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Sunday, 31 July 2011

Vulnerable to a Major Customer? What About Your Suppliers!

Over the years several companies with whom I have been working have quietly and dangerously become vulnerable to a major customer.

It is axiomatic that the sensible approach is to keep the customer base as wide as possible with none accounting for more than around 15% of turnover.

However customer creep can and does happen and before you know it, one of them starts to account for a really major part of turnover.  I recall a business in domestic lighting dealing with a major outlet in the UK for the range of products.

Over a long period of time the customer placed more and more orders and at the same time, the demands started to increase.  In end, they accounted for more than 80% of turnover and whatever they said they wanted, the supplier had to comply.

It wasn’t a matter of “jump”, it was “how high do you want me to jump?”

When I warned the MD that the company was massively vulnerable, he said firstly that he couldn’t refuse a good order from a good customer and in any case he had a great relationship with the buyer.  In fact he used that rather unpleasant and complacent comment of: “I have the buyer in my pocket”.

Guess what happened.  The buyer moved on, a new buyer came in and brought existing relationships with non-branded manufacturers.  Within six months the supplier had lost the account and was effectively out of business.

A salutary tale but what about your suppliers as well?  I had a client manufacturing a high tech product who called me one day to put off a meeting as he had an important matter to deal with.  Later in the day I was in Manchester and, lo and behold, there was my client walking towards me.

He said: “ I have just been to see our solicitors.  One of our major suppliers who manufactures a special component exclusively for us, has gone into administration.  We have had to make an offer to buy his business from the administrator just so that we can maintain supplies and keep our business going.”

Another salutary tale.  We keep our eyes firmly fixed on our customers, and rightly so, but it should never be at the expense of watching the supply chain which can be and often is the determinator of the company’s success.

By the way, don’t forget the leader’s health and key people in the business.  Even more salutary lessons.

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