Don’t give away margin, work with your customers to take out costs
As pressure on the major housebuilders increases, we read once again that the likes of Barratt are imposing price reductions on their suppliers. While the desire to reduce costs is understandable, there are far more enlightened and probably effective ways of keeping costs down and companies caught in this difficult position might like to consider the following approach.
One philosophy of key account management is to work with those customers that you wish to develop a long term relationship with and really understand their business. This is not a Buyer-Seller relationship, you need to involve people from all aspects of your business and they should be talking with people working in all the activities of your customer’s business. In this way you can really understand the issues your customer faces and it should be possible to find ways to change the way you work to take cost out of the process. It might mean changing the way work is quoted, how materials are delivered, scheduling with other trades or types of products used. The objective is to change the way you and your customer work together so that you become more efficient and take cost out of the process - just as Egan intended.
This is a win-win approach. Both companies should benefit from the savings and once you have worked with your key customers to find opportunities to take out cost you can apply them to other customers, making your business offering more competitive without the need to reduce margins.
Even if you are not working with the major housebuilders there is an opportunity to try this approach. Select your larger customers, those that you value and want to continue working with and see if you can find ways of working with them to take costs out of the business. It will help you to build stronger business relationships and make it much harder for your competitors to secure any of your business.
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Chris Ashworth, founder of Competitive Advantage Consultancy, provides strategic marketing, research and training services to the construction industry. He is a member of the organising committee for the Chartered Institute of Marketing Construction Industry Group (CIMCIG)
First published: 11th July 2008, CNPlus
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