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THE DISTRIBUTOR’S LINK
Jim Truesdell
James Truesdell is President of Brauer Supply Company, a distributor of specialty
fasteners, insulation, air filtration, and air conditioning with headquarters in St. Louis.
Mr. Truesdell is adjunct professor at Saint Louis University and Webster University.
An attorney and frequently published writer, he is the author of “Total Quality
Management: Reports From the Front Lines”.
WHEN THAT BIG CUSTOMER CAN MEAN
A BIG RISK TO YOUR BUSINESS
Getting that big customer, developing a relationship
with a really large buyer, and being partner with a large
commercial customer... these are all the dreams of a
growing wholesale distribution business. It would seem to
be a “no brainer” that this would be a goal for which we
all strive. Think of all the dollars of revenue which can
keep your business in the black for a long time!
But the reality is that reeling in that big fish can often
bring problems for a small business. What seems to be a
really good thing can rapidly become a source of worry to
management. Once a business gears up its capabilities
to take care of that large customer it may have added
considerable overhead. This includes more employees,
storage space, delivery capabilities and committed capital
all in the service of meeting the demands of this one
buyer. Unfortunately, that new revenue can disappear
more rapidly than the increased overhead can be shed.
When there is too much of a “concentration” of
business in one or a very few customers it sends up red
flags to lenders, investors, and vendors extending large
credit to an enterprise. A normal sticking point is often
considered to be ten per cent of total company sales
volume centered in one customer.
That one big customer would seem to bring about
economies of scale which can reduce overall operating
costs.
There are a lot of negatives that come with it however,
these include:
[1] Increased credit risk if the large receivable
suddenly goes bad.
[2] The bargaining power of that large customer
can drive prices down and diminish overall
company gross profit margins. That big customer
might add ten per cent of sales but sometimes
the percent of GP is much less.
[3] The relationship with the customer can often
depend on one (or a very small number) of a
distributor’s employee associates. Loss of a key
employee can frequently lead to loss of the
customer.
CONTRIBUTOR ARTICLE
CONTINUED ON PAGE 112