A top customer consistently orders far too much product, then insists on full credit when returning the excess. What would you do?
When your lumberyard first opened for business back in 2000, you had no idea the rollercoaster ride that awaited you. And what a ride it’s been! After enjoying a multi-year building boom, then barely managing to survive the Great Recession, your company is growing to meet the demands of a resurgent housing market. Nearing the end of your second decade in business, several long-established builders who shied away from you at first finally gave you a chance and are making the shift from their legacy suppliers. By any objective measure, you’ve built a successful company supported by a strong team. Still, challenges remain. Big challenges like attracting young pros, and smaller ones like managing returns—which happens to be your challenge of the day. Here’s the story:
Hal Hardplace, owner of Hardplace Homes, has built a solid company by building move-up homes that are popular with growing families and upwardly mobile singles and couples. To your credit, Hal has shifted from placing the occasional fill-in order to using you as his primary supplier of choice. In fact, he has become one of your biggest customers. Unfortunately, he also returns more material than the rest of your builder customers combined.
Here’s why: Hal likes to tell a story from many years ago, when he was first getting started. “I had a great crew in place, and they’d be making solid progress when they’d have to stop just before completing a section because they ran out of siding, or framing lumber, or fasteners, or whatever. I figure that those stoppages cost me thousands of dollars in labor,” he recalls. “That’s why I always order 20% more of everything than I think I’ll need. Now, my crews never run short, and I just return the excess. Problem solved.”
His solution has turned into a logistical headache for you and your team, and is cutting into your margins. He expects (and demands) full credit for the materials your crew retrieves after each job, even though the returns always include some damaged product that you can’t resell, and restocking the products eats up valuable time that your team could spend more productively.
Your solution to his solution seems straightforward enough: levy a restocking fee that covers your costs. But when you’ve done that, his pushback was loud and serious. “I buy nearly all of my material from you—and we both know that I’m one of your biggest customers. If you want to keep my business, you’d best not start playing games with my returns,” Hal warned.
You don’t want to lose Hal’s business, but his excess returns mean that he has become little more than a breakeven customer. What would you do?
|1. Just Do It. Instruct your team that, starting today, Hardplace Homes is charged a standard 15% restocking fee for all returns. No exceptions.
2. Swallow It. Hal has made it crystal clear that any change to his return program will mean the end of his business. This is not worth losing his business over.
3. Address It. Tell Hal that his returns are costing you serious money, and that you need to find a solution that works for both or you, or you’ll have to walk away.
4. Raise Prices. No sense rocking the boat. Just start implementing slow, steady price increases until the extra margin on his sales offset his excess returns.
If you’d take a different plan of attack, email your suggested solution to Rick@LBMJournal.com If we publish your reply, we’ll send you a LBM Journal mug.
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