (these you may have to establish an internal rating system).

Step 6) Chart it up - analysis is required.

You will notice that the price never enters the picture - they will provide this and you should also have this charted but this will also have to be understood. Why spend 50% less on a light bulb that will last 60% less and have 25% less durability?

Takes work, many companies don't do this, they are too busy stepping on the ants as the elephants are coming over the wall!

If you need me, let me know, I can provide an atactive rate and will only accept compensation upon real savings and value recognition!

Step 7) Select the vendor that makes the most compelling argument.

[North Coast Cab]

Hold payment until the credit issues is resolved. Once their A/R person or CFO understands what's going on there will be a very quick meeting and descusion to resolve.

John

[mikester]

Originally posted by LubeMaster77
84porsche:
I am responding becuase this is my passion! Keep in mind, this is my 778 post - read the 777 thread and you will understand that I should have quit at 777 to preserve the glory - but alas, I must respond...it is my undoing.

Selecting products and vendors on price is never a good idea for several reasons. If you think of it like this, how many things do you buy on price alone? Orange Juice? Tee Shirts? Cookies? Cars? Houses? Nope, maybe gas, but I bet sometimes when you buy the cheapest gas you may wonder if it is any good or did they water it down (and yes, some jobbers do this!). My point is this. You rarely if ever buy anything on price alone, so why the heck would you (or purchasing) consider buying anything related to your business based on price? I will tell you why, becuase many times the only gauge business has is the diect cost pooll or the apparent bottom line. Job goes to the lowest bidder. Many folks do know know how to qualify performance and justify the higher priced item becuase they have never been taught how. Well, my brotha, help is here.

So explain to me why so many people shop at walmart then?

[M.D. Holloway]

They are not the cheapest - they have the widest selection and easy to access. Target has prices that are consistantly lower.

[M.D. Holloway]

also branding comes into play - what do you buy that is off brand? Maybe pasta? Beer? Cigs? Motor Oil? Cerel? Boxers? Shirts? Toothpaste? nope.

[Walko]

Ok
i cant help it for $700.00 per hour I would think up every way under the sun to tell you in the most verbous manner what you needed.

THe 20cent solution is the need of a lightbuld I WANT LIGHT>

Really though if more business stopped dealing with providers that won't give refunds when the product is defective they would soon improve the response time or go out of business.

In my day job I place 16 million dollars of insurance with one organisation per year and it all happens in one month that is why i am able to spend all day on pelican. After the placement you would think they would at least take me to lunch. Hell no they won't even return my call so what do i do Find another provider.

simple

My ramblings.

Michael

By the way I want to work in the US who got a job for me

[84porsche]

Mike H,

Thank you for your explanation. I appreciate you sharing your knowledge with me (us). Unfortunately, I am not yet a decision maker in the company where I work but what you have shared is a wonderful tool. Personally, I will pay for the better product that lasts longer that is "better" so to speak. In fact, I am trying in get a new/old vendor back as we speak, the company burned the bridge awhile back so hopefully it won't take a long time to rebuild it.

However, as you put in most businesses that cost is a significant factor and unfortunately the first thing looked at (bottom line). I previously worked with a guy that would drive an extra 50 miles to save 5 cents a gallon on gas. Its funny that you mentioned ASTM, the company I had worked for prior did many failure analysis tests of products to various ASTMs.

[84porsche]

Originally posted by North Coast Cab
Hold payment until the credit issues is resolved. Once their A/R person or CFO understands what's going on there will be a very quick meeting and descusion to resolve.

John

John,

Our company is on COD with this vendor so I can't hold payment otherwise we don't get the goods but your point is valid and would work under different circumstances.

[M.D. Holloway]

Yes, Walko, light is the ultimate goal here, but the direct and indirect cost pools associated with light are incredible. I know of several companies that have gone out of business becuase they didn't take acre of the money drain.

$700/hr is a bargin considering the hundreds of thousand of dollars that can be relized on the bottom line. These concepts are trained, not just consulted. Also - compensation is only paid upon actual savings are relized. This can take a month, a quarter even a fiscal year.

[84porsche]

Originally posted by LubeMaster77
$700/hr is a bargin considering the hundreds of thousand of dollars that can be relized on the bottom line. These concepts are trained, not just consulted. Also - compensation is only paid upon actual savings are relized. This can take a month, a quarter
even a fiscal year.

This is true. The cost of getting the right help in business can make all the difference. However bringing in the wrong help can also significantly hurt the business (not just the cost) so with this type of consulting, a good track record is somewhat important in my opinion which I am sure you have.

[Walko]

Mike H,

I agree that the the big picture must be looked at. The last company I worked for I showed how they caould save in excess of 1 million a year in one area without having to spend any extra money. Now remember that I work in teh insurance industry and aty the time I was in major claims so the money I was talking about saving was not potential savings but money that they would not have to pay out. Ie it went straight to the bottom line.

THe companies response well we would have to look at that and it would show us up to the CEO. With middle management attitudes like that no wonder so many industries are in the SH**T


Michael

[M.D. Holloway]

Originally posted by 84porsche
....a good track record is somewhat important in my opinion which I am sure you have.

