Treat Your Product Suppliers Well

international manufacturing lawyers

In How to Avoid International Disputes: First, Be Good to Your Suppliers, Santiago Cueto explains why it makes sense for you to treat your product suppliers well.

My law firm’s international manufacturing lawyers never go a week without talking with a client about drafting a product supply contract with a foreign product supplier. This means they virtually never go a week without saying something like the following:

The main purpose of this agreement is to prevent problems. It will help prevent problems by giving both parties a road map of where things are supposed to go and a road map of what each are supposed to do. It will also prevent problems by setting out a clear path for handling any dispute that might arise. This agreement will tell everyone that the party that causes the problem can be fairly easily hauled into court or arbitration and there will be a price to pay for having caused the problem. But really, the main purpose of that is also to prevent problems because if you do end up having to litigate against your supplier, that means things have gone wrong and no matter how good a contract you have, litigation will almost never make you whole.

Or as Cueto told one of his clients who wrongly thought “fantastic” margins can cure all evils:

Be careful,” I advised the client, “litigation can easily erase those ‘fantastic’ margins. Worse yet, your back- up suppliers may get wind of the dispute and cut you off. Now you’re left scrambling for a new supplier while your customers are screaming for their orders.” Good luck with that.

Cueto then talks about how companies so often “get the supplier issue backwards” by thinking that because they are the one ordering the product, they are in the dominant position and then sets out four ways to become a valued customer of your suppliers:

Always pay on time. For the sake of emphasis, I’ll repeat this one: Pay your bills on time! You can negotiate for favorable payment terms before you place an order, but once the order is placed, don’t renege or attempt to change the rules. If you can’t, call up your suppliers and tell them why and when you will pay. Don’t play games with suppliers’ cash. You’ll be absolutely amazed at the goodwill and benefits you will earn by observing this simple rule.

Provide adequate lead times.
Try to give suppliers as much lead time as possible on your orders. Unless there’s a compelling, competitive reason not to, share with them an honest projection of your needs and keep them abreast of any significant changes in that estimation. When developing your lead times, it helps to be knowledgeable about your suppliers’ production methods and needs.

Personalize the relationship.
Visit suppliers’ offices. While you’re at it, include them in some of your strategy meetings. Invite them to break bread and invite them to your office parties and picnics.

Share information.
Keep the good suppliers aware of what’s going on in your company. Tell them about changes in key personnel, new products, special promotions and so on. Many times, you’ll find that good suppliers can be help you find new customers.

I can tell you that many of our clients have had terrific long term (decade or more) relationships with their product suppliers throughout the world. I can also tell you that, without exception, they have managed to achieve this by pretty much sticking to the advice above.

What are you seeing out there? What are your views on all this?

4 responses to “Treat Your Product Suppliers Well”

  1. Why is it, Dan, that what you are saying here seems blindingly obvious? Yet these things have to be repeated over and over again. Maybe your mantra–eminently sensible–should be tattooed on to your clients. OK, a trifle extreme I admit. But why, when in business, do people forget these things? Or is it that they never learned them in the first place?
    Nevertheless, it’s good for you. Keep up the good work!

  2. I totally agree that a healthy relationship with suppliers based on the principles above will result in better business. Early last year, when our business was hit with significant funding issues due to adverse currency moves, we called in major long term suppliers for discussions. We achieved better price deals based on early or pre-payment (cash wasn’t an issue, budgets fixed in foreign currency were) and both parties achieved their objectives. I was most appreciative of the support.
    We have some terrific suppliers in China. Issues do arise on both sides from time to time. Maturity and a focus on mutual benefit key to achieving good business outcomes. Suspicion, mistrust, yelling and screaming help no-one. Neither does squeezing their margins to the point that your business becomes marginal.

  3. Dan, there are some major red flags going off when I read this graph:
    Share information. Keep the good suppliers aware of what’s going on in your company. Tell them about changes in key personnel, new products, special promotions and so on. Many times, you’ll find that good suppliers can be help you find new customers.
    Are you sure this “…holds true of China as well,” as you’ve written?
    Not sure about that…

  4. My company always tries to follow your advice and so far it is working. I wish there is a way we could all track the accuracy of what you say just like investment newsletters are tracked by how their investments do. I am certain that the companies that do what you say would do a lot better than those who do not read you.

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