The Importance of On-Time Payment in the Supply Chain

I was at a recent podium discussion on the topic of automation in electronic manufacturing and I heard a robotics supplier refer to data as “the lubricant of the industry.” In the supply chain, I suspect that cash is the lubricant, the commodity that makes everything run that little bit better, that little bit smoother.

The mind share of your vendors is important to you and there are many ways to get that.  One obvious way is to be one of their largest customers, but with the exception of Cisco, Apple and a few other OEM giants, this isn't so easy unless you buy a lot of product.  This option isn't open to most companies and is generally closed to start-ups whose volumes may initially be quite modest.  And while projections of world market domination might impress your investors, most vendors have probably heard it too many times. 

So what else can you do to get to the front of the queue when you need to ramp volume, make a last minute engineering change or just get the right response to an enquiry?

Nothing says good customer quite like being a prompt payer.  And it seems that sometimes, nothing says big customer quite like a slow or delinquent payer.  Some of the larger brands seem to leverage payment terms with their vendors to gain operating capital, extending terms to something little short of ridiculous.  Add to this the tendency of the larger brands to leverage their volume against price; reducing their vendor's margin to something wafer thin. You can see why some of these relationships become quite strained. The good news is their tardiness can be your strength.

My advice would be pay on time as a minimum. If you can pay a little early, why not do so, unexpected cash in the bank is always such a nice surprise.  Start-ups often have cash from investors sitting in the bank earning little or no interest. Why not utilize that capital to improve vendor relations and oil the wheels of commerce?  After all, your investors didn't provide that capital for it to languish in your bank account, they want to see it working.

Another way of getting more attention is to pay a little bit more.  I know this seems counter to everything we've been taught about negotiation but why not?  Many products, particularly at launch phase are not super price sensitive and if one or two points of extra margin for the vendor makes the difference between hitting or missing that launch date or holiday season market window it's money well spent.  We spend a lot of time negotiating with vendors for our clients and a few billion dollars worth of managed business has made us pretty good at it, but remember the lowest price isn't always the best price.

You're trying to stand out alongside those customers that spend many times more than you.  They're constantly driving cost, price and your vendor's margin down.  Why not be a little more collaborative, build a real partnership that offer mutual benefits.

Be a nice customer, create and leverage great relationships, delight your customer and your vendors alike.

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