Strategic decisions
Firing a supplier isn't easy, but when the relationship no longer works, it's a must
By Tony Rigato -- Industrial Distribution, 5/1/1998
At MRM, Inc., we started strategic planning in 1991 because we wanted to increase revenues from $4 million to $10 million in five years. We worked on our vision, set objectives, and looked at our strengths, weaknesses, opportunities and threats. We knew our No. 1 supplier would be a critical part of this aggressive strategy. Although we worked to ensure a good product mix, we knew that No. 1 line would be our lead to the goal.Five years later we reached our goal, achieving $13.5 million in sales. And not only was our No. 1 supplier 40 percent of those sales, but we ended up No. 2 in sales in the world for them. Everything was great, right? WRONG! Every year, every quarter, we worked the strategic plan only to realize that the very supplier we put so much emphasis on for growth was now our No. 1 weakness. They had to go.
The nature of strategic planning says a company will take a pro-active responsibility for its direction and try to influence its destiny as much as possible. In 1995 our top supplier started to strongly influence how we did business in our market. Many of the edicts the company passed on to us were in direct conflict with our plan. Although those edicts may have worked for their product, the negative effect on us, our customers and our other 12 suppliers was unacceptable. We realized we would have to fire the supplier. So, what did we do next?
* We had to define what business we were in.
* We then looked at how we were perceived in our market.
* We consulted our employees; what did they think, what did they fear?
* Then, our financials -- how would they be impacted?
* We also looked at sales. What would happen there?
* And, of course, the bank -- would they be able to handle this dramatic change?
The most significant factors to be addressed were employees, customers, and suppliers.
Employees. First and foremost we had to meet the fear of firing our primary supplier head-on. The prospect was scary to many employees. This supplier was an important part of our business -- how could we survive without them? It took about three months of weekly meetings until we were able to work through the fear. From that point on, every employee at every level was involved in the process of separating from the supplier.
Customers. Through a comprehensive market study we learned that our entire reputation and corporate identity was based on this supplier's product. The challenge was to make sure our customers knew we were in control of the change and that it made sense to them. At the same time, we started to create a new corporate identity. The result was a new logo, new letterhead, business cards and a new name -- MRM, Inc., Solutions by Design. All the new information was hand-delivered to our key customers the morning we notified our supplier that we were cancelling them. Included in the package was a personal letter from me explaining why the change was taking place.
Suppliers. In the fluid power industry it is believed that a distributor needs the type of product our No. 1 supplier provided. Without it, our other suppliers worried about our ability to sell their products.
To make a long story short, we stuck to our plan and the results have been positive. Today, we are not a fluid power distributor. We are a professional sales organization serving the industrial market with solutions by design.
Last year was not a great year for us in terms of sales -- we've lost some ground, but our strategic plan is still our guide to the future. We have partnered with some international companies and bought a small manufacturing company. We are more focused then ever and expect to triple sales over the next five years.
Looking back I ask myself, would I do it again? And the answer is, ABSOLUTELY! Any company that does not follow a strategic plan is cheating itself of controlling its future. If you fail to plan, you plan to fail.
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