Situation: A small company has a parts supplier for product that they sell to their most important customer. That customer’s specs are “copy exact” on components for existing products; also, their new products are usually based on existing components. The supplier significantly raised prices on the parts supplied to the company. How you respond to a price increase from a supplier?
Advice from the CEOs:
This is an extremely sensitive situation. One solution is to not to rock the boat. The reality is that the company needs the parts, and it will take a lot of effort to replace them with parts from an alternate vendor. Just continue the relationship. Quit worrying about it and milk it for as long as it lasts.
Find out what caused the supplier to raise prices. The supplier needs to understand that to preserve the company’s margins they may have to raise prices to the final customer. This may threaten both the company’s and the supplier’s business with the customer.
Make sure that the supplier understands the company’s costs: office, salaries, equipment, maintenance, and local regulations that are unfriendly to business and difficult to deal with. Ask them to reconsider or reduce the price increase.
Assure that the supplier understands the value that the company provides and the importance of this collaboration to the business and profits and bottom lines of both companies. Leverage this value to get the price that the company needs.
Renegotiate the relationship to assure that supplier can’t go around go around the company and sell directly to the final customer.
Start building relationships with alternate suppliers.
Situation: A company will be losing a client in the near future. However, the client is still buying from the company as sole source supplier while they develop alternate suppliers. Should the company raise prices, and if so by how much? Is it timely to raise prices?
Advice from the CEOs:
A factor in this decision will be your history of raising prices in the past. If you have increased prices to keep pace with inflation and your costs, look at the frequency and magnitude of these increases. Provided that the increase that you are considering is not out of line with past practice, it should not come as a surprise to your client. If you have not raises prices in the past, be prepared for push-back.
However you decide, be sure to maintain the relationship. You have a long relationship with this client and you never know what their future needs will be. As to the amount of the price increase, if they are reducing the volume of their purchases, you can raise your prices by 10-20% based on the loss of volume to cover your overhead.
Be prepared with logical arguments to explain the price increase to the client.
If your discussions with the client’s representative have become tense, it may be better to have someone else within your company lead this discussion. It’s OK to tie the emotional component – having to lay-off employees, etc, – into your story.
If you have an advocate within the client company, involve them in the discussion and give your advocate the ammunition that they need to support your case.
Adjust your staff and costs to fit the new reality.
A company has focused on developing future leaders and managers. They do this both to increase their managerial and leadership bench strength and to boost employee retention. What has worked for you in developing managers and leaders?
Advice from the CEOs:
Trying to make a leader doesn’t work. Leadership is a trait, not a skill. Leaders can arise from anywhere within the organization. An effective CEO recognizes this and works with both the leaders and the managers, whatever their position.
The Gallup Organization found that exceptional managers and exceptional leaders are not often the same people. Usually, the best managers are people who excel at bringing out the best in their employees, but may not be either visionary or strategic thinkers. Leaders, on the other hand are those to whom others look to for guidance and direction. Good leaders know how to identify and delegate to good managers.
Identify and develop strengths within your people; don’t try to fix weaknesses.
Gallup found that talented people have identified and developed their strengths. Instead of fixing weaknesses they find ways to work around weaknesses so that they are not harmed by them.
Use informal mentoring. Assign mentors to employees, and include cross-departmental mentor assignment to extend skills development, as well as managerial and leadership development.
Ask mentors to report progress to the CEO on occasional basis.
As you develop your talent pipeline, track the number of employees added to the pipeline per year as a key company metric. As an additional metric, look at the number of individuals in your pipeline compared with the number that you believe you need to fill future needs.