A Riddle for the Tax Season

It's tax time, and when that time of year comes around, I start thinking about what I can do to hold on to a little more of my hard-earned money. One great way is to invest in a 401K or IRA. These savings plans are funded with pretax dollars. The taxes on the money invested, along with any capital gains, dividends, and interest, are deferred until the funds are withdrawn.

As important as these things are, they're not the only benefits. There's also the flexibility and customizability — the ability to review how the funds in these accounts are invested and make changes to balance the portfolio and improve the return on investment.

Why is this a topic for an independent supplier's blog? It occurred to me that a manufacturer's list of approved suppliers is a little like the list of stocks, bonds, mutual funds, or other assets in a 401k or IRA. You want to be sure your personal portfolio is giving you the best ROI possible. The same is true for the portfolio of preferred independent suppliers your business maintains.

Those suppliers are business assets, just as the investments in your 401k or IRA are personal assets. And it's just as important to pay attention to those assets, look at them from time to time, and make adjustments. If you don't, you may not be getting as much from them as you could.

I can think of some questions you can ask to evaluate your preferred independent supplier list:

  • Do all your suppliers offer the lowest risk — or at least substantially lower risk when you need obsolete or hard-to-find parts? When did you last review the list?
  • How are the suppliers testing and screening to be sure the parts they supply are authentic and of the quality you require?
  • Are these suppliers accessible? And is it easy to do business with them?
  • Do they offer more than just order taking? Can you count on them for innovative ways to meet your needs?
  • If you have suppliers that aren't meeting your expectations, can you fix the relationship, or should they be removed from the list?
  • Do you need to add more independent distributors to your preferred list to balance your portfolio?

I'm sure you can come up with more questions. The point is that this kind of checkup is important, whether you do it quarterly, semi-annually, or annually. If your preferred distributors all measure up, that's great! But even if they do, checking your supplier portfolio may bring to light a deficiency that adding a supplier can eliminate. And if there's a problem with a supplier, a regular look at what's going on can nip that problem in the bud before it turns into a loss for your business.

What are you doing in your company? Are you checking and adjusting your preferred supplier list regularly to be sure the companies are meeting your needs as well today as they were when the relationship stated? Do you know what each one brings to your business and where you may have holes that need to be filled?

Is your preferred supplier portfolio strong and balanced, or do you need to make a tweak or two? I look forward to reading your thoughts.

12 comments on “A Riddle for the Tax Season

  1. Eldredge
    February 24, 2012

    Preferred suppliers are certainly both an investment and an asset that needs to be monitored and maintained. Thanks for the list of questions – this wil be a god basis for a review of our preferred supplier list.

  2. bolaji ojo
    February 24, 2012

    Mark, I believe you noted correctly the significance of constant monitoring of a supply base by manufacturers and others involved in electronics production. How expensive, though, can this process of ensuring your suppliers are up to date be and what is the likelihood of passing the costs onto customers?

  3. Houngbo_Hospice
    February 24, 2012

    Hiring a tax professional to do all these checkings for you might be the best way to do things. There might still be some other important questions that only a tax expert could easily find out.

  4. Mr. Roques
    February 24, 2012

    Do you think companies think about supplies the same way they do with stocks,etc?

    For stocks, etc: the higher the profit, you'd expect, higher risks… if you apply that to suppliers, the cheaper supplier, probably has the higher risk but that's not always the case.

    Also, do you think that if you had 4 suppliers, one selling it a half the price, the company is going to buy part of it with the more expensive one? I think not, although in some industries, I can see where they need that diversification but for most, I don't think so.

  5. ITempire
    February 26, 2012

     I think not, although in some industries, I can see where they need that diversification but for most, I don't think so.

    @ Roques

    Sometimes inefficiencies have to be deliberately tolerated. In case a supplier offering goods at half the price goes into bankruptcy, then what. Renegotiating with the old suppliers may be a mess. They might not cooperate as they did before. They might offer discriminatory prices when they know you need them desperately. As in the case of customers where relationship management is taught like religion, in supply chain management, same rule applies. You have to maintain relations with various suppliers as well.

    I dont think there is any industry where diversification is not required. Its a minimization of risk strategy at the cost of profit maximization  high-risk  strategy. 

  6. JADEN
    February 26, 2012

    This a good idea, most people choose to spend their tax refund especially on cars instead of investing it.

  7. stochastic excursion
    February 27, 2012

    Ha ha, hope I'm making the grade, @RK!

    Most of the questions asked have no simple answer, but purchasing and product managers can't afford not to explore them.  In some cases it will require committing resources–implementing QA, incoming inspection and so forth.

    February 27, 2012

    Ongoing supplier assessment and management should be a routine thing that all successful companies do.  Your blog raises some good questions.

    February 27, 2012

    Ongoing supplier assessment and management should be a routine thing that all successful companies do.  Your blog raises some good questions.

  10. Barbara Jorgensen
    February 28, 2012

    Good comparison. I never thought of inventory in quite that way. But balance and spreading the risk are good practices no matter what your investment is. Sometimes it feels that we have as little control over the industry supply/dmand cycles as wel do over the stock market. Good advice.

  11. bolaji ojo
    February 28, 2012

    Barbara, There are various schools of ideas on inventory. Some accounting experts believe it shouldn't even be on the assets side of the balance sheet. Inventory isn't really money until it's sold and some of it gets written off when not sold.That's why it can be a burden on a company rather than an asset.

  12. Mr. Roques
    May 30, 2012

    But at the end, arent businesses just businesses? I'm sure that if they needed to raise the price, they wouldnt conside the relationship you've had. It would impact the % (maybe) but maybe they dont have an option.

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