Although they'll tell you differently, buyers only want a steady stream of acceptable quality parts. Stripped to its essence this is why a customer does business with you.  Kindly notice I didn't mention "low cost." The most common excuse my clients tell me for bad business practices is they need them to keep their existing customers base. Here are some "games" suppliers get sucked into as willing participants and knowingly lose money "in order to keep our customers."

Part Cost

Anytime a buyer chants the mantra of "Cost Is King!" and further mentions that excess freight is not his problem, ask about the concept of "Total Cost" or "Cost of Goods Sold" or any of the other accounting terms that add up all the money spent to produce a product. While expedited freight might not come from the purchasing budget, the check sent to the freight company has the customer's name on it.

If Cost truly was King, he wouldn't have expeditors on the payroll because he'd choose his vendor base so that expeditors were unnecessary. When questioned intently, all buyers will tell you they'd gladly pay a higher part cost if there was a solid foundation of delivery performance.

Conclusion - reliability is worth more than part price.

Price Adjustments

Many molders fall for the customer's policy of "We will only review pricing increases annually (or 'never', 'semi-annually' 'quarterly', etc.)". Give this a sanity check: when the resin company raised its prices, it didn't single you out, it raised them for everyone.

In today's costing structures, materials are usually more than 70% of the molded part cost. Thus a small increase in material costs, if you absorbed it, would be a major bite out of the machine/labor/profit increment of cost equation. If the buyer threatens to go elsewhere, where's he going to get material cheaper? He may find cheaper labor but he's going to have to go through an inventory pull down and build up, requalify the tools, and so on, with the second source. Is it worth it for a few cents/1000 parts?

Conclusion: You quoted an acceptable price and you're passing through the increase in material costs. If the customer won't accept the price increase, you are under no obligation to ship him parts if you initially quoted it base on the prevailing material cost.

Price Negotiating

I was recently in Singapore. Processors there were complaining about buyers at their Chinese customers, saying in effect, "These people will hold out forever for a lower price!" 

Really? (1) If someone else was less expensive, what's the point in continuing to 'negotiate' with you? (2) Forever is a long time. Negotiations always have a time limit.  The buyer has to commit to a production source by some date to insure his product introduction date. What is happening is a game of 'who will back down first'. 

There's a mentality when reviewing competitive quotations that regardless of who is the lowest, they can always be talked into a price that is lower than their quote; you just have to insist on it long enough. The automotive industry is notorious for this. So most automotive molders intentionally inflate their 'low' bid with the full intention of lowering it just before the job is placed. 

But, isn't this a really dumb game? Why even play it? If this is the only way of getting the job, then by all means play Liar's Poker. But what if you just quoted the job and, when asked to lower it, you said "No. That's an acceptable low price for your specifications."  What would happen is that (1) If the other factors came into play - delivery performance, flexibility, quality - you'd get the job and at an acceptable margin from the beginning. Or (2) they'd give it to someone else (which is what they had intended to do after they'd put you out of business or you told them to take the job back), AFTER you'd debugged the job for them.

Conclusion:  If they want to do business with you, they will, so long as you're fair.

Customer Loyalty

Loyalty between customers and suppliers is a good thing. However, buyer's today often are no longer influenced by loyalty. Having a 'history' with a customer only says you both are a known quantity to each other. But knowing someone has the morals of a rattlesnake doesn't make them a good customer. Good customers contribute to your profits and further your goals, just as you do to their own.

All too often I've heard the "we'd done business with them since they started. This part we've been producing hasn't had a price increase for five years and I'm afraid if we adjust the pricing they'll pull the job" story. Actually, your customer is probably fully aware you haven't increased the price and is happy as heck you're losing money and he's making more than he ought to because of your mistake.

Conclusion: There are no friends in business; only business associates.  Everyone should be treated on equal footing.

Tasks & Givebacks

Back in the 80's and 90's part of the purchasing mentality was introduced to demand either "Givebacks" or assign "Tasks". These were not up-front contingencies in the purchase order's RFQ, but slipped in with the threat, "If you don't do this now, we won't give you any business in the future." It's the industrial version of blackmail.

The Giveback

(1) If it comes from an individual, write a polite letter asking them to fill out the appropriate tax form for miscellaneous income. Send copies of this letter to the CEO, head of purchasing, and the HR department. They'll take care of the problem. 

(2) If you're 'investing' in future business, get a written commitment from the company's Authorized Agent (usually the buyer) that in exchange for this 'investment' you'll be awarded business on a Single-Sourced-No-Quote-guaranteed basis so that you can continue to make your profits and can recover the cost of the 'investment'.

Givebacks Conclusion:  Since you're customer will never guarantee you future business, don't participate in these games.

The Task

These come in the form of "In order to keep your current business and continue to be quoted on future business with us, your task is to reduce your prices to us X% per year for the next Y years." You'll note they were polite enough not to offer to finance your process improvement to a completely turn-key operation, to purchase new equipment,  or even to give you a favorable loan to be paid back with the savings of doing this. 

They expect you to do this all on your own and want the savings immediately when you turn on the new operation. (1) If someone else had all this automation, why are they doing business with you in the first place? (2) - Most importantly - Where's the guarantee in the same manner of the givebacks described above?

Task Conclusion: If they wish to change the terms of your business relationship (the PO), you have as much right to negotiate new terms as they do. When this game is put on the table, your best option is to Not Play. Tell them politely you pay commissions to your sales people on a pre-arranged schedule and you make your own operation more efficient only for your benefit; but are willing to participate in a 'joint venture' if they'd like.

Did you just say "Meow"?

When you listen to molders and mold makers, they talk tough about their companies, they talk tough about holding costs to their employees, and they talk tough to their suppliers. But when they talk to their customers, they too often are meek little kittens.  Many molders will tell you privately their customers are bullies.

Hey, plastics processor: Your customers will (pretend to) tell you, "It's a privilege to do business with us," but privileges don't pay the bills. Yup, there are even seminars on 'supplier management' that teach these techniques of 'coercion in the name of improved profits'. This only works until the molder refuses to play the game, or he goes out of business and another sucker takes his place. Business is not a game of winning and losing. If it must be a game, it's one of mutual benefit. 

You are entitled to a fair profit and continued business as much as your customer is.  You should pick and retain your customers with the same dispassion as they do with you. If a customer meets your goals, he's a good customer. If he doesn't, you should do something about it. You might be surprised at the results.

It's your choice.

About the author: Bill Tobin is founder of injection molding and mold manufacturing consultant WJT Associates and a regular contributor to PlasticsToday.