Case Study: Evaluating Vendor Impact
Maria Ferrari, a local pizzeria owner with a thriving take-out and dine-in business, couldn’t understand why she was low on cash some months, so she decided to dig deeper for opportunities to improve cash flows. The lines for lunch and dinner snaked out of the door, the rent was low for the market and employees were happy with their salaries and tips. Maria looked at her biggest uses of cash and found that she spent a considerable amount with vendors on raw ingredients and supplies.
Identifying areas for adjustment
Maria went through her bills to identify her most frequently used vendors. She made a list of the vendors she used for ingredients and disposable paper products—her two biggest uses of cash. She decided to focus on her paper products vendors first.
Comparing paper product vendors
Before making any kind of change in her vendor relationships, Maria wanted to make sure she was clear on what she needed from a paper products vendor, so she did the following:
- Listed the features she valued most.
- Ranked them in order of importance.
- Listed current and potential new vendors.
- Graded on each of the features.
- Assigned a weight to each feature based on importance.
- Scored each vendor to see how they ranked.
- The good news? Her two current paper products vendors rose to the top.
Next, Maria considered her ordering process, which was irregular and based on when she noticed she was running low. She contacted her two paper products vendors and offered to transition to a consistent monthly order if they could give her a better price. Both vendors agreed to lower their per item price in exchange for a regular monthly order. In addition, she reached out to the new vendor that had come in third in her rankings to discuss options for the future.
Maria was now spending less cash and had a lower, more predictable monthly expense better aligned with the inflow of cash. Most important, she achieved improved cash flow without sacrificing the variables that she considered important in her relationship with her paper products vendors.
Businesses described in the case study are illustrative and do not represent real individuals or situations.
Vendor analysis worksheet
Use this worksheet to compare current and prospective vendors, weighting each partnership based on the criteria that are most important to your business.Download the worksheet
For Informational/Educational Purposes Only: The author’s views may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone, and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions, and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.