Taking the pitcher to the well once too often

 

The most important component in any business relationship is the question of trust.

The ultimate demonstration of trust and good faith is when a supplier delivers goods to a customer on Credit terms.  

It therefore is incumbent on the buyer that they acknowledge this act of trust and observe the agreed payment terms.  

Faced with the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall.

Once a supplier feels that their buyer is taking undue advantage, the relationship is damaged sometimes irreparably.  

For any relationship to be sustained there has to be mutual benefit.

When a buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.

 

The value of the human touch

Companies have traditionally thought of customer service as a cost centre, which made it a ripe target for cuts during the downturn. That has contributed to increasing frustration among consumers who have suffered with poor service in recent years.

 

Although many operations are completed electronically in this virtual world we should never forget that essentially commerce is about people trading together.


The reality is that goods need to be moved from point of production to point of consumption and obviously the diverse elements which make up this chain cannot be achieved solely via a computer terminal.


It makes sound economic sense to foster and maintain good customer relationships as it has been determined that it costs up to five times as much to win a new customer as it does to retain one.


There is an old adage “value your customer,” this dictate has never been more important than in these uncertain and challenging times.

 

21st Century Leviathan

The recent commissioning of the world’s largest container ship the Maersk's Majestic underscores the competitive nature of international shipping.

 

The vessel is a quarter of a mile long and has the capacity to transport 18,000 20-foot containers.

 

Manufacturers of electronics and mobile phones are shipping cargo by sea because competition was eroding their profit margins focussing their attention on cutting delivery costs.

 

Each 20 foot container can hold 13,000 smart phones with a transportation cost from China to Europe of 7 pence per unit and a transit time of approximately 25 days.

 

Currently there are over 6000 container vessels operating with a significant number engaged in the East to West trade routes.

China’s economic success remains export driven as illustrated by the cost of shipping a container. Inward from China to Europe costs around US$1500 with the reverse journey only commanding a rate of around US$700.

Traffic will continue to moving onto the water because moving goods by air is very energy-intensive and the high cost of jet fuel makes air freight too expensive.

Squeezing till the pips squeak

Against the current economic backdrop companies are constantly looking for ways to boost their bottom line.

 

Particularly over the past year we have seen companies trying to extend their payment terms by all manner of means – some fair, some foul.

 

In addition to this many are looking into the question of obtaining “rebates” from their suppliers.

 

Some retail chains have recently announced that they will be introducing a rebate scheme with effect from next year. Suppliers will be asked for a 0.75% rebate if their sales grew by 10%.

 

Earlier reports have suggested said the rebate would rise to 5.25% if sales grew by more than 50%.

 

Amongst suppliers there is always a battle to secure sales but there also has to been a commercial realism.

 

If by securing so-called “prestige” business the overall operating margin carries a disproportionate return then it becomes a question of commercial realism.

 

In such situations it may well be argued that such business is best left to others.

 

 

Keeping all the plates spinning

Managing a business in today’s environment is a complex affair – it has been likened to 3 dimensional gaming.

Particularly for the owners of SME’s it has never been harder to keep track of the various elements which are buffeting the business.

Now might be an appropriate time to run a check over those areas of the business most likely to cause problems in the coming months.

It is a self-evident truth that many a crisis could have been averted by timely intervention.

This is where an independent appraisal can identify areas of potential concern but more importantly the ways and means by which to address them.

The question that needs to be answered initially is – how long can I keep all those plates spinning?

 

Consumer confidence – weighed in the balance

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”.

 

Basically this is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.

In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham supermarket checkout think?”

The problem is that many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer. Further evidenced this week by Prime Minister Cameron’s gaffe over the price of bread.

It is a very easy exercise, a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

People are looking for value as evidenced by the latest results from the discount supermarket group Aldi whose UK pre-tax profits surged 124% to £157.9m in 2012, with the company saying it attracted a million more shoppers through its doors.

The discount chain's latest accounts posted at Companies House show revenues up 41% to £3.9bn last year.

The economic recovery will only be sustained once the man in the street has regained confidence.

 

 

Adding value

When attempting to boost the bottom line there are 2 obvious courses of action, cut operating costs and generate additional revenue.

Many organisations opt to reduce staffing numbers as a quick fix but there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.