Tag Archives: Capacity

How Do You Address a Customer-Supplier End Run? Three Ideas

Situation: A company’s top customer has approached one of the company’s suppliers with a request that the supplier sell directly to them rather than through the company. The supplier normally does not sell directly to OEMs, and has neither the sales force nor the customer service capacity to work with these companies. Nevertheless, following the customer’s request, the supplier has asked the company’s CEO for a meeting. How should the CEO plan for this meeting? How do you address a customer-supplier end run?

Advice from the CEOs:

  • You need well-placed advocates both within the customer company and your supplier company. These advocates can help you to better understand what is behind the customers approach to your supplier, and what the true issues are. You will also better understand how the supplier is reacting to this request.
  • Talk to the boss of the purchasing manager who initiated this and let him know how this will impact your ability to supply other critical parts for their operation.
    • Ask for fast track approval as a preferred supplier.
    • Try to cut this off before the supplier representative arrives for your meeting.
  • You know from your history with this customer that you have had to make frequent delivery adjustments to meet their needs. Further, as a value add you make modifications to the parts supplied to meet the customer’s engineering specs. This level of flexibility is not part of your supplier’s business model. When you meet with the supplier, paint a picture of the downside of working directly with this customer to convince them that they don’t want to take this business direct.

How Do You Identify New Customers? Four Alternatives

Situation: A company wants to expand its markets and customer base. Currently their business is dominated by a single customer. What best practices have you developed for identifying new customers and markets?

  • The key to getting new customers is to devote dedicated time to this task.
    • If your company is populated by engineer or software specialists, consider hiring a sales professional – a commission based hunter sales person who has experience landing big accounts in markets similar to yours. You may pay this person a good percentage of sales for brining in this business, but gaining the additional business can be worth it.
  • Much depends upon your relationship with your large customer. When a single client has rights over or ownership of the technology of the company but is not pursuing broader markets that the company is interested in, is it feasible to negotiate rights to pursue this business?
    • The larger client will pursue their own interests, not those of the smaller vendor. Perhaps a win-win deal can be worked out, but it may be difficult – particularly if the larger client is concerned that use of the technology in other markets could affect its interests in their primary markets.
    • Be very careful in this situation. The easiest tactic for the larger company to defend itself from a perceived threat is to sue and simply bury the smaller vendor through legal expenses. While the smaller company may be legally within its rights, deep pockets can beat shallow pockets through attrition.
  • In the case that the larger client simply continues to buy all capacity of the smaller company, an alternative is to raise rates, or perhaps to just say no.
  • Consider recreating the opportunity – create your own adjunct proprietary product with your own software or design talent and expand your horizons with this product.
    • Be aware, the large client can still sue if there is any appearance that your proprietary product impinges on their product rights. As in the case above, the larger company has the resources to bury the smaller company in legal expenses regardless of who is legally correct.

How Do You Forecast Revenue for a New Technology? Three Ideas

Situation: The Board of a company has asked the CEO to generate to forecast of revenue for this year. Their primary technology is new and the company has just started receiving orders. An achievable revenue forecast my not please the Board. However, the company may lack manufacturing capacity to meet a higher level of demand. How do you forecast revenue for a new technology?

  • Be realistic in your forecast. While the Board may not like your number, the impact of setting the goal too far out of reach is potentially significant, including discouraging the team, and impairing credibility with the Board. However, if you aim realistically and significantly exceed the target you will be heroes.
  • How is it best to approach this in discussions with the leadership team?
    • Create a set of objectives and revenue targets and put probabilities around each. Also look at the obstacles to hitting the higher numbers, including manufacturing capacity and the cost of increasing capacity.
    • For examples if your most likely forecast is $X, then put probabilities around achievement of multiples of this number:
      • $X – 95%
      • .75X – 99%
      • 1.5X – 75%
      • 2X – 60%
    • Once your determine the objective, think through everything that must be covered to meet that goal, from sales to production, and start developing plans and contingencies to address these.
  • Share your probabilities with the board, as well as your plans and contingencies that may increase likelihood of reaching the higher targets. Ask for their input and assistance hitting the higher targets.