I was talking to a colleague the other day who owns a small business
that has a number of small customers and one very large corporate customer. By
far and away the worst payer, most demanding and least sensible customer is the
huge corporate, which in reality is contributing nothing to the business except
cost and hassle.
This is an area that I have been pulled into many times in the past
and in every case bar one, when analyzed properly and in detail the only
sensible conclusion is to ‘fire’ the big corporate customer.
In theory having a huge global customer
sounds like a great idea. Big orders, little or no risk and so on – the fast
track to that Ferrari you’ve always dreamed of.
Sadly it is very often the opposite.
Let me share an experience I had a number
of years ago in 2010. A company I was working with ran a seminar with a well
known global bank. The bank had agreed to allow its procurement team to tell us
the truth about supplying the bank. I am not allowed to name the bank publicly
and you’ll see why in a minute.
To a room full of excited and enthusiastic
potential suppliers, the procurement team laid out how the bank buys and its
tactics for getting the best deal:
- Payment terms were 180 days – non negotiable.
- Contracts could be stopped instantly by the bank, but only on the agreed notice by the supplier – usually 90 days or more.
- Procurement would never stop screwing the price paid down or improving on the terms of service required of the supplier until it was convinced it had just about got the supplier to back out.
- Buying cycles were measured in months if not years on average.
- If a supplier could not supply globally it would not be eligible to supply locally.
- As a business, the bank considered that if suppliers barely broke even on supplying the bank that was okay, because just having the bank as a customer would win them other customers.
It doesn’t take much imagination to picture
the reaction in the room from all those enthusiastic and eager potential
suppliers. Most of them were shocked and many of them angry that a big player
would consider treating smaller companies so badly.
However, think on this. That particular
bank had a procurement budget of more than $10 billion annually so its buyers
were probably quite rightly focused on big solutions from big companies that
would ensure that they had fewer contracts and were able to lever economy of
scale in ways that buying from smaller companies just would not permit.
The harsh and unforgiving reality is that
it is usually a costly hassle for big corporate business to deal with smaller
suppliers and often that is why they shy away from it.
It doesn’t mean you should ignore them, but
does mean you need to be very clear in your mind what it is that you want from
dealing with them. You need to have a plan and the sense to walk away if the
deal isn’t right, because make no mistake, if you don’t then you could finish
up with a great business being held back by its biggest customer.
Author – Tim Sandford
