Moral obligation or good business practice? 1

[ajack1]

Working in the sector I do we are under constant pressure to reduce costs and improve lead times, I do not have a problem with that.

Where my dilemma comes in is how far I push my suppliers, many of whom I have known for a long while and are genuine hard working people. Is it just good business practice to squeeze every last penny out of them or is that morally wrong?

I am not talking about companies that produce inferior goods or work on huge profit margins but companies that struggle to make a profit in todays work place.

This is possibly complicated by the fact I own a small company so I know what they are going through but to counter this my house and most of my life savings are tied up in my company so whilst I hate insisting they constantly reduce prices I have a real strong reason to do so.

How do other feel about doing this? Is it the way forward should we just push each supplier until they go bust and then move on to the next or should we have some moral obligation to be “fair”?

 

[MikeHalloran]

I can't believe that Sam Walton intended for his company's name to become a pejorative verb.

Push your suppliers hard enough, and they will export their manufacturing. Then your products will contain lead paint, melamine- tainted grain, poisonous toothpaste, radioactive steel, leaded brass that's mostly lead ... or will otherwise become hazards to the public, and when the peanut butter hits the fan, you and your suppliers will be forced out of business. At which time the overseas suppliers will be left standing ... in your business.

It's war.






Mike Halloran
Pembroke Pines, FL, USA

 

[electricpete]

I think that if you look at it from your own company's perspective, maintaining a healthy and productive long-term relationship with suppliers is vital.

You can nickel and dime them. Squeeze them for everything they're worth. That might be your company line and might be what your management says they want. But is it really best in the long term? Then next bid, your supplierwill account for their prior bad treatment, and you'll have a brand new low bidder to break in.

If there is a little wiggle room in your job between what management says is good for the company and what you know is good for the company, I'd go with your own gut. And if you help out a few people and build strong long-term relationships with suppliers along the way... so much the better.

=====================================
Eng-tips forums: The best place on the web for engineering discussions.

 

[UDP10]

If you're squeezing, then you better believe they are too. They've also got a business to run and will do what it takes to get their product to market. You're foolish to think you'll get a $5 part for $3. You'll more likely get a $2 piece of crap for $3.
Pay your suppliers what their service/product is worth.

This is a major problem in the HVAC industry. Owners don't want to pay proper A/E fees, so A/E firms produce crappy drawings, so contractors get huge change orders, and engineering is facing becoming a commodity. Different industry, similar problem.

I'd rather do less business, but good business.

 

[Ashereng]

This is not a question of morality. This is a question of business.

If everything you do is legal, and everything you say is true, and everything you represent is done as honestly as you know how, then the decision you need to make is a business one.

You have an obligation to do what is best for your own company. Your vendors, suppliers, clients, etc... have an obligation to do what is best for their respective selves. This is business.

If you are obligated to look out for someone else's best interest, then you would not be a business - you would be a charity.

"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
Have you read FAQ731-376 to make the best use of Eng-Tips Forums?

 

[JStephen]

You can do things in business that are perfectly legal that will make people never want to do business with you again. When you go to squeezing every last penny out of them, make sure you're not being penny wise and pound foolish.

If people know you are going to expect more out of the, or nickle and dime them to death, they'll just incorporate that into their pricing structure, so it may not be the gain that it appears to be. (I remember one person who always wanted us to cut our price after we first quoted it- so we just quoted him a higher price to begin with.)

 

[jmw]

Everyone needs more than one client.
If one client squeezes and another doesn't, guess who gets the priority when production is backed up.
Suppliers do more than supply goods, the provide a service.
At some point you may discover that the squeeze got you a contract, the supplier misses his delivery and you end up paying penalties.
The others are right. You get what you pay for. Sometimes you just have to wait longer than someone who pays more.
On the other hand, if you want lower prices, there are some things your supplier might trade you for them such as if you give a call-off order for the year and a schedule instead of ordering just when you need it. Of course, you might have to guarantee to take monthly minimums or an annual minimum or you'll pay a penalty. Maybe you'll accept longer deliveries or there may be some mutually acceptable way to reach a lower price.
So there may well be scope to gain better prices, and you may well discuss with your supplier and get them. But as a something for nothing deal? If he's tight for business now, then when he isn't is when you'll suffer. If he isn't tight for business, your stuck.
Of course, prices can always go up as well as down. Sometime later on the supplier may be in a position to make you a take it or leave it higher price than you're paying now.

