Popular Posts

Sunday, 27 August 2017

Vulnerable To A Major Customer? What About Your Suppliers!

Another of the constant issues that exercise the mind of the leader is that of potential vulnerability to a large customer.  How on earth can we limit this situation without putting our business into a position of danger?

The fact is that it is both enticing and scary, enticing because the flow of orders from a customer is always a comfort blanket and scary because what would happen to us if the flow stopped for any reason.

Take the matter further and consider what would we do if in a position of vulnerability the customer suddenly started to exert undue influence on our business, to be late with payments, to make excessive demands and generally behave badly.

I recall a situation with one of my consultancy clients who, believe it or not, managed to achieve 95% of his annual turnover with one very large high street retailer.

I pointed this out to him on several occasions only for him to say: “Don’t worry, the buyer and I are very close” which worried me even more.

It was right to worry. His customer’s buyer suddenly left and was replaced by one from another equally large retailer.  She brought with her all the contacts she had made and was sadly reluctant to do business in the pub which was what my client was prone to enjoy.

Guess what happened in this case.  It took about six weeks for him to receive a letter from his customer to say that after looking at competing suppliers she had decided to change with thanks for all the good service over the past etc. etc….

It was far too late for him to take any evasive action like trying to interest other large potential customers and the end was inevitable.

We are all aware of this potential danger, I trust, and consistent activity to spread the  sales over as many outlets as possible makes good sense.

However there is another danger lurking in the corporate bushes, that of vulnerability to a supplier.

In another example I had an appointment to see one of my clients, a manufacturer of  special components for the automotive industry,  when he called me to ask if we could postpone as he had an urgent matter to sort out.

I was in the city centre later that day and was surprised to see my client walking towards me.  He told me that he had been to his solicitors as a critical supplier of his had gone into liquidation and as they made a unique component for him he was in a very serious position.

He couldn’t source from another manufacturer quickly, the component was to his specification and was unique, and he couldn’t possibly let his customers down.

The only option then was to acquire the assets of the failed supplier to continue the manufacture and this was what he did at some considerable initial cost never mind the aggravation factor.

The solution is in our hands.  It is suggested that no customer should take up more than around 15% of annual turnover and all critical supplies should be at least double sourced.

It is a matter of sensible and constant risk assessment for a situation that could be terminal and that is, to say the least, unsafe and undesirable.


Visit the Vistage UK website
Follow me on LinkedIn, Twitter and Facebook

No comments: