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Lock Your Customers into Buying Exclusively from You

Written by: Alec Schibanoff

Article Overview: Every business owner dreams of customers that can only buy from them, totally shutting out the competition. It is being done everyday with Strategic Supplier and Integrated Supplier Programs that lock customers into buying exclusively from you, rendering the competition impotent.

Lock Your Customers into Buying Exclusively from You

Strategic Supplier and Integrated Supplier programs came into existence in just the last 10 years or so because they are technology-dependent initiatives. Effectively implemented, a Strategic Supplier or Integrated Supplier program marries your customers to your business so it become almost impossible for them to purchase products elsewhere.

First, however, there are some limitations on whether or not a Strategic Supplier or Integrated Supplier program is applicable to your business, the products you sell, and your customer base.
• Strategic Supplier: This concept is the most effective when your customers need the products you sell on a regular basis. Items such as tools and supplies are ideal for a Strategic Supplier program. If your customers buy capital equipment and there are long intervals between purchases, the program will not work, and it does not work when you sell services.
• Integrated Supplier: This concept is specifically designed for suppliers of parts, components and assemblies that are used on a regular basis to assemble finished products by an OEM (original equipment manufacturer). If you sell services, an Integrated Supplier program does not work.

The concept behind a Strategic Supplier and Integrated Supplier program is similar: You become more than a supplier to your customer. You quite literally become their partner and the package of benefits you offer them includes lower costs and better service. Here is how an actual Strategic Supplier program and Integrated Supplier program works at clients of ours.

Strategic Supplier of Tools and Accessories to an Oil Refinery: Our client manufacturers tools needed to make repairs as well as to clean and maintain equipment in process manufacturing facilities. Many of their tools have wearable accessories (for example, they sell tube cutters that have bits that wear out and must be replaced), so they sell both the tools and replacement accessories such as brushes and bits for those tools.

Until we designed a Strategic Supplier program for this client and helped them implement it, every time this refinery (one of the largest in the world) needed tools, the maintenance director would requisition the tool he needed and the purchasing agent would call three or four suppliers to get prices and availability. While price was a major concern, availability was very important. When this refiner needed a tool, they needed it ASAP since they were a 24/7 operation for which down-time was an expensive luxury. While our client did not usually have the lowest price, they almost always had the tool the refinery needed in stock, and they could ship it to them overnight for next-day delivery. When our client lost an order, it was usually because a competitor had both a better price and they happen to have the tool in stock.

Here is the Strategic Supplier program we set up. The refinery created a Tool Bin at their facility, and they supplied our client with a list of all the tools they had purchased over the last two years from all suppliers. Our client then stocked the Tool Bin what both parties estimated to be a six-month supply of tools. At this point the refinery has paid our client nothing, and their only expense was to assign an unused area of the facility as the Tool Bin.

Going forward from that point, every time the maintenance director needs a tool, he fills out a requisition and sends it to Purchasing. Then he just takes the tool he needs from the Tool Bin. Rather than calling suppliers for prices and availability, the purchasing agent sends a PO directly to our client, and our client invoices the refinery for the tool. Every three months, our client looks at what tools the refinery has used, and they replenish the supply in the Tool Bin accordingly so the refinery always has in stock all the tools they need.

Here is how this Strategic Supplier program is a win/win:
• The refinery now gets NOT next-day delivery, but SAME-DAY delivery whenever they need a tool!
• The purchasing agent no longer has to make three or four calls and play telephone tag to check prices and availability.
• The refinery pays the best price they used to get for each tool when they shopped among three of four suppliers.
• Our client has successfully locked this huge account into buying exclusively from them, generating hundreds of thousands of dollars in additional sales that are locked in forever.
• Despite the fact that the refinery gets the lowest commercial price for each tool they buy, sales to this account are very profitable for our client.
• Our client’s sales force no longer has to give price quotes to this customer’s purchasing agent, freeing them up to work with other customers and prospects.
• Our client’s shipping department is freed from the labor-intensive task of pulling tools from stock and getting them shipped out overnight every time this customer orders. In fact, our client often ended up paying overtime to get orders shipped out the same day for this client, and that cost has been totally eliminated!
• The customer gets immediate delivery and the best commercial price, while our client has a customer that is locked into them, sales to that customer are very profitable, and the cost of selling to that customer and serving the demanding needs of that account has been dramatically reduced!

Integrated Supplier of Plastic Parts to a Consumer Electronics Manufacturer: We designed an Integrated Supplier program for another client who had a customer that manufactured consumer electronics products, and while the consumer electronics OEM would give our client a 90-day blanket order, the manufacturer was constantly decreasing or increasing quantities as orders from its customers (the retail stores that sold their products) would change. The consumer electronics OEM was driving their supplier crazy, and vice versa, and no one was happy with the relationship.

Further compounding the relationship was that the consumer electronics manufacturer was constantly being called on by competing plastic parts suppliers offering better prices, and the parts our client was producing were already marginally profitable for them, and they simply could not reduce the price!

The Integrated Supplier program we designed and help our client implement produced similar benefits to the Strategic Supplier program at the refinery, and it also offered many win/win benefits:
• The consumer electronics manufacturer now gets parts delivered just when they need them improving the throughput in their plant.
• The consumer electronics manufacturer was so pleased with the integrated supplier relationship that they now purchase all of their plastic parts from our client.
• When competitors of our client contact the consumer electronics OEM they are not even given a chance to quote them on parts because price is no longer the issue. It’s service, support and just-in-time delivery!
• Our client has successfully locked this huge account into buying exclusively from them, and not just one plastic part, but purchasing all of their plastic components on an exclusive basis.
• While there was a cost to our client to implement an Integrated Supplier program with this customer, it has paid off handsomely in both increased sales and increased profits.
• Our client’s customer service and shipping staff are no longer stressed out scheduling, re-scheduling and un-scheduling shipments to this major customer.
• The increased volume to this account has enabled our client to negotiate for lower raw material costs from their suppliers.

What enlightened businesses are doing by implementing Strategic Supplier and Integrated Supplier programs is to shift the paradigm from a we-are-the-vendor and you-are-the-customer mindset to a long-term and mutually beneficial partnership between equals.

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