Order From Billion Pound Company

[mtools]

Hi all

So we've been working with a company that is valued at over £1bn for a few months, developing some products for them. We are the only UK manufacturer of these products, so they cannot easily order a product from another UK based company. We've so far had a few small orders over a few thousand pounds; however from next month they'll be placing an order which will be in the region of 6 figures, which for us would be quite a big deal. That said, since working with this company we've had some issues, mainly around them saying one thing but doing another. Firstly, we were told we'd be able to say / advertise that we supplied this company, then we've been told we can't say anything (nothing is in the contract saying either way, but i don't want to - at this stage - upset them). Secondly; when they first made contact we gave them some tentative pricing on what they wanted, i was very clear that these were estimated costs and liable to change.the specification has changed slightly (by them) and i've taken the time to do a full in-depth costing (due to the size of the order i wanted to factor in everything), the various materials have increased in cost by 10-20% which has pushed costs up slightly (by about 15%). They're trying to get me to go lower on my prices; taking off 10-12%, so that they're closer to what my estimated costs were.

We'll not be making a huge profit; less than half of what they will be. Thirdly they're insisting on me filling out a form which details all of our costings, so that they basically know how much profit we make on each unit. I've flat out refused to offer this information as frankly it's none of their business.

I'm therefore asking for opinions and thoughts from the community. I feel like as a big company they're trying to bully my company into getting what they want, whilst offering a carrot. There's some slight wiggle room in price, but i'm worried what precedent it'll set. I'll not offer my cost breakdown but wonder if anyone else has been asked for similar info? It's by far the biggest company we've worked with and so i'm certainly out of my depth with experience, so don't want to be taken advantage of. The order would account for around 4 months turnover and maybe 3 months profit.

I want the order (and subsequent ones), but don't want to look weak..!

 

[finleydesign]

Yes I have been involved in the same sort of area as this, with a potential order of £5.5m, they are very much able to ask profit breakdown, they are not here to stop you making a profit, they are making sure they are not being ripped off, if you are not going to be transparent, that would be a huge red flag to them prior to them handing over hundreds of thousands of pounds for this order.

If you not confident, and don't want to jump through hoops, don't go with the order, i'm not 100% sure you hold all the cards, the customer tends too

 

[AlanJ1]

Don't back down. They are trying to play the big fish here. If you hold the marbles with the product then where are they going to go?

I would also seriously consider if I would offer them credit as well. I am sure they check out okay, but nothing to stop them not paying and everything you have described to me sounds like they are more a bully than a partner.

 

[MBE2017]

Agree with both of you.

Your profit and costing have nothing to do with them. Whilst large orders sound nice, they can bring the potential to crush your company, what if they run up a large credit and then stall on payments?

I was offered £1 million a month of business two decades ago from one client, I refused it since it would have potentially bankrupted my company. I ended up getting £60k of highly profitable business each month, which my competitors couldn’t keep up with. Two companies took the huge business on offer, both went bankrupt within two years, four others over the following six years.

Remember the saying, turnover for vanity, profit for sanity. If you do take the orders ensure it is quality orders at a good profit.

 

[mtools]

Yes I have been involved in the same sort of area as this, with a potential order of £5.5m, they are very much able to ask profit breakdown, they are not here to stop you making a profit, they are making sure they are not being ripped off, if you are not going to be transparent, that would be a huge red flag to them prior to them handing over hundreds of thousands of pounds for this order.

If you not confident, and don't want to jump through hoops, don't go with the order, i'm not 100% sure you hold all the cards, the customer tends too

appreciate the feedback, especially from someone who's been in a similar position. for reference, my cost is x, i am offering them at just under 2x, they will then sell them at more than 4x, they should clear a profit of 2x, minus some costs. I think they can weigh up whether they're being ripped off by weighing up the price i'm offering to sell the products at vs the product price they intend to sell it at. the first order was for a small batch of much higher priced product in a small test location which sold well, so i am sure they'll sell rapidly as this company is global and has distribution centres worldwide.

 

[mtools]

Don't back down. They are trying to play the big fish here. If you hold the marbles with the product then where are they going to go?

