Way back in the early 1980s when I started my own business I knew that I needed some well-known manufacturer brand names that I could use to help market my showroom; I also knew that I needed some lesser-known names that weren't being mass distributed to the point that the price of the product was the most important selling feature. It was, and continues to be, a dilemma for most folks in the decorative plumbing showroom business.
I remember how excited I was when vendors (almost any and all vendors) called on me and said they wanted to sell me their products. Heck, more had to be better! My early philosophy was “the more I show, the better chance I'll have of selling the client.” Well, folks, it didn't take long for this old showroom guru to find out he was wrong. This strategy was a mistake - and became a fairly expensive mistake!
Let's just use faucets as an example. I thought I had to have all the well-known brands (Delta, Moen, Price Pfister, Kohler, and American Standard - just to mention a few). In addition, I believed I also had to have the best-known smaller decorative lines (Phylrich, Artistic Brass and Broadway were the Big Three back then). That brought me up to nine or 10 manufacturers. Then here comes Grohe, Hansgrohe, Hansa, KWC, Newport and a dozen more. After having the doors open a mere three years, I was showing and trying to sell almost 30 lines of faucets! UGH!
I found that none of the manufacturers was happy with me because I was really not important to any of them. Our clients were confused. There was so much product on display (and so much of it looks similar - plus, it falls into the same price point range) the clients couldn't make decisions. And even worse, our salespeople were confused! Think of how much wall space I'd given up. Consider how many faucets at “x” cost I had tied up. And imagine how much time clients and salespeople wasted trying to make decisions.
Combine this mess with the fact that my gross profit margin was declining from my original goal of 40% because I now had five or six fairly strong competitors - all showing much of the same products.
Finally, the light bulb went off in this old man's head and I recognized the error of my way! I needed to cut way back on the number of vendors I was doing business with. I needed to become more important to fewer of them and they needed to be more important to my business. So how did I decide who was to stay and who was to go?
I came up with a vendor analysis form. This form listed about 50 different aspects of the manufacturer being analyzed and how it would “fit” with my company in our marketplace. Each item was given a weight (weights varied depending on the importance of each item). I then asked our store managers, purchasing agent and salespeople to score every item for every vendor. Of course I did the same thing. We compiled all the information and then met as a team to decide who we wanted to do business with.
Next, I sat with the “winners” and explained what we had done, why we wanted to be an important partner with them and what it could/should mean to both of us. I was amazed at how well-received this exercise was. We improved our “buying power” with many of our new important partners.
Instead of 30 faucet lines on display, we had eight. Fewer would have been nice, but we still felt like we needed some of the well-known brand names and the decorative faucet manufacturers had grown to several dozen. Price points varied and so did design styles and finishes. But if we were doing $2 million in faucet purchases, instead of dividing that by 30, it was now divided by eight. The savings in inventory, ordering and accounts payable paperwork were tremendous. And, very importantly, we eliminated confusion for our clients and sales staff. Time saved is like money earned. We were successful in growing our gross profit margin on faucet sales back to our original goal of 40% plus.
As I travel these United States and Canada I see a lot of people that need to put this vendor analysis form to work for them, and not just on faucets. The form should be put to use every year with every vendor. Strong vendor partnerships are good for all concerned.
When rating a vendor, it's important to have several people do the exercise. It will provide a more fair and balanced rating. Try to eliminate personalities as much as possible. Don't let yesterday's disappointment rule your thinking. Look at the big picture and don't get hung up on the little things. Be as totally honest as possible.
You may want to assign different weights to different categories depending on how important they are to you and your business. If brand recognition is very important to you, this would get a high rating. But it may cause lower ratings in other categories (selling the “big boxes,” margin potential and competitors sold in your area).
You should have a file on every vendor - just like you do with each employee. During the course of the year as you have good or not-so-good comments for the next year's analysis, put them in the file. It will help you be objective at the next rating.
I am a strong proponent of doing at least yearly job performance evaluations with each employee. The vendor rating is exactly the same concept. I would ask each major vendor to do the same thing for you. They should rate you - in every aspect of your performance with the vendor. By being made aware of weaknesses or areas of disappointment, you can then develop plans and strategies to do better.
The term partnership isn't just a buzz word! It identifies how a manufacturer and a distributor should and must work together. It's like a marriage and it has to be good for both parties.
I know many distributors have developed “preferred vendor” lists. This vendor analysis form may be a good vehicle to help prepare that document.
This is just another step in becoming more professional in how you operate your business. Put this form to work for you!