Helping Vendors Increase Your Profits

Profitable sales growth is the main driving engine of any successful business. Sustained, increasing growth will contribute more to profitability and longevity than mere cost cutting. While prudent management is always appropriate to control overhead fixed costs and the variable cost of goods sold, cost reduction alone will not bring increased business. What does increase business is, obviously, additional revenue or sales. The predominant ways to drive sales is to maximize the top line by expanding sales with current customers, acquiring new customers or buying other companies.

Increased sales can be derived by offering lower prices, improving quality and performance, innovating new products or services and expanding into new markets. There’s an old adage that states it is very easy to sell if you can buy right. Certainly the price factor is a consideration here. But with world wide competition and instant information float, how can one capture a competitive advantage based on price alone? This is difficult. What can be done to become a better buyer and thus have fuel for sales growth? Better vendor relations can be key. The efficiency of the supply chain can reduce costs, increase quality and customer satisfaction through more reliable delivery.

Most of the time when we think of sales growth, we look forward and focus on satisfying customer needs. What opportunities exist to looking back down the supply chain? I have a cousin who graduated with an engineering degree in mining. He now helps run a huge financial arbitrage fund. He has been able to apply the principles learned in mining yield to increasing the yield from financial assets. (I believe that has become a much more lucrative pursuit. My cousin is very happy in Greenwich, CT.) Can we apply similar principles to enhancing our mutually beneficial relationships with our vendors to increase our yields? I believe so.

The May, 2006, conference in Nicaragua brought together people representing all parts of the apparel supply chain. In the American Apparel Producers Network and the American Apparel and Footwear Association (both of which Greco Apparel is a member) we have members from various supplier groups within the industry including financial, transportation logistics, brokerage, trim, fabric, technology, and consulting, to name a few. By orchestrating in-depth communication with our vendors we can focus on performance standards that assist in increasing our sales. We need to explain what type of service is important, how we expect that product or service to be delivered and clearly define the acceptable performance criteria.

Let’s examine the example of an industry leader in retail, Pacific Sunwear, (PacSun.) They have done a commendable and excellent job in defining their needs for a valued supplier. These ideas were shared at the convention and you may want to study the list and amend it to fit your particular supplier profile. PacSun was able to reduce their garment supplier base from 98 to 26 suppliers. This has been a trend in vogue with Liz Claiborne and Levi Strauss, among others, as they determined to go narrow and deep with their product sourcing. There may be more risk in having fewer suppliers but the judgment is that the benefits are attractive. Someone once said, “You can have all your eggs in one basket, but you’d better watch that basket!”

Here are the criteria, important to PacSun that they have outlined. Suppliers must have the ability to:

• supply product development
• possess the appropriate infrastructure
• have technical competence
• be socially compliant
• be able to produce multiple products
• have an adequate quality assurance program
• be financially sound
• be right-sized
• have good communication capability

Obviously this qualification list would support a 900+ store, fashion apparel chain. But many of the principles can apply to vendors in our businesses as well. What would your ideal list look like?

After the list is developed, the concepts must be communicated to the vendors and performance standards established and measured regularly. How many times have we expected vendors to perform (or our clients expected us to perform) and we did not communicate clearly and in a timely manner what the expectations were for acceptable or exceptional performance?

Take the leadership opportunity to be fair to your vendors and your company to develop and communicate the important issues that will contribute to increased growth and profits. You may also find opportunities to add value to your vendors by consulting with them on areas requiring improvements and thus enhance your relationship. The ultimate benefits will accrue to your organization as you enhance your performance and thus support your ability to increase sales, lower costs, improve quality and add profits.

Joseph Greco is president of Greco Apparel. Visit them on the web at www.grecoapparel.com