Oct 262013
 

One of my motto’s for life is – live and let others live – and when I apply this to my business relationships, I rephrase this to – earn profits and let your partners earn as well. In my opinion all suppliers (or at least most of them) should be treated as partners and a purchaser must accept the fact that they want to make money too. Of course your own interests or profit comes first, but to have a sustainable business, you cannot mortify your vendors. This is one of the things I always take into account when evaluating our purchasing prices and conditions, I do accept that the suppliers are making money by selling materials to me.

Accept the sellers margin

The fact, that a shop or service provider is making profit, is something everyone should accept, including people who are doing their everyday shopping – if a seller isn’t earning money, you will pretty soon have to start looking for a new one. Luckily I don’t know many people who would deny this (I do know some fools, who think they should get everything with a 90% discount or for free even, but they are rare exceptions and probably there is something wrong with their brain) and when a merchant is keeping his gross profit margin at a reasonable level, he is probably going to succeed in being a customer favorite and you will continue doing business with him. By the way – reasonable level does not necessarily mean small, just reasonable.

But sometimes this “reasonable margin” is not enough. I’ve had suppliers, who desperately want to sells some products to me and are ready to lower their profit to near zero, but still their offer is not better than competitors or the difference is very small, even if the other bidder is adding a slightly higher margin than “reasonable”. If both offers are legitimate (i.e. no hidden fees, no criminal activities, no price dumping or similar), then I would suggest to choose the better bidder and stop worrying about the other supplier, who couldn’t offer a reasonable price. At least this is what I do, because I care about my suppliers, as they are my partners and my partners are competent, effective, industrious and wise. A supplier who cannot make a competitive offer even with low gross margin, is most likely held back by high costs, either the price they pay themselves for the product or their running costs are too high. In any case, this means that this supplier doesn’t match my requirements for a partner and I will not implement my “live and let others live” motto on them.

Force suppliers to offer reasonable price

Of course sometimes there are eligible reasons for higher price, but in most cases it is because someone in specific products supply chain is either incompetent, ineffective, lazy or stupid, in worse cases a mixture of those qualities appear. It might be the sellers purchaser – just too lazy to negotiate, the producer – whose processes are ineffective, incompetent shipping agent or some other fool is “hacking” the reasonable price somewhere in this products life cycle, it does not matter for me – those bad qualities should not be tolerated. When I do my job, manage purchasing for my employer, then I usually am familiar with all main materials supply chains, at least up to a point where it matters to me and therefore I have not many problems like this and if there are some, we can most of the times fix those together with my supplier and no one gets hurt (except the idiot). But everyday shoppers usually don’t do that kind of research and most of the times they cannot influence the seller in any other way then just stop buying from him.

And this is exactly what you should do in similar cases – stop buying! Don’t worry about the merchant, if it is not his fault and if he is smart enough, he will fix those problems and will be stronger and better than before, if he isn’t … well then he deserves to go bankrupt. Similarly shouldn’t any participant of a supply chain worry about the “weakest link” getting replaced. This is the way to get reasonable prices, no one would do this for you, as I said in my firsts post – customer is king – and kings rule, at least good kings do. If you still voluntarily pay ridiculously high prices, then be ready for additional costs in other areas, because you are feeding those incompetent, ineffective and lazy idiots, who are probably using your money to finance their next “fabulous” business plans or they just spend this money as stupidly as you.. wait – in this case you are one of them!

Questionable exceptions

VeryFineBooksProbably you are not one of “them”, because you managed to read more than one paragraph at once. Anyway – before I finish this article, I would like to note that not all prices are “ridiculously” high, some are high for a reason. Reasons can be different and most of them are arguable, like high priced brands, trendy (well marketed) products and products with a high demand compared to availability, but those prices are high, because the seller CAN ask more money, because he is smart (or lucky), not because he’s stupid. In some cases also there is a special NEED to ask more money – like small shops in remote locations. In both cases the higher price will result in giving more money to someone who can do something useful with it – smart people usually do smart things and small shops are actually nice or even needed to have, in spite of them having higher prices compared to big shopping malls. If you consider those reasons to be justified or not, is up to you, but at least those prices are not high because of someones mistakes or stupidity.

 

Final word – be a smart buyer, be a wise king!

 

With best regards,

Rait Huusmann

P!S! If you are a smart person and you feel like I insulted you – I’m sorry, I didn’t mean to, please let me know and I will fix any mistake in this post, that might be caused by late hours or my bad English. If you are a fool and feel insulted, I’m sorry also, but I didn’t insult you, I was just honest.

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