April 6, 2016
Q. Is there ever a time when a company should fire its customer? If so, what parameters should a company use to make that determination?
Our company treasures customers, so I’m hesitant to use the term “fire a customer,” lest I be quoted out of context. Our driving force is serving customers—the word “service” is even in our company name. We exist for one reason: to serve customers’ needs. Without satisfied customers, there is no reason for our existence. For us, the customer is king.
We use a strategic filter for identifying prospective customers whose business we solicit. We do this to ensure that we align with customers whose needs best match up with our value proposition and our strategic competitive strengths. This makes for the best long-term fit.
A customer’s profile can change over time. Sometimes this is a result of the customer becoming a credit risk, where we can no longer obtain credit insurance for them and we are unwilling to underwrite the increased exposure. In such instances, we may work out an exit plan rather than supply them at a higher credit limit or extended credit terms.
Sometimes there is a change in the customer’s ownership, which results in changes to the customer’s supply-chain priorities or payment terms that no longer align with the value proposition we bring to the party. In those cases, we may no longer be the best match for our customer’s packaging supply-chain requirements.
In some instances, as with a private equity firm buyout, the new owner wants the same or more costly services at a lower price. They may engage a supply-chain consultant to bid out their packaging or to conduct an Internet auction. Sometimes the specifications given to potential suppliers are incomplete or don’t accurately reflect the unique nuances of services we provide to that customer. In cases where the new owner’s demands can’t be fulfilled with our making an acceptable profit, we may choose not to participate in the auction or not agree to the new demands, resulting in our discontinuation of supplying them. There are times we later regain that customer’s business once the new, lower-priced supplier fails to meet their needs or discovers that the customer’s requirements are not what were specified in the bid package and cannot be supplied at the price they had bid.
Over my 40-year career in corrugated, we have occasionally experienced a change in customer personnel that made an ongoing relationship difficult to continue. In these rare instances, we encountered a buyer who was unreasonable, difficult if not impossible to please, and who was abusive in his treatment of our customer service people. That is when we may “fire the customer,” telling them that we choose not to deal with someone at that level and hope to “part company as friends.” We try not to burn bridges here, as personnel could change in the future, and we would want to be back as that customer’s best packaging solution provider. — Jim Akers, Chair of the board, Akers Packaging Service Group
Not only is there a time, it is frequently not used enough by independents. We have walked away from our largest account three times over the years and smaller accounts more often than that. If an account is more difficult to service than it is worth, takes too many credits, is never happy with anything, or is just too cheap to be viable, they are a candidate for termination. Whatever you think they cost you, it is probably much higher when factoring in the drain these accounts put on all of your resources.
If terminating or firing a customer seems harsh, call it what we do: We simply return their volume to the marketplace. — Mark Mathes, CEO, Vanguard Packaging
Without a doubt, to fire customers is a necessity of business. The key is to do it without burning the bridge for the future. Many times, the present generation of a family business is not the right fit. The present policies of a company do not correspond to the ethics of your company. Both of these factors can change to your favor in 10 or 20 years.
The way we fire customers who are problematic is to raise the profit margins with every order until the client says that their company cannot purchase from us because of our selling price. Five, 10, or 15 years in the future, no one knows why they did not purchase from us. Recall that we have an interest in selling when there has been a change in policy or personnel. If they stopped purchasing from us, it was not our fault that the relationship was disrupted. — Jeffrey Hughes, owner, ALHU International, Inc.
May/June Point of View:
What measures does your company take to build a close-knit team?
Please send all responses to BoxScore@theYGSgroup.com.
