NPI Editorial: Is it really all about price?

Whether you're a manufacturer, raw material supplier, distributor, health food or retail store operator you've got supplier issues. These may not always be problems, but they are issues. You've got to locate, negotiate, manage and get the most from suppliers. And all this time, you’re under pressure to deliver final product or service for the lowest cost possible. Seems like an awkward situation, you need more but can give them less.

Now let's look at the other angle-- you're a supplier at any stage of the supply chain, you've got to differentiate, making it easy for clients to do business with you; you've got to make it desirable. And in this age of high turnover, relationships have to go deep into the organization and your value has to be widely perceived. And clients want more for less.

In many maturing industries, long standing relationships fail and the value of service, rapport and goodwill is overlooked due to cash realities and a “what have you done for me lately” attitude.

Doesn't sound like an environment that builds strong relationships, does it?

It all depends on whether you look at the short or long term. If short term, paycheck to paycheck realities are driving your operation, then an investment in deep, long term relationships with your clients can be difficult. If you can look out a bit longer, you see that the investment pays off quickly.

One of my mentors told me that “what you win solely on price, you will soon lose on price and the cost of acquiring the business will never be recovered.” But what are you supposed to do when your competition sells exclusively on price? What are you supposed to do when the value of quality and service is not realized? Sure, it's appreciated, for the moment, but there's no value assigned to it.

Different models have emerged. We see big box stores pressuring suppliers to reduce final cost of goods and pay for the privilege of doing business with them. In large manufacturing operations, there are quality based partnerships, but the focus is on reducing cost, pressuring suppliers, lowering their margins, while trying not to compromise quality in the process. In other industry sectors, long term supply contracts are drawn up, with decent initial payments to support product research and development, followed with a lower margin as product reaches success in the market.

Can we learn anything from these models? What value research, innovation, customer service, quality?

I keep hearing that consumers buy based solely on price. Will this be the case five years from now, or will the educational and certification activities groups and organizations are launching now change the marketplace? Possibly, when combined with other factors including a building body of accepted science, a critical consumer and a rewarded brand, especially when that brand is supported by strong, reliable, consistent supply, technically savvy client support, seed to shelf responsibility from all supply chain participants, and a marketplace that penalizes those that don't meet the grade.

We're already seeing brand effect, companies investing heavily to build brand identity, and even branded raw material suppliers getting their message to the consumer.

This leads me back full circle to my initial question? What are you going to do about your suppliers—now? How will you position yourself for the long run, with reliable sources of consistent materials? And as suppliers, how do you take the equation from a “price drives” to a “package deal”. How do you take an open tender to a “slam dunk”?

The answer, as it always has been, is to go the extra mile. Except now, in this market, it has to be a creative mile. The most successful business people have always been the ones who have understood and empathized with others, and valued relationships. If you can successfully place yourself in your clients’ shoes, literally walking to market with them, you'll win more than you lose. Critics will say you never have the chance to do this in the impersonal world of big corporations where cash is king. It's amazing though, how many pieces of the supply chain link directly to the bottom line- if you’re creative.

The ISO 9000 series of quality standards has a section of documentation and process entitled “Cost of Quality”. This section doesn't deal only with product quality, it also deals with quality of process and operation. If you can make it efficient, streamlined and easy for your clients to work with you, you save them money. If you can plan ahead with them, use your experience and industry knowledge as a supplier to help them, you add value, tangible value. If you can provide a body of research, if you let them know how to take advantage of the changing business environment, positioning for future success, then you make them more successful and profitable. If you have documentation to support your products, where it needs to be, almost before it needs to be there, then you save your clients' QA department resources. If you provide services to the industry, and you discover precious information that benefits existing and potential clients, let them know. Do the service, go the extra mile, understand their business and their needs, because with enough of these activities, a margin point here, a dollar there, marginally successful operations become more lucrative, and out of such activities are strong relationships established.

I have been involved in several instances in recent weeks where one of my contacts has gone the extra mile for me, for no obvious immediate return. The best representative I have ever come across frequently sends me valuable information, because he has taken the time to learn my business, my interests and my needs. He has saved us money, made us money and connected us with his network.

That's just one example. Share your thoughts in the NPIcenter Discussion Forum

Len Monheit,
President & CEO

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