The strategic upside to vendor management

Posted By Don Mercer In Your Business | No Comments

How many vendors do you work with? One of the challenges many small businesses overlook is vendor management. It’s an area ripe for potential cost savings and can also serve as a potential growth driver.

vendors_bikeshop_crop [1]Consider the experience of Dave Hanson [2], owner of Jax Bicycle Center [3] and a Bank of the West business banking customer. Dave has grown from one Southern California store to eight locations, and part of his success has come from savvy management of his vendors.

Taking on more than you need?

“In 2005, we did business with 101 product vendors that we bought from, but the top three vendors were upset with us because we weren’t growing enough with their products,” he explained recently.

“That year we went to our main supplier, whom we valued tremendously, and made many requests.  In return, we said we would move out two of their biggest competitors and drop our vendors from 101 to about 25. When we got a commitment from that vendor that they would support us with special terms, special freight, and the right of first refusal if they needed any new businesses in our territory, we then went and reduced our vendors.”

What an excellent strategy! Here’s what tends to happen as you build your business: Everyone makes you a pitch to carry their products. Your business is like a garage in a new house waiting to be filled up with stuff. Before you know it, your garage is full — and probably with stuff you never use or can do without. OK, maybe that’s an exaggeration, but you get my meaning.

As a business owner, you may end up having more suppliers, brands, and products than you need. While a wide selection may seem like a good thing, at some point you have to ask yourself, “Am I complicating (or burdening) my business more than I should?”

Clearly, your business needs multiple vendors to protect against supply disruptions or being overly dependent on just a few suppliers. So you don’t want to scale back too far when you “clean out the garage.” But a review of all your vendors from time to time is a good practice.

It’s about more than decluttering

“When you can narrow down your suppliers and make fewer people greatly happy, then they feel you’re more committed to them; and in turn, they’re more committed to you,” Dave explained. “They’ll be more flexible with special terms, or special deals.”

By being loyal to his top suppliers, Dave’s business has benefited financially. One vendor helped him acquire a building by extending the terms on a $78,000 outstanding balance that was due.

As Dave recalls, “The vendor said, ‘You know what?  You’re doing so well, we want you there [in that building]. So, take that $78,000 to help buy that building. We’re going to now divide that $78,000 into 12, and you can make us 12 payments, no interest, over the next year.  We want you there, and we want you doing great. ‘”

Dave’s success demonstrates the value of having strong partnerships with vendors, so the success of your business contributes to your vendors’ success and, conversely, they show their loyalty by helping your business succeed.

Ask yourself this: Who has a vested interest in your business? Now might be a good time to look at that crowded garage and do some cleanup.

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