SME/PROFESSIONAL COUNSEL - Finances - High street's high stakes. A contract with a retail giant can be good news with a price.
Most well-known retailers have a limited number of suppliers and are very careful about who they do business with. Winning a contract with one may seem like winning the lottery. Sales volumes rise and cash-flow management becomes easier when you know you will be paid regularly. Bankers adopt a more favourable attitude to requests for finance, and you feel you are supplying a company that is not going to disappear overnight.
A possible problem, however, is that high-street names tend to call the shots and dictate the contract. It is not uncommon to get locked into their patterns of doing business, their distribution networks, IT systems, and accounting methods. They will generally pay invoices at times convenient to them, and there is also considerable pressure on suppliers to revise prices continually.
Planning and control is the key to managing the relationship successfully.
This means having effective IT systems and controlling the stock holding and manufacturing processes. Plan production to meet demand. Get it wrong by under or overproducing and you could suffer serious financial or customer relations problems.
Another factor to consider is that high-street names want shorter and shorter lead times. You need to build up stocks to meet tight deadlines, while remembering that the longer you hold the stock, the more expensive it will be to finance. One way to keep stock levels low is to subcontract, but this may cause problems of pricing and quality control and reduce profits.
High-street names demand outstanding service. Get it right and you can enjoy a prosperous relationship - but don't put all your eggs in one basket.
If your whole company is based on one contract with a high-street giant, and it changes suppliers, your business may fail.
Steve Sampson is a partner at Baker Tilly, the accountants 0171 413 5100.