When is saving not a saving
I sometimes wonder if we are not our own worse enemy.
I was having a discussion recently with a sign shop owner who recently dumped a supplier of many years because a new supplier ‘cold called’ and offered a ‘much’ cheaper price.
I assumed it was because the original supplier had got too dear, so I asked how much saving the new supplier offered over the old supplier.
The answer? $1 a metre.
I laughed. He didn’t. He was serious.
After a quick calculation, I worked out the sign shop changed suppliers for a saving of less than 1%.
I couldn’t comprehend why, after years of service by a well respected distributor, they would dump them for another brand.
The sign guy said simply “the money is better in my pocket than theirs”. It was a decision made on financial consideration alone.
Clearly there was no loyalty to either the brand or the distributor.
Now, I’m the first to admit that some prices out there are high, for whatever reason. But I really wondered about this policy of change purely on price.
For instance, I asked the sign guy if the new product was as easy to apply as the previous brand.
He was honest and upfront, admitting that the new product was harder to work with in some situations, but stressed that it was still a good product and he had no reason to believe the cast material would not last the distance like the original brand. He conceded though, it was slightly less forgiving in a few circumstances.
But, he reminded me he was saving $50 a roll, and the amount of rolls he purchased a year would add up to a considerable saving.
I then asked him how many visits he got from his old company rep.
Monthly he admitted. The new company is not regular, preferring he deal with their online web sales portal.
For what it’s worth, I have no problem with that either. I have several suppliers that have excellent online ‘shops’ and it’s incredibly convenient if, like me, you order your stock at the end of the day, or on the weekend before the start of a new week.
But, a rep coming to your office is also a valuable ‘tool’ if viewed correctly. For that reason, reps are always welcome at my workplace. The really good ones don’t need to be told when your busy, they won’t stay long. But when you do have time to ‘chew the fat’ you can get a good feel how the industry is going, in a general sense. Many times I’ve sat down and had coffee and cake with a rep, whilst I attempt to negotiate a better price on my main products. I’m not always successful, but it’s an enjoyable time as I try.
Good reps, and I have some very good wholesaler reps call, know the golden rule - ‘what is seen and discussed in the shop, stays in the shop’. They certainly need to earn your trust, and you need to show you trust them too. It is a two way street.
But, I’m here to tell you that if you have a tender or contract you are pricing, having a rep on your team with a good product knowledge and a good ‘handle’ on how your business operates, is invaluable. I can’t emphasise that enough.
I asked my new friend if he had discussed the new price with his original rep. He admitted he hadn’t.
Why? He didn’t think they deserved a second chance as he clearly wasn’t getting the best deal, so he felt the new company deserved a go.
I wonder how he’d feel if one of his regular clients took the same attitude.
So to recap, I outlined to the sign guy what he had done.
He’d moved away from a loyal supplier that knew his business and his requirements. A supplier that sold a product that he admitted himself was easier and more forgiving to apply, that offered very good support, in exchange for a supplier that had no interest in how he ran his business, preferring no regular representation but favoured an impersonal web portal, and selling an inferior product - all for a saving of less than 1%?
Was he mad?
Looking at the overall scheme of things, the material content of any job is probably the smallest component.
My new sign friend and I sat down and worked out the numbers. The biggest component of course is labour. It is by a huge percentage too. Very quickly my friend discovered that to go away from a product that is slightly dearer, but much easier and quicker to apply, is actually costing him many times more dollars in labour alone, eroding any so-called savings on the cheaper material.
My new friend had effectively shot himself in the foot.
The other problem he will no doubt face is that the new supplier doesn’t offer all the products he buys on a monthly basis. He still has to deal with his old supplier for those few items.
It’s reasonable to expect therefore, that his old supplier would no longer offer him the negotiated discounts he was getting originally, as he would no longer be doing the turnover with them as before.
I’ll let him find that out in due course. I suspect he will not be too happy though.