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Purchase How You Preach
September 1, 2005 By: Marisa Palmieri Paperboard PackagingEnsure profitability and integrity by developing a strategic supply chain — not by buying on price alone.
When it comes to customers who purchase on price alone, converters' complaints abound. "We offer value in design and service, warehousing and on-time delivery," you say. "It's about so much more than the cost of the box." Right?
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What happens when you are the customer? How do you treat your suppliers? Ken Rohelder, president of Rohleder Group, Inc., a Louisville, Ky.-based consulting firm, says converters should take cues from Fortune 500 mainstays like John Deere and Dell, which are masters of strategic relationships.
"They have very strategic supply chains, price is always secondary or tertiary to them, and they beat their competition because of the way they manage their supply chains," he says.
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Rohelder points out that many suppliers to the converting industry are as frustrated with their potential customers — you — as converters are with theirs.
"A number of printing plate suppliers have told me it's all about price," Rohleder says. "Every time a project comes up converters give it to two or three vendors to quote, and whoever has the lowest price gets the business. And to heck with relationships, and to heck with service, it doesn't matter what the turnaround is. All that really matters is, are you the cheapest guy for this tooling today?"
Additionally, while converters themselves detest the web-based reverse auctions many customers use to get the lowest price possible, a number of converters hold similar auctions for maintenance, repair and operations-type expenses, Rohleder says.
"I think the best advice that corrugated companies could take is to eat their own cooking," Rohleder continues. "If they want to be strategic with their customers, they need to be strategic with their suppliers."
Rohleder offers several tips for developing effective supply chains and profitable purchasing practices.
1. Buy from the Best
"Learn who the best-in-class suppliers are in every category, No. 1 and No. 2, and focus your attention on those suppliers," Rohelder advises. "If they're not the best, don't spend your time and resources talking and meeting with them."
Newth Morris, president and ceo of Dixie Printing and Packaging Corp., Glen Burnie, Md., says networking through trade organizations is a great way to learn who the best vendors are.
"I think a supplier's reputation matters a lot," he says. "When you belong to organizations like PPC, you get a chance to talk to other members about their experience. When you know someone who has a certain piece of equipment, you can call them up and get their experience with it."
Another great way to investigate a supplier is to ask him for references. Ron Diedeman, vice president of parts and service for Sun Automation Inc., says his company offers references to its potential customers. He recommends that all suppliers do this for the sake of transparency.
"Any customer can talk to anybody that we do business with," Diedeman says. "Because if our customers aren't satisfied then we've got a problem."
2. Cultivate a Relationship
"Get to understand their business, and they need to understand yours," Rohleder says.
Morris suggests easing into vendor relationships by ordering small lots of supplies for trial runs. "Trust, but verify," he says. And then closely monitor the product's performance to analyze the cost of using it, not just the material costs.
Diedeman says the industry needs to develop more open customer-vendor relationships.
"If you look at this industry a lot of the big suppliers aren't around anymore ... a lot of that depends on honest relationships between customers and vendors," he says. "If you beat a vendor to death trying to get a better deal, better deal, better deal, then he's not going to be around to service your machinery ten years from now."
The first way to do that, says Bob Haddad, president of Columbus Container Inc., Columbus, Ind., is to be honest and communicate.
"Be upfront and truthful every time," he says. "And then [your peers] will tell people that you can trust Bob. How much would it cost me to buy that? You can't. You cannot buy that. You have to do that every time with everybody."
3. Think Value
"Get to price in the scope of total overall value, not just the price of any individual piece," Rohleder says.
Being upfront is the best way to approach this step, too, Haddad says.
"I try to call the supplier and say these are the requirements, we need to save some costs here, but I'm not asking you to go broke, I'm looking for a dependable price."
Expressing that you understand a vendor's need to maintain a price is often much appreciated. Haddad continues, "And when you give me a product I want you to be able to give me quality service and make sure you can continue it and not come back two months from now and raise me."
It may not happen overnight, but developing a strategic supply chain is vital to a company's well being, Rohleder says.
"That's what we want our customers to do when we go out and sell boxes, and that's what we should be doing when we buy stuff."