I would also seriously consider if I would offer them credit as well. I am sure they check out okay, but nothing to stop them not paying and everything you have described to me sounds like they are more a bully than a partner.

i'm not giving them credit thankfully; that was a hard no from me at the start. For the first order of £6k they paid 50% deposit then 50% prior to dispatch. thank god i did as it took 2 weeks after the payment date to finally get the balance paid, thankfully we had held onto the goods and will do so in future. they seem fairly happy with the 50% deposit and 50% upon completion. The company typically deals with far east suppliers and have more favourable terms, but i plan to stick firm to this. Like you alluded to, it's pretty hard to chase a company for money after they've had the goods. We're predominantly a b2c business so we aren't used to giving credit.

 

[mtools]

Agree with both of you.

Your profit and costing have nothing to do with them. Whilst large orders sound nice, they can bring the potential to crush your company, what if they run up a large credit and then stall on payments?

I was offered £1 million a month of business two decades ago from one client, I refused it since it would have potentially bankrupted my company. I ended up getting £60k of highly profitable business each month, which my competitors couldn’t keep up with. Two companies took the huge business on offer, both went bankrupt within two years, four others over the following six years.

Remember the saying, turnover for vanity, profit for sanity. If you do take the orders ensure it is quality orders at a good profit.

This is what i've been worrying about; the order would be around £100k, they factor this to cover 6 months of stock; however the numbers quoted are less than we sell in 6 months for this unit and we're nowhere near the size of them. I would envisage them ordering at least £100k every 2 months (they were turning over £40m a month last year and i believe they've doubled this year...), which would pocket us in the region of £20-£25k profit each time; but it only takes an extra month of labour to eat 20-30% into that.

I don't want to scare them off, but i don't want to be in the type of hole you mentioned!

 

[NickGrogan]

appreciate the feedback, especially from someone who's been in a similar position. for reference, my cost is x, i am offering them at just under 2x, they will then sell them at more than 4x, they should clear a profit of 2x, minus some costs.

Totally irrelevant, as is the fact that they are a billion-pound company.

Treat the order like any other order, Don't offer more credit than you can insure or lose - this probably means no credit at all.

Background - supplied projects worth up to £20M to customers like Carillion, who turned over £5B before they went bust.

 

[mtools]

Totally irrelevant, as is the fact that they are a billion-pound company.

Treat the order like any other order, Don't offer more credit than you can insure or lose - this probably means no credit at all.

Background - supplied projects worth up to £20M to customers like Carillion, who turned over £5B before they went bust.

do you not think the size of the company is relevant when one party is much smaller; given the fact they can throw their weight around?

 

[NickGrogan]

The company that supplied Carrillion had 2 staff, one was part-time.

They can only throw their weight around if you let them.

 

[fisicx]

They can try and throw their weight around but you don’t have to accept their terms.

 

[cjd]

It may be some oik in purchasing trying to look hard for his boss.

If you have a higher level contact in the company give him/her a call and explain your situation. They've tested your product, like it and want it. It's up to you how much you bend over for them. It's a risk saying no but it's also a risk saying yes. Only you can decide; there's no formula.

 

[Shopclicks]

We are the only UK manufacturer of these products, so they cannot easily order a product from another UK based company.

They've tested the market with your product. They've promised you a big order to get you to confirm your lowest price. The quote above says you have no protection or exclusivity on the product.

My cynical side is telling me they are already showing your product to foreign manufacturers. That's how they became a billion pound company.

 

[mtools]

It may be some oik in purchasing trying to look hard for his boss.

If you have a higher level contact in the company give him/her a call and explain your situation. They've tested your product, like it and want it. It's up to you how much you bend over for them. It's a risk saying no but it's also a risk saying yes. Only you can decide; there's no formula.

to be fair we've had a fair few people come down to see us, the first person to contact was their technical director, we've then had 6 or 7 of them come down over various visits, including head of QA and Ethical Manager, so i'm pretty certain it's not some low level person trying to show off, but it's something i hadn't thought of.

 

[mtools]

They've tested the market with your product. They've promised you a big order to get you to confirm your lowest price. The quote above says you have no protection or exclusivity on the product.

