November 26, 2022

Small Business Advice

Multipliers Suppliers

Jerry Osteryoung | 7/30/2007

Most successful men have not achieved their distinction by having some new talent or opportunity presented to them. They have developed the opportunity that was at hand.
— Bruce Marton

How many suppliers of goods and services do you want to have for the same products and services?

I was working with a firm that had all of its bank accounts and loans with one bank and one loan officer. When that loan officer left the bank, the firm found out that the new officer that came in was not as responsive nor as understanding as the prior loan officer was. The loan was eventually called in and the firm had to file for bankruptcy protection.

The owners of one firm we assist did this type of analysis and they were very surprised at the result. Certain customers they thought they were making a lot of money on were the exact customers they were loosing money on. Just because you have a large amount of sales from a customer and you “think” that you are making money on them, does not guarantee actual levels of profit. There are so many ways for profit to vary from your projected levels due to additional labor or materials that you had not factored in to your price.

Another firm had a critical component of its manufacturing process subcontracted on another firm. When this sub got a much more profitable order, they dropped this firm with little notice and the firm actually had to stop production until it could locate another supplier that could provide this component. If fact, the firm had to shut its manufacturing operation down for over a week which caused it undo financial harm and affected its relationship with its customers.

Clearly in these cases, relying on a single source of supply was incredibly damaging, if not fatal. What I am going to suggest is that for every critical component of your operation, you make sure that you have at least two vendors providing or ready to provide the product or service. Redundancy is such an important concept in running any business.

Too often, I have seen suppliers get lazy when they have been the sole suppliers of goods or services knowing they really did not have any competition to worry about and this is just human nature. Most suppliers want to be each firm’s sole supplier to keep the relationship secure and to stop competition. However, this is just not in the best interest of the firm.

Some of the most successful entrepreneurs I know have duplication in all of their services, from lawyers to maintenance service firms, just to make sure that they are not vulnerable to one supplier leaving and to make sure that that all suppliers understand that they can be easily replaced.

In some cases, it just may not be possible to parcel out the work to multiple vendors. For example with accounting, it just may not be possible to have two accountants. However, in this case I would recommend that you would have made some contacts and had conversations with other accountants to make sure that they can step in on short notice if you loose your existing accountant.

The risks to any business are very high. Every time you can do something to reduce this risk, your returns go up and you can live a much calmer life.

Finding redundant suppliers of critical goods and services is so important to each business. Now go out and make sure that you have these suppliers on board or ready to go.

You can do this!

Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at jostery@comcast.net or by phone at 850-644-3372.

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