A: Sharing Information with Vendors
Question: We have a few key vendors, and we hope that sharing certain timelyinformation with them will gain their trust. Any pitfalls to watch out for?
Answer: "Here's a cautionary tale. A few years back, we had the best year we'd ever had. Everything was just clicking: sales increased, profitability increased, we reinvested in R&D and new products, and we still had money left over. All the while, our chief supplier (a large multinational) had been receiving a financial statement from us every month because we had this credit relationship with them.
"Well, somehow -- and this might just be coincidence, but I don't think so -- we wound up with a 13% price hike for the year following our banner year because they saw our final results. Nobody else we know of is now paying 13% more for this company's products! When we disclosed to them the margins we had selling their product, it blinded them to what we saw as their larger responsibility -- todrive down the cost of the product, to improve the R&D and make it a better product. We're no longer customers of theirs. We learned that we can't really change the culture of another company.
"It's best from the beginning to talk it over, to recognize what motivates the other company and pull together some sort of policy statement, which we failed to do. If we had sat down with them and said, 'Our goal is to grow the business and increase market share and have a constantly innovatingproduct line,' we probably could have found some common ground. We were dealing with a company that was only interested in a certain financial performance. Had we known that up front, we could have had a clearer understanding of each other's goals." --Anonymous open-book CEO
Copyright 1998 Open-Book Management Inc.