In the company I work for, Dackor, occasionally the company has overstock /dead-stock of some items. I am sure that other suppliers also have this problem at times. In this article I'd like to give a strategy on how furniture manufacturers or component manufacturers can use Dackor's or other suppliers overstock or discounted items to increase margin or also to protect existing products.
First I'd like to explain what overstock is and why it occurs.
1. CANCELED PROJECTS: If a supplier of laminate has a project that cancels that does not mean that it is easy to find another project to use that specific color.
2. OFF COLOR: Sometimes in production, the color can appear in range by computer but visually the color may stand out as being too off from the target. So this is another case where overstock can occur.
3. CHANGING MARKETS: Finally there are cases where colors just simply stop selling so the company could end up having too much inventory for the demand.
OK, so now is the time to talk about how as a cabinet, furniture or component manufacturer you can use overstock which is discounted to protect their margins on their normal items.
SCENARIO: Lets imagine that when bidding out a large job using a good selling color we'll call "Top seller". The GC or buyer may say to you, "I'd like to go with your company but you need a tighter price". Now in some cases you'll stick to your price and loose the bid but in many cases you may find that you lower your price for certain GCs or buyers who pay well or who you have a long standing relationship with. But.... have you ever been in a situation where you have refused to lower your price and they stuck with you?
So the question is "When should I lower my price?"
STRATEGY: One strategy to use is to counter to a requested price reduction for a project with "OK, we can lower our price but we'll need to use an Overstock Color that we can obtain for less money". The buyer may counter with "No , we want to get a lower price but keep the "Top seller" as the spec. What are they telling you when they say this? They are basically saying that price is not the most important thing but rather , they have a need and that need is that specific color.
In all negotiations its important to know where you stand. If your company has promoted that color, had many successful jobs done with that color then there is a lot of effort that has gone into the past to build up both your company's name and also the demand for a specific color you are putting on your product.
RESULT: What you may find is that when posed with the option "OK we can accept the different color at the lower price" this means that price truly was the most important factor for that project or client. However, "If the company counters with "Never-mind we will stick with the existing "Top Seller" and pay the price you quoted" it means that their request to have you lower your price was actually a bluff. They had their mind set on that color and also in using your company.
OBSERVATION: Its important to observe your past bidding habits. If there are some GCs or accounts that you find yourself lowering your price for even when selling your "Top Seller" or other standard colors then keep in mind that you would have lowered your price anyway. So if they do choose to go with the Overstock Item that costs less you may be able to recoup some of your losses in margin. So what we have just discussed here is how to use colors to negotiate.
SECURING LAMINATE: The key to the above is to understand your company well , your client well and also have good communication with your supplier of laminate. You need to make sure that your supplier of laminate is willing to hold their overstock for you till you can secure it for the project, you need to know what will happen should you need more laminate and finally you need make sure that a key person in your company is negotiating with your GC or buyer to explain the costs of making your product but its not necessary to give exact costs as often the laminate alone may not explain the discount, however keep in mind that these are based upon discounts you would have taken anyway.
MAINTAINING MARKET: Another thing to note is that by not discounting your "Top Seller" that you do not ruin the market price for this color or simply lower your price for no reason. You may find that if budget project start using that laminate and generally use the lowest bidder and the least expensive materials that in essence their projects will be less appealing. It doesn't take long before your good customers who are willing to pay a fair price for your product will see this "Top Seller" in budget applications and slowly move to other colors and possibly other suppliers who only focus on supplying their type of company.
SUMMARY: I hope that this post helps your company to discover a new way of using colors to protect or stabilize your margins. If you are a manager, bidder, or purchaser and you have questions about this please contact me. I am dedicated to not only marketing colors but in helping companies to become more successful and profitable.
