Over the years several companies with which 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 broad as possible with none accounting for more than around 15% of turnover. This should, as far as possible, be accomplished not by reducing the direct influence of a major customer but rather by directing the marketing effort towards other sectors of the market.
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 their 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 Managing Director (and owner) 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 unpleasant comment of: “I have the buyer in my pocket”.
Guess what happened? The buyer moved on, a new buyer was appointed and brought existing relationships with non-branded manufacturers. Within six months my client had lost the account and was effectively out of business.
A salutary tale but what about your suppliers as well? I had a client who manufactured a high tech product and one day called me to put off a meeting as he had an important matter to deal with. Later in the day I happened to be in Manchester and, lo and behold, there was my client walking towards me.
He said: “ I have just been to see our lawyers. 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 the supplier’s 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 where events can be and often are detrimental to the company’s success.
The problem is, of course, that we can become complacent. Orders are coming in, the customer may be starting to flex muscles but we can live with that and at the other end suppliers are happy to deal with us and seem to give us good service.
The question is, how often do you put these assumptions to the test? The order book is usually very visible throughout the business but is the supply chain visible as well?
At the current stage of the global economic cycle some industries are booming and as a consequence demands on the supply side are becoming overwhelming. Suppliers can be so busy that smaller customers by definition are expected to take a back seat.
The result is that the service to their customers suffers, relationships with the suppliers become fraught and everything becomes a problem rather than an opportunity. Those are perfect conditions for fire fighting rather than working to a sensible plan.
The really key imperatives in any business are the relationships with customers and the markets in general, relationship with significant players in the supply chain and, above all, the health and well being of the critical members of the team.
That last is possibly the most important and needs to be at the top of the agenda when critical factors in the business are being considered. Make sure that they are all high on the agenda for regular top team consideration.
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