Beyond the balance sheet

How to avoid the danger of customer and supplier over reliance

Simon Smith 01/10/2018 5 minute read

Simon Smith FCCA explains the importance of not over relying on one customer or supplier type and how doing so can affect your business.

Diversify, it's a word we here a lot, but as business owners do you know what you should be diversifying and why? If you were to make a list of your customer base and suppliers, would you see a variety of different people?

If you look at some of the most successful businesses today, you'll notice that they have numerous clients and established suppliers, but even they face obstacles when it comes to affectively selling to a broader audience or meeting the supply and demand needs of their business.

Get the right systems and pocesses in place to avoid customer over reliance

The dangers of over reliance on one or a small group of people

Consumers purchasing decisions can be determined by market trends, the introduction of new products, a change in point of view, or even a social media post they've seen and want to buy in to; if your customers are too similar to one another what will happen when they decide they want to try a different product that your business doesn't offer?

On the other hand, you may have great customer base and products/services are flying off the shelf (amazing!). But what do you do when your one or two suppliers have a technical error and can't get vital components or equipment to you? You might dispel these situations as being worst case scenarios, but they are real potential issues that will need to be resolved, and quickly.

Relying on any one customer is a dangerous notion, even if you are a well-known and reputable organisation. Therefore, it's imperative that you work to diversify both your customers and suppliers, as well as, put into place a risk management system that will help foresee future disruptions and prepare for them. You can make your business more secure by following these 3 steps:

1. Step up your PR game

One of the best ways to enhance your public relations is by releasing new and innovative products at the most opportune times. Shining a spotlight on something your business offers at the perfect moment can be tricky, but think about all of the products you've bought over the years...

What triggered you to make that purchase, did you see a great deal promoted online, was it an attention grabbing social media post, or maybe it coincided with a particular event? It's also important to think about the different ways that you can connect with a broad audience, there's social media, blogs, video streaming, television segments and podcasts.

There's a plethora of options to choose from, just make sure you choose the best ones for your brand based on where your customers and potential customers are likely to reside and interact.

2. Turn your followers into buyers

Many organisations work hard at gaining huge social media followings but after all that hard work getting them to like and follow their pages; they will often find that they have more followers than they do clients. So the question is how to turn your followers into customers who repeat purchase?

You're social media following is naturally going to be a diverse group of people because they will follow you for different reasons, but this also means that they are not necessarily following you because they are buyers. Using social media to engage with a diversified audience is a great way to start the conversion process; think about using different marketing elements such as promotional offers, freebies, contests, or tips and advice that will not only attract your current customer type back to your business but also appeal to others outside of your target market.

One of the biggest potential options you can use to help bring people to your store is a VIP promotional offer that is limited to select people or a specific amount of time. This is also a great way to test the waters when expanding your target audience, if your offer is successful you'll see an increase from followers to buyers.



3. Make it personal   

Emails can easily be forgotten, but having a conversation with someone has a better appeal and is more likely to entice them to try your product or service. It’s also a way to differentiate your business from larger competitors as you can spend more time contacting people one-on-one and build a stronger connection with them.

Now you have your plan to diversify your customer base, let's focus on your product. Here are some key things to keep in mind when expanding your suppliers:

The game of risk

Is choosing to use more then one supplier a little risky? Of course and it means more work for you, but what's the old saying, “With great risk comes great reward” (Thomas Jefferson). The reality of dealing with multiple suppliers is that you're going to need to be in constant contact with several organisations in various locations.

There are ways you can minimize the risk factor and work with only the most reliable organisations. One way is to vet them by setting in place a rigorous pre-qualification process.

With great risk comes great reward

Matters outside of your control

In business everyone would like to think they are in control 100% of the time and that would be amazing, if only it were true. Uncontrollable factors like economic conditions, competition, technological factors and weather related issues can affect your supply chain. Some effects of these uncontrollable factors can cause problems for months. For example, if an extreme environmental issue occurs such as a severe storm or flood, this could stop a suppliers ability to transport a product which can leave you with empty shelves.

The best way to battle against uncontrollable factors is to keep up-to-date on all relevant news and information so that you can plan for any supply shortages and either make arrangements with your other suppliers or action an alternative solution.

The technology factor

If you're looking for a solution that helps eliminate some of the human error that occurs when comparing supply chains you should consider using planning software or supply chain management software. Programs like Oracle SCM Cloud or SAP Supply Chain Management software offer the ability to see the entire supply chain and help predict where possible issues may arise. Introducing this type of software into your business can help you accommodate for these potential problems so you're not left in an impossible situation.

Diversifying your customers and suppliers is a large undertaking, but it’s a necessary and beneficial task in the long-run. It will provide your business with more security and be more appealing to potential purchasers because they will see a very viable future for your entity and a likely return on their investment.

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The content of this post is up to date and relevant as at 24/08/2018.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.


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