Bright Idea
Get input from employees when making purchasing decisions on supplies and equipment. The people who are using these items every day know what works and what doesn’t, what’s efficient and what isn’t.
Purchasing
When it comes to business purchasing, even the smartest consumer is playing a new game. The rules are different and the stakes significantly higher. But correctly done, purchasing—or procurement—will increase your net income.
Whether you’re buying a major piece of equipment or a bottle of cleaning solution, you should evaluate each vendor on quality, service, and price. Look at the product itself, as well as the supplementary services and support the company provides.
Bright Idea
Get input from employees when making purchasing decisions on supplies and equipment. The people who are using these items every day know what works and what doesn’t, what’s efficient and what isn’t.
Verify the company’s claims before making a purchase commitment. Ask for references, and do a credit check on the vendor just as you would on a new customer. A credit check will tell you how well the supplier pays its own suppliers. This is important because it could ultimately affect you. If your vendor isn’t paying his own vendors, he may have trouble getting materials, and that may delay delivery of your order. Or he may simply go out of business without any advance notice, leaving you in the lurch. Also confirm the company’s general reputation and financial stability by calling the Better Business Bureau, any appropriate licensing agencies, trade associations, and D&B.
Make a List and Check It Twice
Tracking inventory for a cleaning service business isn’t complicated, but it’s important. Unlike a retail store, you don’t have a wide variety of items to keep up with, but you do need to be sure you have what you need when you need it.
Janitorial services with large buildings as clients usually store products and supplies on site, which means you’ll have to track inventory located in multiple sites.
Mike Blair, owner of AAA Prestige Carpet Care in St. George, Utah, says he keeps most of his carpet cleaning supplies on his trucks. “We have shelves on each truck, and we keep a wide variety of chemicals that we utilize in a large variety of situations. It’s just a matter of assessing at least once a week what is on the trucks, or having the technicians tell you what they need. I keep [two layers of each item] on the shelf, and when one comes off, I go ahead and order it. We do have a backup inventory, probably another truck’s worth, that we keep on the shelves in the storage area. But we don’t have to keep a lot of inventory because we can have anything here in two days.”
Set up an inventory control and replacement system early and stick with it.
A major component of the purchasing process is the supplier’s representative, or salesperson. The knowledge and sophistication levels of individual salespeople often depend on the product or industry; however, they can be a tremendous source of education and information. Make it a rule to treat all salespeople with courtesy and respect.
Besides telling you what they have, salespeople should ask questions. A good salesperson will find out what your needs are and how his company can satisfy them. Just as in the consumer sales arena, commercial salespeople use both high- and low-pressure tactics. Consider studying sales techniques so you can recognize and respond to the methods being used with you.
Buying Supplies
To be sure you don’t run out of supplies, you must purchase wisely and in a timely manner. This means establishing and maintaining an effective inventory control system so you’ll know when to purchase, what—and what not—to purchase, and how much to purchase. Keep in mind that the caliber of service you provide can be affected by the quality of supplies you use, so choose your products and sources with care.
You probably won’t have to use more than a few suppliers to obtain all the supplies you need. Sometimes the suppliers will contact you through their sales reps, but more often, particularly in the beginning, you’ll need to locate them. You’ll find suppliers of janitorial products in the Yellow Pages of your local telephone directory and by searching online. They also advertise in trade journals and buyers’ directories and exhibit at trade shows and conventions. You’ll have two basic types of sources: manufacturers and distributors.
You can buy directly from manufacturers through their own salespeople or independent representatives who handle the product lines of several different companies. These sources usually offer the lowest prices but are also likely to have sizable minimum purchase requirements. Also, they may add on the cost of freight, so be sure to get the total price of getting the products to your door before making a buying decision.
You may choose to buy from a distributor, also known as a wholesaler, broker, or jobber. These operators use quantity discounts to buy from various manufacturers, and then warehouse the goods for sale to janitorial services. Although their prices will be higher than if you bought directly from the manufacturer, they can supply you with smaller quantities, which lets you avoid tying up your cash in excess inventory. Typically, they’ll be closer to you than the manufacturer, which means quicker delivery time and a lower freight charge. Many manufacturers will only sell to distributors, so if you contact them, they will refer you to a distributor who can work with you.
Dollar Stretcher
It’s more cost effective to purchase supplies in bulk rather than in small quantities. You’ll also save money by buying larger containers rather than smaller ones.
