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The Cost of Doing Business

Thu, 03/03/2011 - 12:36pm
ANNA WELLS, Executive Editor, Industrial Distribution

By ANNA WELLS, Executive Editor, Industrial Distribution

Anna Wells LongAfter college I spent some time living overseas, if only to fulfill some weathered cliché about Europe and writing in a leather-bound journal. My parents came to visit me a few months after I’d settled in the Czech Republic, and I was excited to show them the lay of the land.

It was late November, and as winter began to settle, Prague’s Old Towne Square became a glittering holiday bazaar. Small wooden shacks began to crop up like land mines, begging the wandering tourists to peruse the overpriced wood carvings, pashminas and marionettes. You’d never know it was a formerly socialist country for the in-your-face of it all.

Because of this, I warned my father: Never pay full price for anything here. If there was one thing I’d learned by that point it was that no price was ever fixed. These holiday shopping bazaars, most notably, were barter-friendly. There was so much fat built into the prices that you could safely haggle without worry of juicing some poor vendor out of his or her hard-earned profits. Besides, it was just the cost of doing business in this environment.

That said, I guess those are easy words for me to say when I am on the other side of the haggle.

I recently received an interesting letter from an Industrial Distribution reader expressing some frustration over his company’s being subjected to consistent price increases from its manufacturers. His note reads:

“I work for a medium-sized distributor, and each year we are hit with price increases from manufacturers. There are individuals in our company who think we should automatically refuse price increases and plainly state we won’t accept them — a tactic some of our customers try. How does a distributor fight back on price increases from manufacturers? It has been my experience that most manufacturers won’t budge on the price increase issue because they want to keep a level playing field with all their distributors. Our company has responded by doing several things. One would be eat the increase, which is the reason our margins have eroded over the years. The second is to bring in new manufacturers and change out the products. This becomes an endless circle of changing suppliers every few years.”

This reader and I exchanged a few e-mails in which I cited some external economic factors (like the increases in raw material and transportation costs), but I think we both knew, deep down, that some of these increases were just old-fashioned haggling in the hopes that every deal can always be better.

My guess is there are many of you who are in this situation in which margins begin to erode or suppliers are cycled out for new ones, until the problem recurs. So I thought I’d put it to you: How do you confront the issue of supplier price increases? Has anybody out there found a creative or consistent way of dealing with this issue without absorbing costs, compromising supplier relationships or simply passing the increases along to customers down the chain?

Small swings on hugely marked-up hand-carved nesting dolls at an open-air marketplace are typically easily absorbed from either side. In the case of industrial supply, I’m afraid, the stakes are far higher. So when it comes to old-fashioned haggling, what’s the cost of doing business?

Send us your thoughts on this topic so we can share your ideas with our readers: anna.wells@advantagemedia.com.

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