So I'd suggest you discuss (don't ask, don't get) but be careful how far you push. Look for a trade off.


JMW

http://www.ViscoAnalyser.com

 

[moltenmetal]

ajack1: I believe in the request for quotation. State your needs clearly in writing and approach the market for bids. You will then have choices. Unless you're the government and have firm rules related to public tendering and bid selection, you can choose the low bid, the most qualified bid, or whichever bid you feel offers the best combination of features, service and price.

In my business, the innovator often wins. If one vendor has a great idea on how to meet my needs in an unconventional way and charges less as a consequence, he gets the business- and I breathe NOT A WORD of it to the other vendors. His secrets remain his- I didn't pay for his proposal, so I didn't pay for his innovation. What p*sses me off more than anything is when my clients use my proposal to educate my competitors!

In my opinion, going back to a preferred supplier and asking them to reduce their price based on competitive bids or "just because", is borderline unethical. Actually advising him the price he has to beat IS unethical. My vendors get one shot at it: they know it's competitive up front, and they either give me their best price or they risk losing the business. The challenge with this approach is that you do need to go outside your comfort zone and use new vendors from time to time. That can be a painful learning experience but it can also be incredibly good business if done correctly.

There is nothing unethical about trading features or reducing scope to reduce price to fit a budget.

If a vendor is sole source, you've got to treat them as a business partner. In return for removing competitive pressure from them, you'd better be getting some transparency in relation to how much profit they're taking on your business. Or you'd better be keeping them honest with competitive bids. Depending on the vendor, you may get incredible loyalty and dedication for your repeat business, or you may be taken for granted.

Wheedling me to discount my quoted price sends me a clear signal: if my management caves and gives you your discount, you're likely to get "special" treatment from me on change orders. What goes around, comes around.

 

[TheTick]

w.r.t. original post...

I understand completely, and I always feel dirty when put in that position.

More often than not, I know a good and fair deal when I see one. Often these deals are the result of a good relationship that have personaly fostered. I can not go in with a billy club and try to beat down a lower price.

 

[csd72]

ajack1,

My wife does this for a living for a large company.


She has a strong belief that you should not screww your client too hard or they will not give you the quality or service that you want.

She reduces price by looking for:

1. added value, what are the additional services/products that you can get out of the supplier.
2. transfer of risk to supplier.
3. making sure that they are not paying for things they dont need.
cant think of the others.

On the other hand, if they are making the part for you the second time around then they should not have the setup costs that others do, so you maybe should recieve a discount for this.

The hidden cost of breaking in a new supplier to your requirements should be included in any comparisons.

csd

 

[epoisses]

Lots of good points, nothing much to add except:
don't forget you're on a free market, not only the buyer has a choice, the vendor has one too.

Customers that systematically try to force me in a win-lose situation rather than win-win are the first customers that I'd happily give my competitors' phone numbers. Go bother someone else, I don't need you! Eventually you will end up with less vendors to chose from than you would like.

 

[prohammy]

Ajack1,

Interesting scenario that you have found yourself in. Caught between the dilemma of a business relationship and a business friendship.

I would say that you have a few options open to you...

1/ It is your relationship/'feelings' with your vendor that are in question. Maybe you need to step back and let others do the pushing (pragmatic approach, solve what you can solve)

2/ Talk to your vendors and explain where the pressure is coming from and see if they can bend/flex to allow you the breathing space you require. (friendly push rather that a heavy hammer)


PS The above is advice from a guy who hates having to do what you find yourself having to do......so maybe you should take it with a pince of salt. BOL though....

Kevin

“It is a mathematical fact that fifty percent of all doctors graduate in the bottom half of their class." ~Author Unknown

"If two wrongs don't make a right, try three." ~Author Unknown