Managing Your Vendor Relationships By Frank Lucer At Isnare.com Ezine Articles

The companies that you rely upon to stock your store shelves and keep your product inventories replenished play a key role in your profitability. Your ability to negotiate profitable terms with your suppliers and manage consistency in their lead times impacts your cash flow and your competitiveness with large retailers.

But, what happens when you're forced to deal with a vendor who is inconsistent or difficult to work with? If the item or product line they offer is irreplaceable, your options may be limited. On the other hand, a lot of independent retailers cope with vendor relationships that hamper their success.

In this article, I'll explain why your suppliers' lead times are critical and why conventional replenishment formulas often fail to get to the heart of the problem. I'll also describe the challenges of dealing with large suppliers who have the power to dictate oppressive terms.

Why Lead Time Is Important

"Lead time" represents the number of days that your vendors require to deliver a product once you have submitted your order. It is a critical element of efficient inventory control and should be tracked for each one of your suppliers. By knowing how much time you can expect to pass before receiving items you have ordered, you can avoid product shortages.

A lot of retailers - both small and large - use a replenishment formula to determine how much inventory of each item they should carry. The formula is typically based on the average number of units sold each day multiplied by the supplier's lead time. Then, a buffer is added to cushion the retailer for unpredictable divergence in that lead time.

Replenishment formulas are useful because they help small retailers avoid out-of-stock situations. However, the formulas fail to fix the true problem. Nor do they hold unreliable and inconsistent vendors accountable for them. That is, rather than addressing the root causes of variances in lead times, they react to them, thereby increasing the business owner's inventory levels. For small retailers, carrying more inventory means tying up precious capital.

The Influence Of Size When Setting The Terms

Often, the problem with lead time variances rests with small vendors who cope with a perpetual lack of organization or financing (or both). But, working with large (and presumably, better organized and financed) suppliers presents its own set of challenges. Indeed, with size comes control. When a supplier enjoys a high level of control in the distribution of its items, it can establish a number of terms that reduce the retailer's profitability.

For example, a large vendor might dictate minimum purchase orders, severe payment terms, policies regarding returns, and of course, lead times. One of their main objectives is to get the inventory off their own books, thereby reducing their costs. Unfortunately, that means putting the inventory on someone else's books. That expensive duty is usually left to the business with the least amount of control in the supply chain: the specialty retailer.

Working With Small Suppliers

Chances are, you'll have very little room to negotiate with large vendors. Unless you're moving an enormous amount of their products (unlikely for a small retailer), your pleas for better terms will probably fall upon deaf ears. On the other hand, working with small suppliers gives you more leverage. Your store may represent a large portion of the business which makes them more willing to accommodate your needs. That might mean shortening their lead times and tying their consistency to their prices.

In the end, efficient inventory control is a critical component in remaining competitive in your market. But, it requires ongoing management of your relationships with your vendors.

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