Apr 02 2007

How to Deal with “Rich” the Buyer

Published by at 3:39 pm under Uncategorized

Way too often you are paired with a buyer whose personality closely approaches that of a bratty teenager: Always wanting things his way and is never satisfied with results. Many readers of last month’s article about two buyers want to know how to deal specifically with this type of buyer.  Here’s how:

In last month’s newsletter/articles I wrote about two buyers:  Rich, who viewed purchasing as an ongoing battle with his suppliers, and Mike who viewed his suppliers as allies in supporting production.  The responses I got to that article indicate that most companies seem to have the Rich’s of the world inflicted on them.

Here are the salient characteristics of the buyer Rich:
1.    Schedules are jerked around like walking an untrained dog.
2.    Quality comes and goes depending on the inventory levels.
3.    According to him . . . . .
a.    Your prices are always too high,
b.    You are supposed to have a JIT warehouse; he’s not financially liable for.
c.    Deliveries are never prompt enough.
d.    Invoices are paid when HE decides they should be.
e.    You should set up a shop off shore somewhere to your costs.

OK, how do you deal with this Bozo?  Actually the same way you deal with a bratty pre-teen:  Fondly, Firmly, and Consistently, with Logical (predetermined) Consequences for their behavior.

First let’s get though how you got the business in the first place.  You quoted it.  While the generic excuse is that you were awarded the business because you were the low bidder, even if you weren’t; you got the business because of your delivery performance.  Cheap is easy.  But when the customer’s warehouse is empty, cheap rarely gets parts on the receiving dock on time.

Keep this in mind.  You qualified the parts, went through the inspections and blah-blah AND your agreed upon final pricing is acceptable.  Further, let’s assume you’ve had the brains to institute a policy that is the molder’s equivalent of a Pre-Nuptial agreement that defines if he ever wants to pull the tool he pays for everything in  stock that relates to that job so that you aren’t left ‘holding the bag’.  Further, as the SPI policy states, if you had the expectation of this is a continuing job and he pulls it in less than twelve months, you’re entitled to an Engineering Services Fee to recoup all the freebie engineering hours invested in bringing the project into ‘ready for production’ status.

Assuming you’ve done the above homework; let’s deal with Rich’s snit-pitching.

While everyone quotes price breaks with a lesser unit cost for a higher volume buy, make sure your quotes stipulate the “ATM Quick-Cash Clause”.  The Quick-Cash withdrawals at my ATM are $40.  No more and no less.  Most folks are further limited to one withdrawal a day but you can make daily withdrawals until you empty your account.  On you purchase order let’s assume Rich chooses a unit buy of 10,000 parts.  Make sure he understands from now on he can only purchase in blocks of 10,000 parts at the 10,000 part cost.  Not 1,000 today and not 100,000 tomorrow.

You got the job because he awarded it at your pricing structure.  Somewhere in your Pre-Nup agreement should be an escalator clause allowing you the right to pass through price increases for (only) raw materials.  Similarly you’ll also reduce the price is raw material prices drop (right!).  However, no where in there is the concept of a ‘task’ or ‘price reduction program’.  Unless your Rich’s company is willing to contribute financially to a productivity improvement; you are under no obligation to do so with your own money.  If you do manage a productivity improvement, you were the low bidder originally and therefore have no obligation to reduce prices when you did something tricky on your own money because you shouldered all the risk.  When he asks for a price reduction (with no basis for it); ask him if he’s ever got a price reduction from a restaurant after he ordered the meal.  ‘Nuf said.

Set up a Master Purchase Order program.   This means you have billable stored inventory of some maximum level of parts.  It is agreed that if the project cancels tomorrow the customer will only be liable for this maximum amount.  No exceptions.  Further when this inventory hits some minimum level, it automatically triggers a rebuild to the maximum level.  All shipments are made from this maximum-minimum bank of parts.  For Rich, he gets his JIT warehouse, level pricing and the luxury of pull-ups and push-backs without a penalty except if he empties the bank and forces you into a mode of expedited production.  For you, there is no panic in producing parts.  If Rich is off in his estimates; the size of the bank can be renegotiated every (perhaps) six months.