My cynical side is telling me they are already showing your product to foreign manufacturers. That's how they became a billion pound company.

they wouldn't need to show our product to foreign manufacturers, as foreign manufacturers already produce our product and have done for 40-50 years. the USP we have is firstly it's a british made product and it's made from some of the world's best materials (the material quality also plays a part); they're a premium brand so they're not looking to sacrifice quality for cost. thankfully we're the only UK manufacturer doing what we do and it's not something that could easily be copied (due to the skill and start up costs involved).

 

[NickGrogan]

If the above is correct, why are you dropping your margins so much?

 

[Shopclicks]

they wouldn't need to show our product to foreign manufacturers, as foreign manufacturers already produce our product and have done for 40-50 years. the USP we have is firstly it's a british made product and it's made from some of the world's best materials (the material quality also plays a part); they're a premium brand so they're not looking to sacrifice quality for cost. thankfully we're the only UK manufacturer doing what we do and it's not something that could easily be copied (due to the skill and start up costs involved).

If your product is better, then they are definitely showing it to foreign manufacturers

I hope this does work out for you and they don't decide to compromise the quality.

 

[MBE2017]

do you not think the size of the company is relevant when one party is much smaller; given the fact they can throw their weight around?

I think this is a common misconception, as is automatically having to offer credit as so many seem to think. Any deal has to work for both parties concerned.

I had a guy at GEC demanding I give credit etc once, and I just stated new clients paid cash with order for a minimum of six months if they decided to use myself. He gave it the “We are safe, we are the huge GEC” attitude, I reminded him even Rolls Royce have gone bust in the past.

He ended up becoming a very good client, who never asked for credit again.

 

[cjd]

Large companies have processes and procedures for purchasing, this may be one of them for orders over £x, you've no way of knowing. But it's your business and your terms of trade, you just need to talk to whoever the decision maker is here and sort it out.

 

[Newchodge]

do you not think the size of the company is relevant when one party is much smaller; given the fact they can throw their weight around?

No one can throw their weight around unless they are permitted to do so.

 

[JEREMY HAWKE]

Don't back down. They are trying to play the big fish here. If you hold the marbles with the product then where are they going to go?

I would also seriously consider if I would offer them credit as well. I am sure they check out okay, but nothing to stop them not paying and everything you have described to me sounds like they are more a bully than a partner.

Nice one Alan good point

@NickGrogan Lets go back to the threads on here from Carilion going skint! All the suppliers were worshipping the big Gods of Carillion scared of upsetting them and extending credit terms to ridiculous amounts . Yes Sir three bags full Sir! We love you Clarion and we will do what ever you say!

Then they went pop and all of sudden they were to be exposed with no assets what so ever and no different than the back street industrial unit company that goes bust every year.

The lesson here is that all these companies are a risk and a business should only risk what it can afford.

One of our accounts is a very large PLC (one of the water authorities) we are the couriers supplying them and I am proud to say that we have been for 20 years! There has been one thing that I have always demonstrated when required and that is the willingness to walk away .
Sometimes a customer will value you more if you push back on issues and say no when things are not on or near to your terms and expectations

 

[BusterBloodvessel]

Not sure what your industry is or the level you are dealing at - but in the automotive game at OE level this is perfectly normal. They don't begrudge you making a profit, but they do want to ensure they are in a fair playing field. They ask for a material and cost breakdown to understand where your costs are coming from. Not unusual.

 

[MOIC]

Firstly, we were told we'd be able to say / advertise that we supplied this company, then we've been told we can't say anything (nothing is in the contract saying either way, but i don't want to - at this stage - upset them).

It's normal for a customer to ask a supplier to keep their business confidential. While it may not be in the contract, it's standard to request this.

Secondly; when they first made contact we gave them some tentative pricing on what they wanted, i was very clear that these were estimated costs and liable to change.

Was 'Estimated' written in the Quotation sheet? If so, refer to this and don't back down. Also, quotations will normally have an 'expiry' time (say 30 days) as this will cover changes in supply chain costs as well as other factors.

the specification has changed slightly (by them) and i've taken the time to do a full in-depth costing (due to the size of the order i wanted to factor in everything), the various materials have increased in cost by 10-20% which has pushed costs up slightly (by about 15%)

Explain this and don't back down.

