During my career, I have worked with large as well as medium-sized and small companies. At the beginning of my business career, I did business only with giants in the field of furniture, but later I developed my best business with medium-sized and partly also small companies.
Among others, I have worked with companies such as IKEA, STOKKE, HABITAT, XXX LUTZ and some other big names in the wood industry.
In recent years, I have moved away from working with large companies as they become more and more impersonal and their suppliers are rapidly becoming just suppliers who need to be flexible in every way, and who can also be replaced very fast.
If you are going to work with major players on the wood products market, consider at least the following four facts and incorporate them into your strategy of working with them.
- NEGOTIATION TACTICS
There are always two prices. The first is for those who negotiate and the second for those who do not. And the prices are significantly different.
However, it should be borne in mind that negotiating with “sharks” as I like to call big companies is not easy. Representatives of companies come to the negotiations ready in all key segments:
- they are experienced and educated negotiators who know all the tactics of negotiations
- they have vast knowledge of the industry
- they have information on labour and material costs
- they know the technological processes
- they have at least one or more potential suppliers as backup who can replace you and therefore have a lot of bargaining power.
They send as many people to the meeting as necessary to assess the situation as much as possible and achieve the most favourable conditions for their employer.
Even when the collaboration starts and the price is set, you should be aware that the price will be negotiated with you at least indirectly at each visit, even if the price is set for a certain period of time. This way, you will always get various suggestions on how to reduce costs and make the product cheaper so that the price can be lower sometime in the future. And when it is time to negotiate, you’ll get all of this on the table. In long-term cooperation with large companies, the price usually decreases continuously over time.
It happened a few times that we were preparing for negotiations for several days and prepared really convincing arguments why it was necessary to raise the price. Usually, the negotiations ended with them listening to our show for several hours, and then calmly saying that their price will prevail, as they have already found a cheaper supplier.
It was known that IKEA allows their suppliers to earn 2-3%. What this means at the slightest quality claim is clear to everyone.
- INTERFERING WITHIN ALL ASPECTS OF THE COMPANY
Expect regular visits and inspections of the production process, where they are always looking for new solutions to optimize production and reduce costs. In a few months, they know your production better than you know it yourself.
In most cases, it is necessary to assume their way of ordering, communication and sales, as they have a customized computer system due to the scope of the business and various suppliers, which needs to be introduced in the company.
Sometimes customers suggest that you use their purchasing channels for raw materials, semi-finished products and fittings. With this, of course, they make extra money, and at the same time they know exactly what your entry costs are. It is known that IKEA used to be the largest veneer retailer in the world, although it was engaged exclusively in the sale of finished products. A supplier can get all the fittings he needs from Ikea at affordable prices, and the products are already designed to fit their fittings.
- MANAGE YOUR CAPACITIES
After just a few visits, the customer knows exactly what your capabilities are and what your potential is. If they rate you as a potentially interesting supplier, they will soon start increasing your orders and believe me, it is very difficult to say “NO” to ever higher numbers.
Unfortunately, in most cases, increased orders lower the price of a product, but that’s not all.
The biggest challenge arises when you become vitally dependent on them. That’s when some customers buck up their ideas and put extra pressure on the price because they know you can’t survive without them.
I myself like to follow the Pareto 80:20 principle. I make a maximum of 20% of my capacities available to one customer, and I distribute the remaining 80% among others. In some cases, even 30% is still acceptable, but I definitely do not recommend more.
- DEVELOPING LONG-TERM COOPERATION WITH A CLEARLY DESIGNED “EMERGENCY EXIT”
It is worth developing a long-term cooperation with large companies, as real advantages of cooperation only become apparent after a long period of time.
Try to get the most out of each long-term collaboration:
- working with big and well-known partners also raises your reputation
- experts help you develop production and optimize costs, which you can use in other business
- you can specialize in certain products and later develop your own product line
In any case, have an emergency exit ready, as large companies can cut you off very quickly and all of a sudden there is a big gap in your production that you can’t patch in a short time.
With these warnings, I do not want to frighten anyone or even deter them from working with large companies, as we can reap huge benefits from such cooperation. One only needs to understand how they function. You need to be aware that you are dealing with professionals in all areas of work and you can learn a lot from them. But I advise caution.
As the great scientist Marie Curie said: “Nothing in life needs to be feared, just understood.”
After all, my company also grew in the beginning working mainly with large companies such as IKEA and STOKKE. Today, I hardly ever work with companies like this anymore, but my doors are still open to everyone. You never know where your next business opportunity is.
