Saturday, 16 March 2013
b.The methodology of Squeeze
Cash is King!
At the beginning of business, all suppliers will not trust you. You are required to deal in cash in advance for your goods and services. You have no choice but to comply. After a while, once you are more stable, these same suppliers will try to offer you credit terms. DON'T TAKE IT. It takes great wisdom to not take that evil bait.
Once you are offered terms, slowly but surely, you will be addicted to that credits (Really not very different from credit card companies). Once you show signs of not paying, these very same suppliers will stop their supplies and services. You would be left high and dry, and unless you pay up, you will not get your next supplies for continuance of business. They even will threaten legal action if no payment is received by a certain date.
So stay clear of taking any credits.
But, I love that machine or that ERP software that will help me to minimize effort and maximize profit. Banks are willing to lend me the money to own it straight away. No such thing! You can still make money from existing machines which you have paid cash for. Your customer services are still tip-top with personal touch and no bull-shit like ERP software. These softwares are meant only as a show-off to others. It will help no one. I have friends who have installed ERP systems and took them more than 2 years to configure. Later, EVERY ONE threw their softwares away and started yaking on their phones to try to win back their customers. These ERP softwares almost killed their sales systems.
If you can't pay cash for it, it simply means you are not yet ready for that man-toy nor are you ready to expand.
Stay cash terms.
Once the supplier starts to offer credit terms, it is time to apply that squeeze. It means that your cash payments have proven your credit-worthiness. You are an important account to them. They need your business volume and your monthly business volume is a percentage to their turn-over.
Get your secretary to look for another supplier for the same goods and services. Quote the new one the business volume you are doing with this current supplier and the cash term. Since it is a percentage of sale for the current supplier, it will also be more or less a percentage of sale for the next supplier. Ask the new supplier to better that number (about 5%-10% lower). If the new supplier agrees, cut over 80% of the sale volume. You should be more than welcomed for the new supplier as your cash terms are too valuable for the new supplier. Most clients of theirs are now on credit and not paying well when times are bad (most times are bad for businesses).
The old supplier will ask after a few months why is your business volume so low? Your answer should be: The price quoted by them are no longer competitive and you are in a bad shape. You can't hack the high supply cost. Further you have a partner and he has found a friend to help in this. He has helped by lowering our total supply costs.
The old supplier will ask for a return of business as he is now addicted to your cash terms. It is like an ATM to their business, as they need immediate cash to pay for their installments, employees and rentals. You ask for a further 10%-15% discount from his rates. he will most likely comply as you have proven to be able to walk away.
Transfer back the 80% of sale to him and give the remaining 20% to the new supplier.
Learn to hunger them. Alternate your purchases with them.
Wait for a while and repeat the process. If necessary, find a third supplier.
When do you stop?
You should stop at 10%-20% above raw material costs. How do you know? Well, that's what big businesses like Macdonalds, Apple and Samsung are paying their OEM contractors.
The raw material prices can be gotten from simple phone calls and internet researches or simply ask friends.
For every squeeze, try to return some of these savings to the consumers. They are your ultimate food providers. They will assist you to protect your market share by accepting that you are indeed the best value for money.
Business games are not about being fair. There is no fairness. The big boys will always eat the small ones for food and to stay alive. This is the exacting law of the jungle. Please show no mercy. The others will not show you any either, but to constantly plot your demise.
Should you therefore show mercy to your suppliers? NO. They too are accepting gifts from your enemies to see your demise.
As one wise man said, "There are no permanent enemies, only permanent interest."
CASH is your only weapon in winning these cut-throat business wars.
If you deal in cash only, you will be the only one that can effectively play the field.