They're trying to get me to go lower on my prices; taking off 10-12%, so that they're closer to what my estimated costs were.

Tell them to take a flying leap over this point.

We'll not be making a huge profit; less than half of what they will be.

Their profit is irrelevant.

Thirdly they're insisting on me filling out a form which details all of our costings, so that they basically know how much profit we make on each unit.

Requesting a BOM is fairly standard in many industries, especially when involving large orders. This is typically for component costs only, and not labour costs, outgoings or your profit margins.

It's by far the biggest company we've worked with and so i'm certainly out of my depth with experience, so don't want to be taken advantage of.

It's the . . . . ."It's by far the biggest company we've worked with and so i'm certainly out of my depth with experience" . . . . .that would worry me. You should have someone to ensure that you're covered and protected for all eventualities. Insurance, as well as speaking to your bank is often a good starting point. Risk assessment is vital when taking on large orders that have the potential to adversely affect your company and financial cash flow.

i am offering them at just under 2x, they will then sell them at more than 4x, they should clear a profit of 2x, minus some costs. I think they can weigh up whether they're being ripped off by weighing up the price i'm offering to sell the products at vs the product price they intend to sell it at

Their profit margin is not relevant.

For the first order of £6k they paid 50% deposit then 50% prior to dispatch. thank god i did as it took 2 weeks after the payment date to finally get the balance paid, thankfully we had held onto the goods and will do so in future.

If they cancelled the order, prior to despatch and failed to pay the 50% balance, could you easily sell the products they ordered? Will their initial 50% deposit cover all your costs, both materials and labour costs? If the answer is 'no' to either or both of these questions, then you'll be exposed financially.

I don't want to scare them off

Negotiate with them (it's normal), but try to stick to your business principles and certainly ensure you're fully covered and protected. Have all points included in the final contract. Get help with this.

to be fair we've had a fair few people come down to see us, the first person to contact was their technical director, we've then had 6 or 7 of them come down over various visits, including head of QA and Ethical Manager

It shows their seriousness and intent to work with you. Take advantage of that.

they're a premium brand so they're not looking to sacrifice quality for cost

Your turnover is fairly small (no disrespect intended), so alternative factories will be out there, whether in Europe or elsewhere. Your trump card may well be the fact that 'Made in Britain' is what they want.



Tread carefully and take professional advice to get systems in place to protect you financially. I would suggest having an Escrow contract in place, as this will protect both parties.



Good luck and hope you get the order!

 

[pentel]

One of our accounts is a very large PLC (one of the water authorities) we are the couriers supplying them and I am proud to say that we have been for 20 years!

Out of interest do you offer said large PLC credit?

 

[JEREMY HAWKE]

Out of interest do you offer said large PLC credit?

Yes its always a risk but I have to judge each situation individually in reality no two are the same .
The position with this company now is that they have a 20 year history with us of paying their invoices within 14 days
It would not be a problem if they went bust! I hope they don't!
When you have a long established customer you should always be on your guard but I look at this over the total of 20 years We have made a lot of money if one invoice is not paid due to the company failing my investment in this has produced a fantastic return.

 

[nelioneil]

I would say treat this customer as you would normally when you onboard new customers (due diligence, credit checks etc...).

I certainly would not be providing a profit breakdown - completely irrelevant and it is commercially sensitive information. However if you have disclosed what your costs are, then I'm afraid you have played a hand which should have been kept away from the table.

 

[JEREMY HAWKE]

I certainly would not be providing a profit breakdown - completely irrelevant

I like that point and I may have been intimidated by the "big boys and girls" on here who are more used to selling products rather than services.

I would not be happy giving these numbers and it would be a no go for me

 

[WaveJumper]

I tend to agree with the above if you have disclosed you're figures its to late. If they did place an order they will come back for a second but larger then beat you down on the price again and you become the "busy fool" tying up your time for next to nothing, only you know what your times worth and if your willing to produce for peanuts. Then of course you may find you're turning other more profitable work away as you don't have any production capacity time left. So personally I would be treading very carefully

 

[pentel]

Then of course you may find you're turning other more profitable work away as you don't have any production capacity time left

Perhaps consider restricting your commitment to this customer to 20% of turnover. Alternatively set up a separate company to deal with this contract.

