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Ask a Margins Expert

RSS By: Chris Barron

Chris BarronHave a margins question? Through this blog, you will gain insight into improving your bottom line, as a margins expert answers questions and provides farm business advice.

 

Supplier Relationships & Price vs. Value

May 30, 2011

 

Relationships are the cornerstone to any solid business exchange. Trust and loyalty open many doors of opportunity. Working with suppliers to focus on mutual benefits will create a long-term working relationship which can dramatically improve your bottom line.
Try thinking of your suppliers as partners rather than just companies or servants. If you make their job easier that value will be returned directly back to your bottom line. For example, by purchasing products such as seed or equipment from one supplier instead of several suppliers you will improve your buying power. Customer loyalty from a supplier’s perspective is generally one of their primary sales goals. Therefore, if you are willing to be a loyal customer you’ll have the opportunity to receive better services and most likely better prices. Ultimately, the benefit to your operation would be an increase in quality services. It's much easier for a company to go out of their way to work with and help a customer who is loyal. Most suppliers won’t go out of their way for a customer that's always complaining and beating them down on prices.
Let's look at understanding the difference between price and value in purchasing a product. It's easy to focus on price however; value always improves margins over price alone. It's definitely like the old saying goes: “You get what you pay for!” Here are some basic definitions of price versus value to keep in mind as you purchase products. Ask yourself, for your business which is more important price alone or value? For clarity, let's define the terms of price and value.
Price: The amount of money exchanged for a given product or service.
Value: The quality of features and benefits received from purchasing a given product or service.
Have a conversation with your suppliers with regard to price versus value. Once suppliers have a clear understanding of what you value and your specific needs, it will be much easier for them to meet your needs. Suppliers can’t read your mind. Every producer they work with is unique and has different needs. Invest some time having detailed discussions with your suppliers about product features and benefits. Discuss features that are important to your operation but then expand on what benefits are most important. For example, you may be interested in the feature of a new transmission on a tractor. However, what's truly important to you may be the benefit of increased fuel efficiency which will save you money. By having detailed discussions with your suppliers it will help them to understand how you make your decisions and what's truly important to your operation. Once a supplier has accurate information about your specific needs and can count on your loyal business you can rest assured that you will be receiving the best value from your products.
With the high tech complexity of many products and services in today's world, value can widen margins much faster than price alone! It's difficult for individual producers to keep track of the rapid changes and opportunities that new agricultural products bring us every year. Because of these product complexities, we are fairly dependent on supplier’s information and guidance. If we focus on relationships, loyalty, and value with suppliers, we can count on them to return the same!
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