Dollars and Sense
July 1, 2007
Dollars and Sense
By Jeff Dearduff
Back in my days as a bakery maintenance manager, it seemed like I always was wondering if I were getting the best deal when procuring parts and supplies for the plant. Because of the urgency that many times surrounds a maintenance event, you grab what you can from where you can and worry about the dollars and “sense” later.
The dollars part of this is pretty easy to understand. You usually have a budget — whether it’s weekly, monthly or annual — and you try to stay within it so that questions from management are few. The sense part of our dilemma is more complicated. Let’s talk about that.
Over the past decade, the industry has spent a lot of time writing about and discussing vendor relationships. In every case, the story line has been how the “big bakery” has linked with the “big equipment supplier” for a long-term relationship that brings innovation, top-notch service and pricing advantages to the buyer. The situation we need to deal with is more like “local bakery” dealing with “local suppliers.” We need to focus on a competitive advantage brought about by competitive bidding.
While it’s nice to have that special relationship with your friendly power transmission salesman, you sometimes can become so close that you lose sight of true value. Sure, part of the value of the relationship is having the ability to call the person at 2 o’clock in the morning to open the store for you and, at times, even hand-deliver the part to the breakdown site, but are you sure he’s the only one who will do that for you? Sometimes we lean on the easy solution and become comfortable thinking it’s our only option.
Hold on. Don’t go getting all sensitive. I am not suggesting that you dump the suppliers you have. However, in today’s competitive marketplace where our customers are squeezing pennies out of bread, we need to squeeze pennies out of our suppliers so that the company’s bottom line — yeah, the one that pays your salary, benefits and bonus — remains healthy. So, how do you make sure you are getting the best bang for the company buck?
My first suggestion is to call up your favorite salesman — and maybe his supervisor — and have a heart-to-heart discussion about where the industry is headed and how the economics work in your department and in your bakery. Talk about budgets, talk about operating costs, and talk about value.
Some of the first responses will be that the price of nickel is up, oil prices are out of hand and other notable maintenance material charges are on the rise. This is when you can talk about soaring wheat prices and labor costs, and how the reliability of the parts they’ve been selling you is below par. At the end of the meeting, you are the customer, and if you have held your ground, you will have one of two things: a new-and-improved discount plan with better service or a new opportunity for a competitive marketplace within your local supplier community.
Every market in this fine country has multiple sources for everything needed to support the maintenance function of a bakery. If you’re not getting what you want out of your primary supplier, start bringing in others, and see if they want to compete. In some cases, you will find suppliers eager to get in your door, and in other cases, you might find that the prospective supplier isn’t large enough to afford discounts.
Competition is the mother of all value in the business of purchasing. It can be healthy for all, or it can become ugly for everyone. As the one in charge, however, it’s your responsibility to keep order. You ultimately will be the one who garners the benefits; therefore, you need to be the one steering this ship.
To start with, when you take a competitive approach in the parts and supply purchasing arena, and you have a long-standing relationship with one vendor in a particular area, you need to have a plan in your head as to how you handle everything that is thrown at you. You want to move yourself into a neutral position with all the new suppliers in the category. Listen to them. What do they bring you? What services are they suggesting? What discount levels can they start you out at? This philosophy works whether you are talking to bearing suppliers, oil suppliers or HVAC service providers.
To keep the purchasing environment healthy, here are some key points to keep in mind:
Never threaten that you will take your business elsewhere.
Never close the door on somebody; you might need them later.
If pricing between vendors is comparable, buy a little of everything from many suppliers to keep multiple relationships warm.
If you have a better price from an alternate supplier, let your primary supplier know what you will pay for an item. Never disclose that another vendor has them beat; rather, give them a chance to match your number.
Just because a part has an OEM part number doesn’t mean you can’t get it locally. Investigate all opportunities to source locally.
Here’s one last idea for consideration: Just because you work on the East Coast doesn’t mean you can’t buy from the West Coast. With the ease and convenience of the Internet, you could explore setting up accounts with parts houses in different regions of the country, if you find that pricing is more favorable. Sometimes pricing coupled with typical ground shipping by a major delivery company can compete well in your market if local suppliers are being stubborn.
In the end, it’s all about dollars and common sense.