 

[AlanJ1]

One of our accounts is a very large PLC (one of the water authorities) we are the couriers supplying them and I am proud to say that we have been for 20 years! There has been one thing that I have always demonstrated when required and that is the willingness to walk away .
Sometimes a customer will value you more if you push back on issues and say no when things are not on or near to your terms and expectations

Basically this is great advice.

In my old job I worked in, we sold a product which was directly integrated into a system, they would need to respec and integrate something else if they moved from us. The owner treated my old boss badly on negotiations, I took over. First phone call we had he shouted abuse I put the phone down on him. He called me back and I set the ground rules of how this was going to work going forward.
Obviously this was drastic in the way I dealt with it, but shows that you don't always need to just "comply" with the customer and can set terms how you see fit.

 

[AlanJ1]

i'm not giving them credit thankfully; that was a hard no from me at the start. For the first order of £6k they paid 50% deposit then 50% prior to dispatch. thank god i did as it took 2 weeks after the payment date to finally get the balance paid, thankfully we had held onto the goods and will do so in future. they seem fairly happy with the 50% deposit and 50% upon completion. The company typically deals with far east suppliers and have more favourable terms, but i plan to stick firm to this. Like you alluded to, it's pretty hard to chase a company for money after they've had the goods. We're predominantly a b2c business so we aren't used to giving credit.

Good on you, stick to your guns on this if you can't afford the loss.

 

[Heyes]

In response to 'asking for opinions and thoughts'...

While I don't want to be doom-monger, seems to me that in terms of a good ongoing relationship with the intended buyer, 'you're already dead'... like the scene in the movies where having been shot in the chest, someone has time to look down in surprise and shock at the spreading blood-flow before gracefully folding to the ground a few seconds later.

Yes, you may get this deal, but others...? Hhhmmm... perhaps not.
And if you do, is it sufficiently satisfying, or a niggly pain in the rear?

I suggest the imbalance between the parties is too great - both in financial volume and mindset.
In terms of the advice offered here, I hope you favour that which is well considered - rather than the 'go get 'em tiger, don't put up with crap'.

 

[The Byre]

When I consulted for a supermarket, they did indeed ask for costing breakdowns from smaller first-time suppliers - but then what they wanted was a set of realistic costings. They wanted to know that their suppliers will still be there in a year's time and that the quoted prices were sustainable.

But in the normal scheme of things, asking for a costing breakdown from a supplier is unusual, to say the least! I can work out all by my little self what it costs to make something and I can do the same for transport, packaging, import tariffs and anything else associated with the product.

If the price is too low, I can see that for myself and draw my own conclusions. If it is too high, I can go someplace else.

 

[JEREMY HAWKE]

When I consulted for a supermarket, they did indeed ask for costing breakdowns from smaller first-time suppliers - but then what they wanted was a set of realistic costings. They wanted to know that their suppliers will still be there in a year's time and that the quoted prices were sustainable.

But in the normal scheme of things, asking for a costing breakdown from a supplier is unusual, to say the least! I can work out all by my little self what it costs to make something and I can do the same for transport, packaging, import tariffs and anything else associated with the product.

If the price is too low, I can see that for myself and draw my own conclusions. If it is too high, I can go someplace else.

I'm guessing a 23 year old buyer from Tescos straight out of uni would not be able to come to this conclusion
They need the supplier to work it out for them!

 

[mtools]

1. It's normal for a customer to ask a supplier to keep their business confidential. While it may not be in the contract, it's standard to request this.

There's nothing in the contract either way, it was domething we discussed in person and was ok'd, then further up the chain they have gone back on this. I would probably do the same in their situation - who wants to have their suppliers tell everyone they make products for company x if company x also sells the product themselves.

