I like meeting with customers; seeing what they are doing, where they are going and what their needs might be. It helps me figure out how to best provide them with long-term value. There are, however, two types of customer meetings that really frost me: the annual price shake down and the periodic “Oh, I didn’t know … †meetings. Both of these customer-driven bonding opportunities frost me because, as painful as they are for me, they are even more costly for the customer.
Over the years I have been involved in literally hundreds of pricing shake down meetings. I don’t know any company, regardless of industry or market they serve, that has not been called on the carpet at least a few times by a customer seeking better pricing. These meetings all go the same way and follow the same formula. First you get the invitation (summons) stating that you are a “key†or “preferred†supplier – valued for the years of dedicated service, support and quality you have supplied.
Then the story shifts to one of two scripts. The first goes something like this: They know that you know how important it is to maintain and improve profitability. The second angle taken follows this track: Due to the “tough as nails†global economy, they need to reduce costs to be competitive. In either case it is clear that they want you, their valued supplier, to do the heavy lifting so they, the thankful customer, can prosper.
Yes, we all understand the need to grow and maintain margin. Yes, we all understand the global economy and the downward pressure on costs. And yes, we all understand “valued partner†and what it should imply. What is unfortunate is how any short term cost benefit is offset by long-term ill will or a decreased commitment to service and support. When pricing is squeezed and you see margins erode you need to re-deploy your limited sales and service resources to find new, profitable business to offset the margin loss. The last thing you can afford to do is provide the same, now lower margin customer with more, or even the same service!
On the other hand, I have had a few customers over the years who have truly valued relationships and the knowledge their suppliers bring to the table. When they call their suppliers in for a meeting where they ask for help they treat their suppliers openly and as a true partner.
These customers will go as far as to lay out the problem. Perhaps they need to reduce X% of cost from a product line. Instead of putting the burden on the supply base to slash prices, they are open and receptive to any and all suggestions that may help them achieve that goal. This could even include retooling or redesigning components, or changing manufacturing processes. When I have been involved in these types of meetings and have seen the commitment of the customer, I have always bent over backwards to help. In every such case the result has been that together we were able to significantly exceed the original cost reduction goal while minimally decreasing – and in some cases actually increasing – profitability for the customer and supplier alike.
The second, “Oh, I didn’t know …†type of meeting happens less frequently but can be just as costly for customers. These meetings typically happen this way: You meet with your customer, who shows you their hot new product. You realize that you have never seen either the product or the circuit boards/components that are in it. The customer then says something like “Well, I didn’t know you could do that …†Your first reaction is to kick your sales guy in the butt for not having been visible to the customer and involved in the product development. But as you listen more closely to the customer you find that they deliberately avoided involving you because they used this new product to create a horse race between suppliers with the goal to reduce costs. There’s nothing wrong with a horse race, but notice the way your partner runs the race.
Many times I have been told that either because of technology, capacity or corporate policy, a customer was not going to give more than a certain percent of their business to any one supplier. When you know this up front you can make sure that you focus on the technology and mix that ensures you are providing the highest value to your customer while providing the best possible profitability to your company. Again, the goal should be – for everyone – to best leverage capability, service and cost so a true customer/supplier relationship flourishes and everyone benefits long term.
What frosts me is that customers end up costing themselves more in the long run by how – not what – they try to accomplish short term. Everyone in business needs to keep their eyes on costs and margins. In this “lean and mean†global economy everyone needs to leverage off of all the resources available so that everyone prospers.
Designers and fabricators, OEMs and assemblers, large and small, foreign and domestic – we must all understand that we need strong long-term relationships to survive. All the nickel and diming we do to each other is a surefire way to lose a competitive advantage. Next time you meet with a major customer or extend an invitation to a valued supplier, think about the future of the relationship and not just about what you are asking for today! PCD&M
Peter Bigelow is president and CEO of IMI (imipcb.com). He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