Now we get to the JIT reject.  You’re functionally approved BUT if you look at every freakin’ dimension there are probably a few that don’t match the print.  Rich notices dead inventory in his warehouse, does a ‘quality audit’, and ships your last lot back to you demanding credit but (here’s the tip off) no replacements.  What do you do?  You probably should have done this earlier:  Have a sit-down with the players.  You go to them or they come to you, it doesn’t matter.  The players are the buyer (Rich or Richette), your and their QC staff, and the Engineering folks.   You open the meeting gaining consensus that the parts have passed functionally in the past.  Now present the problem:  They ain’t to print (never were), you’ve got a warehouse full of these functional-but-not-to-print parts BUT you can’t ship because your obligation is to ship ‘parts to print’.

The only choice you see is to shut Rich and his company down.  Rich will immediately talk about a Deviation, allowing you to ship these off-spec parts.  You must politely decline this short term fix because this really doesn’t address the question:  They work but they’re off-spec and will continue to have both attributes when the deviation expires.  Your obligation to modify the tooling expired when you were previously ‘approved for production’ warts and all.  Now just sit there and let them figure out their only salvation is to change the print to the numbers from the quality audit BUT you won’t blindly accept that.  What you want is the numbers from the quality audit plus commercial tolerancing.

How do you get paid?  I’ve had letters from my clients telling me they’re changing the terms of my invoice to a net-120 to improve their profitability.  We share harsh language over that and I sue them when they take the n-10 discount anyway.  Molders however usually don’t have that choice or are afraid to haul a customer into court.  Remember the Pre-Nup?  Somewhere in there is your policy of payment.  “Net whatever” but it also requires a hook:  The hook is the first late payment triggers putting everything on COD for the next six months.  The second late payment (bounced check etc) is Pre-Payment for the next six months.  The third late payment and Pre-Payment is only accepted after the funds clear the bank.

A few years ago many companies were hit with the less-than-subtle threat of their customers requiring them to set up a facility offshore.  My only advice is that financing a joint operation, management of two companies many time zones away, cultural differences, and ethics of an offshore ‘partner’ are only the first of a very long list of concerns.  Beyond that, is your customer willing to fully financially back you for your entire off-shore operation for the next ten years?   Nope.  Many molders who fell for this demand with only a verbal promise, are now out of business.  There are only a few real success stories. If your customer wants the ‘China Price’, point him west, and with a pat on the fanny wish him luck. (Luck meaning you’ll be there if he wants to come back and do business with you but he shouldn’t expect and technical assistance during what will be an extremely painful and awkward transition to the new molder.)

These are the answers to working with the Rich’s of the purchasing world.  A lot like kids: a clear set of rules, fairly administered, knowledge of the consequences before the infraction, and no exceptions regardless of the supposed ‘extenuating circumstances’.  But many molders must be masochistic.  When given this advice they shout to the heavens they’ll lose business.  So they go through life with every phone call from Rich adding to their blood pressure and migraines.  However, those who act like professionals and won’t tolerate being abused; not only survive but actually thrive.  Why?  When we finally come down to the short strokes all the buyer wants is parts that work, in the quantity he needs, when he wants them, at the prevailing market price.  You only have to train the buyer. He can get what he wants painlessly if he’s willing to play by some simple rules.  If he needs to fight, tell him to join a boxing club.

*  *  *  *  *  *

If you think I’m shouting to the void, this is a virtual article so you don’t even need to print it out.

If it makes some sense, there’s a policy manual in the bookstore you can buy/download or you can write your own, and you can begin the process of training your customers.  If you can’t train them, you’ll have to do what you do with a hunting dog that can’t be trained to hunt. Get rid of it and get another dog that will.

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