21 Apr How to Evaluate Vendors Before You Commit
What steps do you take to evaluate vendors before you make a decision to buy from them? Are you being cautious and making sure that all aspects of the relationship are right for you from the start? Or are you jumping right in without getting all the facts? I’m a big fan of the new show Billion Dollar Buyer on CNBC. The show stars Tilman Fertitta, the Chairman and CEO of Landry’s Inc. The show follows his rigorous and long process for rating vendors before he ever cuts a deal with them.
The Landry’s portfolio includes: The Golden Nugget Hotel and Casinos, Morton’s The Steakhouse, Rainforest Cafe, Bubba Gump Shrimp Co., McCormick & Schmick’s Seafood & Steaks, Saltgrass Steak House and many others. So, Mr. Fertitta has some serious buying power. It is his common sense, practicality, honesty, high standards, and integrity that I find simply irresistible.
Every episode, Tilman meets with two potential vendors that his team has picked as offering something unique. He is looking for the next best thing to give his brands an edge. I’ve seen him evaluate different sauces, drink mixers, sheets, artistic light fixtures, spa products, and handbags amongst others. He seems most concerned with doing business with people who are open minded and responsive to his needs. They may have the most awesome product and price, but if they are rude to his employees or are not flexible, they will not get far with him. It is the interpersonal relationship that he values most. If potential vendors don’t align with his philosophies, they are out. I think that is a good lesson for everyone and can applied to many aspects of our lives.
His standards and process:
Know Thy Self
Above all, Tilman has a very good understanding of himself and his business. He acknowledges his own strengths and weaknesses. He is very grounded, having a firm handle on what matters to him and what doesn’t. It is important that he surrounds himself with people who share the same moral standards and respect for one another.
Look for Stand Outs and Rising Stars
These are not large corporations he is evaluating. They are small businesses that manufacture high quality products that are different from the rest of the normal sellers. He is not interested in maintaining the status quo and buying the same boring things, from the same boring people that everyone else is. He wants better to provide his guests with the best experience they can possibly have.
Consider the Background of the Owners and Their Financials
He looks at the background and financial statements of the companies to determine if they have the capacity and sound management skills to fulfill his massive orders long term. He does not require an existing huge volume of sales or hefty bank accounts, but does want to make sure they will not be completely dependent on his business. He gives the small business owners advice on their manufacturing, pricing and sales strategies. Many times I have seen him require potential vendors to get other wholesale accounts as a prerequisite to his purchase. He genuinely wants them to succeed and be secure. He wants to make sure that they are earning a respectable margin and have a presence in the mainstream world. Tilman obviously wants a good price for himself, but he also is smart enough to be fair. He realizes that the only way a relationship works is when everyone benefits. It does him no good to drive a hard bargain to the point the vendor’s business struggles to make ends meet because the quality of the products and the relationship will fizzle.
Enlist All the Senses
He wants to touch, feel, taste, smell, and see the product many times before he buys. He is brutally honest about what he likes and doesn’t like, often asking for changes to the formulation. He does not make purchases without himself, his team, and his customers trying the product first. He always sets up a trial run and considers everyone’s feedback, requiring an 80% approval rating to be a contender. For example, he was looking at some popular new hot sauce. He tasted it himself and thought it had too much vinegar. He gave it to his chefs to make dishes with and asked their opinion. They also thought it had too much vinegar. He put the hot sauce on 2,000 Bubba Gump tables and asked his guests for their feedback. Too much vinegar. So guess what, he asked the manufacturer to change the formula. They started resisting and almost lost the deal. In the end, they realized that this wasn’t based on only one person’s opinion and made the necessary adjustments. They changed the type of vinegar they used and their product was immensely better. Without a willingness to admit their faults and take steps to correct them, they were not going to win the business of Mr. Fertitta. They got over their stubbornness, bucked up, and did the right thing. Not only was the end product improved, but the trust of the relationship was strengthened and solidified.
Most of the vendors sell many varieties or lines of their products. Tilman does not buy everything they have to offer. He figures out which are the best of the best and hones in on only one or two. Again, he is smart enough to seek the opinion and advice of many different types of people when making this decision. For example, the maker of leather handbags had too many options to choose from. Tilman picked the five he thought would sell well at a price point his customers make purchases. He did a trial run and saw which ones the customers gravitated to. He asked them how much they would be willing to pay for it. Once he knew what kinds of products were interesting and what the pricing sweet spot was, he asked the manufacturer to come up with prototypes that matched those specifications. Then he still only picked one or two to buy for his stores.
Take Your Time, Be Thorough, and Find the Right Fit
This whole process is not completed overnight. It takes weeks or months. Tilman will set deadlines for each stage of the evaluation to keep it moving forward. If someone becomes unresponsive or doesn’t follow the instructions, the trust is lost and the deal is dead. By taking the time to make sure the relationship is established properly from the start, there is a much greater probability of long term success. And that’s is what he is concerned with, those who can go the distance with him instead of just a here today, gone tomorrow stint. This was best seen with the seller of some expensive linen bed sheets. Tilman loved the product, but did not rely on his own opinion. He set up a trial where two beds were set up in his hotel lobby: one with the cotton bed sheets he normally uses and the other with the pricey linen sheets. His guests were given the opportunity to vote on which one they liked. They chose the linen and said that they would pay a premium for it. But the test didn’t end there. Being in the hospitality industry, Tilman knew that these sheets needed to be able to take a beating and clean well. He spilled coffee and wine on the sheets and then asked for them to be cleaned using their normal process. The cotton sheets faired much better. The vendor said that the hotel would have to use a more expensive cleaning detergent on the linen sheets. That’s where the deal for using them in hotel rooms died. However, Tilman wanted to help the manufacturer, so he put them up for sale in his boutiques.
I don’t think any of this is complicated or new. There are just very few people who are willing to put forth significant effort on the front end to hopefully avoid a disaster down the road. Jumping in head first with a vendor you haven’t thoroughly evaluated just because you want to save time or eager to get started may end up costing you a lot of headaches later. Don’t rush it and always be aware of matters most to you. If it’s right, go for it cautiously. If not, ask for adjustments and give the vendor a chance to make it right. You will quickly find out who you can trust and who you can’t.