2. Was 'Estimated' written in the Quotation sheet? If so, refer to this and don't back down. Also, quotations will normally have an 'expiry' time (say 30 days) as this will cover changes in supply chain costs as well as other factors.
Explain this and don't back down.
Tell them to take a flying leap over this point.
Their profit is irrelevant.

The estimated costs were in an email prior to any order being placed, based on some rough specs they had put together. At no point were they put into a quote and i was quite explicit they were liable to change.

3. Requesting a BOM is fairly standard in many industries, especially when involving large orders. This is typically for component costs only, and not labour costs, outgoings or your profit margins.

From my days as a mechanical engineer (over 10 years ago...!) i remember doing BOMs for goods to detail all the individual components, i can't remember if there were costings, but like you said the big factor is the labour (for us it'll count for around 35% of the cost).

It's the . . . . ."It's by far the biggest company we've worked with and so i'm certainly out of my depth with experience" . . . . .that would worry me. You should have someone to ensure that you're covered and protected for all eventualities. Insurance, as well as speaking to your bank is often a good starting point. Risk assessment is vital when taking on large orders that have the potential to adversely affect your company and financial cash flow.

This is great advice, thanks. We have insurance so i will speak to them; i am super cautious though that this order and any subsequent orders not only turn us an acceptable profit but also do not interfere with the growth of our main business (b2c) and the profit we get from that.

If they cancelled the order, prior to despatch and failed to pay the 50% balance, could you easily sell the products they ordered? Will their initial 50% deposit cover all your costs, both materials and labour costs? If the answer is 'no' to either or both of these questions, then you'll be exposed financially.

ythe 50% would all but cover the costs, maybe a few grand here or there but not something that would cause us serious harm. Whether we could sell the products is an interesting question; they'd have their logo on them but i'm sure we could cover that and sell them cheap. It would be written in the contract that they do not own the goods until they're fully paid. For what it's worth I don't think once they've paid the deposit that they'll not pay the balance. they may try and push me to release the goods prior and maybe delay payment, but once i've got that deposit my position becomes a lot stronger.

Your turnover is fairly small (no disrespect intended), so alternative factories will be out there, whether in Europe or elsewhere. Your trump card may well be the fact that 'Made in Britain' is what they want.

I 100% agree my turnover is tiny; we're only 5 members of staff and we'll likely need 2 more should these orders be regularly made. I do think the made in britain is a big thing; i also think they've spent so long developing the product with us that they'd be reluctant to start the process again, which would be to our advantage.

Tread carefully and take professional advice to get systems in place to protect you financially. I would suggest having an Escrow contract in place, as this will protect both parties.

Thanks - i will definitely seek some advice on this to avoid getting burnt.

Good luck and hope you get the order!

thank you! Should know by 2nd June....

 

[The Byre]

I'm guessing a 23 year old buyer from Tescos straight out of uni would not be able to come to this conclusion

This was in Germany and buyers for retail are nearly always experienced and older. They finish school with Abitur (A-Levels) and do a three-year apprenticeship as a retail buyer (well, they did then - I don't know what they do now) and then work through the various departments learning the different roles.

The ambitious can augment their careers by getting a part-time degree course sponsored by the employer. It's what my wife did but within the engineering industry.

As for the OP, @MOIC has given you some good and thoughtful advice, so good luck with the order(s)!

 

[WaveJumper]

This was in Germany and buyers for retail are nearly always experienced and older. They finish school with Abitur (A-Levels) and do a three-year apprenticeship as a retail buyer (well, they did then - I don't know what they do now) and then work through the various departments learning the different roles.

The ambitious can augment their careers by getting a part-time degree course sponsored by the employer. It's what my wife did but within the engineering industry.

As for the OP, @MOIC has given you some good and thoughtful advice, so good luck with the order(s)!

Same in my day here in the UK, two years basic training before you decided the field you was going into, ie merchandising, management or buying. And those opting to (or hoping) join a buying team would defiantly be classed as a junior and buyers always sourced merchandise as a team. Interestingly enough it was always thought a great 'crack' to be a buyer but came with a huge divorce rate as they tended to be out the country for best part of the week, was a great life if you were single.

And @pentel yes spot on manage the work flow, my son's company is doing just that with one of his clients