Buyer-seller relationships and the three-legged stool
One of the most important decisions for a produce director is the selection of produce suppliers. You want suppliers that are complementary to your company’s business model. Suppliers are plentiful, but not all of them will be the right fit for your organization.
Some of the best-in-class produce directors with whom I’ve spoken over the years reference a three-legged stool, the three legs being quality, price and service. Their assertion has been that a great supplier must be good at all three legs.
A great supplier strives to be great at all three legs, but in the produce world, it is difficult to excel in all three areas and remain profitable. More often, great suppliers excel in one or two legs and are consistent in the others. The key is to keep the right balance and not topple over.
It’s important for buyers to understand their company’s business model and determine which leg of the stool is most relevant to their organization. What is your predominant driver: quality, price or service? With an in-depth knowledge of the produce business and their customers, buyers can set the mix that will generate the highest revenue and net profit for their organization.
We all believe that the best-tasting, highest quality produce will result in higher sales for your produce department. What is the cost of quality? Can your supplier grow all diamonds? They probably cannot.
The question for you is, if they supply diamonds, are you willing to pay the premium for those diamonds?
If your calculation shows that diamonds will increase your sales and reduce your shrink, then it’s worth the extra cost.
In today’s competitive retail world, price is the driver for most negotiations. For the suppliers, price is the ante to play the game.
If your company’s mission is to be the low-price leader, then this is probably the most important leg on your stool. If you are price-driven and not quality-driven, this is probably the focus of your RFPs.
Do you sacrifice quality for price? Only you can answer that question.
Supplier service is an important leg on the stool and one that we don’t pay enough attention to until there is a service failure.
If quality and price are important to you, but you have poor service from your supplier, what good is it?
You can’t sell what you don’t have if you are shorted product on your order. If your deliveries are not on time, you may miss an order for your stores.
Partnership a fourth leg?
Missing in this discussion on picking a great supplier is partnership. We’ve been talking about a three-legged stool, but I think we will all be more successful if we add a fourth leg.
That fourth leg is partnership. A partnership focused on selling the freshest, best-tasting produce to the consumer. A partnership focused on reducing total supply chain costs so that together we can keep the retails at our stores at a level where we produce the highest sales and everyone grows their business profitably.
Produce is a business built on relationships. A great supplier cares about your sales and profits. They don’t just bump your dock.
A great supplier understands and supports category management, keeping the customer’s goals top-of-mind and considering how any proposed new items or other changes will fit with the existing assortment, everyday retail price structure, promotional plans and store sets.
A great supplier is your partner in selling the produce to your customer, working with you through the supply chain, and together you bring wonderful produce onto the tables of the end consumer.
And remember, that partnership goes both ways.
Do you care about your supplier’s profits? Are you so focused on price that suppliers can’t make a profit? Do you hold up their trucks at your distribution center, adding costs to their business model?
Are you charging for marketing, food shows, golf outings and other extras that add costs to the supply chain but don’t help your customer?
There is a term for adding costs to the supplier: cost to serve. Cost to serve is a process-driven accountancy tool to calculate the profitability of a customer account based on the actual business activities and overhead costs incurred to service that customer.
In the context of supply chain management, ask your suppliers this question; What are we requiring you to spend that doesn’t make sense, that adds cost to both of our businesses and that you are forced to pass on to us?
To have a true partnership, you need trust and mutual respect. Trust is the foundation of a successful partnership. It is crucial for there to be a transparent, honest relationship.