Yep, documented and signed. One example - reduced the bottom line $84K first year, second year (with minor tweeks) another $25K recognized. Pretty nice return on their investment for 15 hours worth of work on my part.

Some of the reports are available, most are sensitive becuase they would disclose a competitive edge.

Every company is is different with their unique problems. That is why compensation is granted only after results are recognized. It's a can't lose situation for any company.

[dtw]

Originally posted by 84porsche
John,

Our company is on COD with this vendor so I can't hold payment otherwise we don't get the goods but your point is valid and would work under different circumstances.

Stumping through grad school I worked in AR - then I worked in AP. Now I'm in public accounting. So I have been on both sides, and now I am looking top-down.

The way I see it there are two options:
1. Stop working for a fly-by-night outfit that burns bridges with good vendors and is on credit hold with bad ones. No offense meant if I have mischaracterized your outfit, but I'm just going on your description thus far.

2. Start playing hardball with the vendor. Remember, bullies only pick on the kids that don't fight back.

[oldE]

Another reason for the price fixation, is the purchasing department, (which has to justify itself) is almost never the department which uses the item, so the only handles they have on the item are price and availability. They are not concerned with performance, durability and effectiveness. In order to avoid paying a consultant megabucks to come into your business to tell you which way is up, talk to the people in each department. The guys in shipping will tell you which supplies come in half smashed. Maintenance can certainly point out the last batch of bulbs "have to be changed every week so I'm running around with the lift all the time and can't get my work done".
Small businesses don't have these problems. The owner operator establishes purchasing relationships with certain vendors because it works for him/her. They buy goods of reasonable quality because they are the ones working with those materials, and they don't want to waste their time. However, as businesses grow, the gap between purchasing and process grows and leads to the old 'upstairs-downstairs' mentality, where the suits don't think anybody down there understands and the blue collar folks know the suits don't have clue #1.
End of rant.
Les

[SLO-BOB]

Originally posted by 84porsche
I would love not to deal with the vendor but the product(s) they carry are at good prices and specialty items. Is this the cost of doing business. Opinions please.

You have all the answers. The vendor has a product you need and they probably also supply your competition. You should have sent it all back at the same time after receiving a go ahead from the vendor-so I agree with their stance on the second return. They are clearly wrong about the refund on the first return, but you need to work with them in a diplomatic manner-perhaps a credit on your next shipment? The fact that your company operates on a C.O.D. basis speaks volumes. Quite frankly, my guess is they think your company isn't worth the effort.

Sorry to be so blunt-no offense meant. I own my company and deal with vendors all the time. Some cater to smaller businesses like mine, some to big companies only, and some supply anyone that calls. Businesses are all different, but I will tell you that no business owner or buyer sets up an account as c.o.d. on purpose. It's a pita for accounting. Therefore, my assessment that they don't really want your business.

PS-I've been re-reading some of the above posts. Do not, I repeat-DO NOT- play hardball with your vendor unless you have a couple of back ups in place. My wife worked in her medium sized, well established family business for years and related many a tale of people playing hardball with their company. Their response? They simply cut them off. Some customers just aren't worth the hassle.

[SLO-BOB]

Originally posted by LubeMaster77

Lets take a silly example such as light bulbs.

One componant of this that you didn't acknowledge (or maybe I missed it), but I'm sure you're aware of and factor, is the increased labor cost of the cheap light bulb (fits other scenarios of course). As an electrical contractor, I know well the cost of the cheap light bulb. I call it "job security". The truth of the matter is that we cater to the high end market for many reasons-value being one of them. Pay twice as much for a light bulb that lasts four times as long and hire me once a year instead of once every three months. The math on that one is easy. It becomes more pronounced especially when you factor in our service rate at about 10% of what you charge hourly.

Regarding vendors-I most often use a supplier that is more expensive. I choose them because they offer service above and beyond what the others do. If I need 2 bucks worth of parts run out to a job right now-they do it. The higher cost gets factored in on the customer's bill, so I don't see it. One might think that the customer, in turn, gets a higher bill, but my overall prices are very competitive, not due to price slashing of hourly labor, but increased efficiency such as using quality vendors that go the extra mile.

[84porsche]

What you guys have mentioned is absolutely correct and it seems as if we are stuck and I am at their mercy for now. This company distributes to us and we resell to our customer. We have done our best to deal with different vendors but when it is hard to find a particular product they seem to carry it so I hopefully would like to keep them around as a last resort. The biggest problem I have run into is the company had some really hard times (not bankruptcy but close) before I started (COD terms with vendors and a few burnt bridges so to speak) and the owner has slowly been rebuilding the business and adapting to the changes in technology and industry in order to stay competitive and ahead of the game. Thank you for all your responses.

[dtw]

Originally posted by Sebring77
Do not, I repeat-DO NOT- play hardball with your vendor unless you have a couple of back ups in place. My wife worked in her medium sized, well established family business for years and related many a tale of people playing hardball with their company. Their response? They simply cut them off. Some customers just aren't worth the hassle.

I agree with the above wholeheartedly and should have reflected this in original post - never play hardball unless you can afford to do so. Hope everything works out for you.