Contracts are a way to make sure both vendor and customer are clear on the details of the sale. This isn’t “just a formality” that can be brushed aside. Read all agreements and support documents carefully, and consider having them reviewed by an attorney. Make sure everything that’s important to you is in writing. Remember, if it’s not part of the contract, it’s not part of the deal—no matter what the salesperson says. And if it’s in the contract, it’s probably enforceable—even if the salesperson says that never happens.
Any contract the vendor writes is naturally going to favor the vendor, but you don’t have to agree to all the standard boilerplate terms. In addition, you can demand the inclusion of details that are appropriate to your specific situation. Consider these points when you’re negotiating contracts:
Make standard provisions apply to both parties. If, for example, the contract exempts the vendor from specific liabilities, request that the language be revised to exempt you, too.
Use precise language. It’s difficult to enforce vague language, so be specific. A clause that states the vendor isn’t responsible for failures due to “causes beyond the vendor’s control” leaves a lot of room for interpretation; more precise language forces a greater level of accountability.
Include a “vendor default” provision. The vendor’s contract probably describes the circumstances under which you would be considered to be in default; include the same protection for yourself.
Be wary of vendor representatives who have to get any contract changes approved by “corporate” or some other higher authority. This is a negotiating technique that generally works against the customer. Insist that the vendor make available personnel with the authority to negotiate.
Reliable suppliers are an asset to your business. They can bail you out when you make an ordering mistake or when your clients make difficult demands on you. But they’ll do so only as long as your business is profitable to them. Suppliers are in business to make money. If you argue over every invoice, ask them to shave prices on everything they sell you, or fail to pay your bills promptly, don’t be surprised when their salespeople stop calling on you or refuse to help you when you’re in a bind.
Bright Idea
If your storage space is limited, try negotiating a deal like this: Make a long-term purchase commitment to earn volume pricing, but arrange for delivery in increments so you don’t have to store the materials.
Of course, you want the best deal you can get on a consistent basis from your suppliers—this is good business. Keep in mind that no worthwhile business arrangement can continue for long unless something of value is rendered and received by all involved. The best approach is to treat your suppliers the way you would like each of your customers to treat you.
Suppliers Are Also Creditors
Most business advice focuses on dealing with your customers, but you’re also going to become a customer for your suppliers. That means you’ll have to pay for what you buy.
Find out in advance what your suppliers’ credit policies are. Most will accept credit cards but will not put you on an open account until they’ve had a chance to run a check on you. They may ask you to provide a financial statement; if they do, don’t even think of inflating your numbers to cover a lack of references. This is a felony, and it’s easily detected by most credit managers.
If you do open an account with a supplier, be sure you understand the terms and preserve your credit standing by paying on time. Typically, you’ll have 30 days to pay, but many companies offer a discount if you pay early.
Negotiating a Deal
Negotiating doesn’t mean that there has to be a winner and a loser. The adversarial relationship that has existed in the past between supplier and customer isn’t the best strategy. The most profitable approach is to partner with your suppliers, develop the relationship over time, and work out your differences for a mutual benefit.
The ideal sequence of events in the purchasing process is to determine that the vendor has the product you need, the quality is satisfactory, and the availability in terms of quantity and delivery date meets your requirements. Only then do you begin negotiating price.
Dollar Stretcher
Ask suppliers if payment terms can be a part of your price negotiation. For example, can you get a discount for paying cash in advance?
Price can be approached from several angles. Consider the cost of the item itself, the quantity discounts, add-ons such as freight and insurance, and the payment terms. To determine the true value of a quantity discount, calculate how long you can expect to have the material or merchandise on hand and what your cost of carrying that inventory is. Payment terms are another important consideration. Some vendors offer substantial discounts for early payment; others will extend what amounts to an interest-free, short-term loan by offering lengthier payment terms.
Of course, price isn’t the only negotiable point. Every element of the sale is open for negotiation. At all stages of the process, leave room for some give and take. For example, if you’re asking for a lower price or more liberal payment terms, can you agree to a more relaxed delivery schedule?
Young and growing businesses are often at a disadvantage in the negotiating process because their initial volume is small or they don’t know what their sales will be. Be honest with vendors. Ask them to take a chance on working with you while you’re small, in exchange for future potential. Set a time in the future to analyze how you’ve done and, if necessary, to renegotiate your terms.
The key to successful purchasing is becoming partners with your vendors. Choose them carefully and then nurture your relationships for a mutually rewarding alliance.
Dollar Stretcher
Purchase used towels in bulk from linen services. Cleaning services will have a variety of uses for towels and other linens that are stained or torn and can no longer be used by the linen services’ customers.