Focusing on suppliers with an entrepreneurial mind-set pays dividends
Being entrepreneurial is a way of life. It’s not lived in moments and it’s not curated. It’s about being always ‘entrepreneurially-on’! Since a fact of life is that nothing remains as it is and change is always happening, being entrepreneurially-on allows you to be present in the change and find opportunity.
Customer Relationship Management (CRM) is a key business activity that occupies a large share of mind in any business. It leads to upselling, cross selling, inside selling and all the forward momentum that any business can hope for. Supplier Relationship Management (SRM), the yang of CRM’s ying, is seldom spoken about goes beyond quality and price. The supply-side of your business carries with it as much risk and reward as the demand-side and yet how much do we really know about our suppliers?
A case study
Pierre certainly is ‘entrepreneurially-on’. As a romantic and he loves his wife, his first love is concrete. On a trip to Paris, France a number of years ago he was photographing his wife with the Eiffel Tower in the background. Beyond the romantic sentiment of the occasion, through his camera lens, Pierre saw a shape that could innovate the retaining walls and structures for the mining, agricultural and materials handling sectors. His mind swirled with what this shape offered.
No sooner had he arrived home in South Africa, Pierre went on to develop a series of concrete retaining walls in the shape of the Eiffel Tower. Today his products stretch across all sectors and the industries within in them. From creating storage capabilities to erecting temporary material depot’s on construction sites, his products look over an abundant horizon of opportunity. With good margins offered by the uniqueness of his patented product, a solid understanding of his customer’s needs, Pierre has grown the business dramatically in the last few years. His order book continues to grow as does his cash in the bank!
A challenge or an opportunity?
A few years back, Gauteng experienced unprecedented rains. The highest rainfall in 14 years impacted many businesses. From a drop in productivity due to power outages, broken traffic lights and an inability to operate outdoors, the construction industry bore a major part of the economic drama. In particular, the materials suppliers to the construction industry forecasts dampened down in the wet weather. In a recent session with Pierre, I could sense that he was frustrated. Laying concrete structures such as materials handling cells, retaining walls, paving and the like is simply not possible in abundant rainfalls. The substrate upon which the concrete structures are laid keep on washing away. Orders were on hand and Pierre was on track to meet his first quarter forecast but sales where postponed for better weather.
To lift the cloud hanging over Pierre’s business meant that we had to look at an ‘entrepreneurially-on’ opportunity. Given the weather conditions that we had no control over, how could we turn this to our advantage? In addition, he had idle cash burning a hole in his pocket. I suggested we turn to SRM and see what was on offer.
Cement manufacturers in South Africa are large corporate businesses. Within these businesses, there are systems and procedures. With active shareholders always seeking returns, these businesses are governed by extensive revenue forecasts demanded by shareholders. Sure, one can blame an Act of God for non-achievement of a forecast but one cannot ever blame inaction and poor imagination. A deepening understanding of the challenges managers in these corporates faced the implications on production efficiencies, jobs, supplier contracts that they had in place and importantly their key-performance-indicators (KPI’s), lent a new insight on how to turn bad weather into sunshine for all.
KPI’s are made up of targets that govern performance in an organisation. Meeting them means you keep your job. Superseding them means a bonus and non-achievement of the KPI’s are frowned upon. In some cases it may mean the corporate manager losing his job! KPI’s are designed to keep any manager thinking about their performance day and night. As we unpacked our suppliers challenges further, we understood that further costs of storage were being incurred deepening the crisis on financial performance of these suppliers. Every occasion that we met with and spoke with the suppliers allowed us to develop a deeper understanding of their business processes and the individuals KPI’s. Our process of SRM was deepening.
Recently, a deal was struck with a supplier of cement. We ran our numbers. Confidence in our sales forecast, the most valuable negotiating aid in any supplier deal, allowed us to commit to big volumes for delivery in two batches. The prices agreed were unprecedented providing Pierre with a massive cost advantage that he had not enjoyed for years. The orders on hand would absorb close to 28% of the cement stockpile. The balance would be absorbed in the next 6 months. In addition, a long term supply agreement was negotiated with price increases based off the recently negotiated stockpile prices. The sun would certain shine on Pierre’s margins for a long while still.
How to apply it in your business:
Being ‘entrepreneurially-on’ and an invested understanding of suppliers through SRM placed Pierre in a position where he could secure a number of short and medium term benefits. These included:
• A smart place to invest spare cash – we learnt what drives our suppliers and through that, when and how the managers operating the supply relationship with us are performance managed. Through this we were able to have quality conversations on how we could help each other. In this instance, Pierre would invest his spare cash into stockpiling cement. His return was a splendid price point that yielded his business and invested cash a return way in excess of any other investment he could have made in the money-market, JSE or bonds. In return, the managers we worked with could move closer towards their targeted sales, reduce the pressure of costs by moving stockpiles from their warehouses and keep the production process going.
• Suppliers are people too and business is about people – even corporate suppliers. Whilst as an entrepreneur operating a business in a concentrated economy like SA where often we are abused by our large suppliers and large customers, there are people behind these functions and they have their fears and apprehensions about their responsibilities in their organisation too. Understanding these fears and apprehensions places you in a position where you can do deals like Pierre when the time is right.
• Think beyond your circumstances – SRM is a valuable tool to make sure that you buy right so that you can sell right. Whilst you may operate a business that sells to a local or regional market, large suppliers are often subject to global issues on a more profound level. Being aware the global issues impacting their business allows you the opportunity to interpret how you can help them whilst they help you.
• Turn combat into collaboration – bridging the formality of a supplier relationship with a corporate supplier means spending time to get to know the organisation, how it works, who impacts the life of your contact within the organisation and how you can make a difference to their performance in your own small way. Replacing the often combative relationship with suppliers which are price oriented into a collaborative relationship driven by understanding will pay dividends.
• Be ‘entrepreneurially-on’ – change is a given. It’s happening right now. Understanding how to capitalise on it and get the timing right is what entrepreneurship is about to a large degree. If you have idle assets in your business right now, think how to use it to secure a lasting advantage for your business.