Cutting Deals with Suppliers
Can't find the money to support business at current levels? Are borrowing costs for inventory eating up profits? Counter those pressures by paring down working-capital needs. Carver, an audio-equipment maker in Lynnwood, Wash., did that, in part by negotiating with key suppliers. The company has also shrunk inventory requirements and has gone from losing money to being solidly in the black.
Carver's revenues had fallen from $25 million to $20 million, but millions were still tied up in inventory. If it had been the right inventory, it wouldn't have been so bad. But the company was still running out of stuff. It needed a system for coordinating inventory with current production levels. Here's what Carver did in the past two years to improve its position:
* Negotiated longer-term contracts. Carver tries to work out one-year contracts with vendors and pledges to buy a certain volume during the year. But rather than ask for delivery at one time, it lays out a schedule and provides updates on changes.
* Reduced inventory requirements. Carver tries to limit inventory on hand to two weeks' supply, says purchasing manager Michael Carr, so it pays only for what it has. Carver, with revenues of around $27 million, now operates with 30% less inventory than it had when it was selling less.
* Obtained better pricing. Once suppliers understood Carver's new approach, most offered to cut prices by around 10% -- some by even more.
"With less inventory," says Carver's finance vice-president Sandy Jenkins, "we need less money and fewer warehouse people. And suppliers can plan better and buy better. It's really more efficient for everybody." -- Bruce G. Posner* * *