“The great virtue of free enterprise is that it forces existing businesses to meet the test of the market continuously, to produce products that meet consumer demands at lowest cost, or else be driven from the market. It is a profit-and-loss system.” -Milton Friedman
There‘s no question that the trucking industry is served by many top-notch suppliers of everything from new trucks and aftermarket parts to engine oil and maintenance services. That‘s been my experience covering this industry and it‘s all the more remarkable because trucking is such a tight-margin business, with 5% to 7% profit margins the norm for many fleets out there - numbers that usually aren‘t attractive to the best suppliers in the market.
Yet the reverse is also true; that there also suppliers that exasperate fleets to no end, with customer poor service probably the top issue. Professor Jerry Osteryoung from the college of business at Florida State University is very aware of how much trouble suppliers like these can cause, especially for the entrepreneurs he works with. Truckers, like many entrepreneurs, recognize the value of customer service and how critical it is as a competitive advantage in the marketplace. That‘s why is can be a real problem on more than one level if their suppliers don‘t follow the same playbook.
So, as usual, I‘m going to give Professor Osteryoung some space here to detail his thoughts on the subject of difficult suppliers, as he‘s had a lot more experience with this issue than I have. Professor Osteryoung, the floor is yours:
“Suppliers allow you to function as a business and provide products and services to your customers. They determine the cost, as well as the availability, of your products and services. In so many ways, suppliers are the lifeblood of your business. They are clearly indispensable ... and that means you will probably have to deal with at least one difficult supplier at some point during your business‘s life.
We were helping one entrepreneur deal with an incredibly difficult vendor. Compared to the firm‘s other suppliers, this vendor had the highest cost, but it was the industry leader, with a name that was considered the flagship of the industry. This vendor did everything possible to avoid being supportive of this business, from not returning phone calls to charging for each and every sales brochures that was designed for the ultimate customer (including their catalogs, which listed the product description and the wholesale price of each and every product).
Because of the supplier‘s position in the industry, the firm thought that they had no choice but to keep this vendor on. They thought that they absolutely needed the vendor‘s name to lend credibility to their business. While they tried to negotiate a better relationship and terms with this vendor, the vendor just was not interested, as they believed that they were the ‘elephant‘ in the market.
I was able to work with this firm and show them that, while the vendor had a significant market share, the firm‘s customers trusted them and relied on their product guidance - that the customers came to my client‘s firm, not to their vendor!
It was tough for the firm to let go of the vendor, as they really believed that their business would not be as successful without it. However, after one year without the difficult vendor, sales were down by 5%, but profits were up by 10%. On top of the improved financial considerations, the entrepreneur is sleeping better and just feeling much, much better. Now, in hindsight, the entrepreneur wonders why it took them so long to make this decision.
Some of the red flags indicating poor vendors are continuously unfulfilled orders, poor relationship with the vendor‘s sales rep, questionable value in the products that they are distributing or manufacturing, and the feeling that you are just not getting the service that you require to service your customers. The key is to examine each and every one of your vendors to ensure that they are servicing you in the manner that your business requires.”
And let me add one thought here to those of Professor Osteryoung: don‘t forget the positive, to tell your vendors and suppliers when they do a great job. Positive feedback, in my view, is probably an even more vital ingredient to building and sustaining a long-term relationship with solid vendors than criticism alone.
To reach Professor Osteryoung by e-mail, go to [email protected] You can also contact him by phone at 850-644-3372. All of Dr. Osteryoung‘s articles can be found in a searchable form at www.cob.fsu.edu/jmi.