A vendor can sink you or save you

vbridges@newsobserver.comJune 3, 2013 

  • Avoid small-business contract blunders

    •  Have intellectual property ownership provisions when outsourcing product research and development.

    •  Use specific language.

    •  Create contracts that fully describe all the requirements of the vendor’s work, including the frequency of the work provided, payment timelines and replacement policies for broken items.

    •  Mention variable changes based on unforeseen circumstances.

    •  Include language for potential unpreventable delays, such as challenges created from weather and economic conditions.

    Source: National Federation of Independent Business

— JustNeem had three hours’ notice to prepare for the national television debut of its clay face mask and tub tea.

The Cary body and skin care company had sent the goods to “The Dr. Oz Show” and learned the last Friday in February that two products would be featured on the program.

Magda Radtke, who founded the company with her husband, Peter, called an impromptu team meeting, prepped the website to pull in Google searchers, and called a JustNeem distributor in South Carolina.

Radtke needed gallons, buckets and sacks of oils, clay and wax to mix more of the skin care products, which include leaves and oil from the Neem tree.

JustNeem’s vendor promised the order would arrive Monday.

“And that was exactly how it was,” Radtke said.

The situation highlights the importance of small-business owners’ relationships with their vendors. In a good relationship, vendors can be partners as they benefit from their clients’ success.

Vendors, however, can also hinder a business with delays, broken promises or high-profile challenges, including one that Raleigh Orthopaedic Clinic recently encountered.

The company announced last month that it was trying to notify about 17,300 patients that it lost track of X-ray films containing names and dates of birth, according to a statement on the company’s website.

The clinic had contracted with a third-party vendor to transfer X-ray films into electronic format, but indicated in the statement that it was the victim of a “scam” and the vendor never provided the electronic version of the films.

“It appears the X-ray films were sold to a recycling company in Ohio that harvested the silver from the films,” according to the statement. “Raleigh Ortho believes the films were ultimately destroyed.”

Constance Scott, a privacy officer with Raleigh Ortho, declined to comment.

Finding the right vendor

Small-business owners looking for vendors often focus on price, said Peter Klyne, a Raleigh SCORE counselor who has more than 20 years of experience in materials management.

“Obviously pricing is important, but then you have got issues of delivery and availability of product, quality of product,” Klyne said.

Small-business owners should start their vendor search by identifying companies with products or services they need through online searches , industry associations, or other owners of similar businesses, he said.

Owners should gather information on pricing and delivery costs, find out whether the vendor carries inventory and ask about contingency plans for emergencies, Klyne said.

The Better Business Bureau recommends getting multiple estimates and checking out a company’s BBB Business Review.

“It is vital to do your research before paying any upfront fees or signing contracts,” said Toby Barfield, president and CEO of BBB serving Eastern North Carolina.

Small-business owners should also test the products, Klyne said, and ensure the vendor is financially stable by asking for a credit report, talking to their comptroller, or getting a copy of their profit-and-loss statement, Klyne said.

Some small-business owners may not have time or be in the habit of planning ahead and shopping for vendors.

“One understands that, but there is a cost associated with doing business that way,” Klyne said, such as paying higher prices for lower-quality items.

Setting incentives

Houston Barnes, a business strategy consultant, business attorney and founder of the Barnes Firm in Durham, said small-business owners should seek some sort of formalized agreement with vendors.

“You want to have some sort of written agreement that says what your responsibilities are, what their responsibilities are,” Barnes said. “And if they don’t fulfill their responsibilities, what are your obligations, and what are your remedies.”

Small-business owners should also include an indemnification clause, which gives one party of a contract the financial responsibility of specific damages, losses and claims, to ensure they are not held liable for their vendors’ actions.

If possible, owners shouldn’t pay for the services until the service or the contract is completed, Barnes said.

Braden Rawls, CEO of Vital Plan, a five-year-old company in HUB Raleigh that sells supplements and related disease prevention plans to doctors’ offices, pharmacies and online, recommends that small-business owners set deadlines and create a related payment structure that inspires the vendor to complete the project.

If the contract is set up in stages, ensure that the project isn’t being delivered on an uncommon platform or system that couldn’t be handled by another vendor if the first supplier drops the ball, Rawls said.

Get to know them

The Radtkes founded JustNeem in 2007 and partnered with a community development group in Mauritania, West Africa, to provide training, grow a Neem orchard, and ultimately create jobs in the impoverished area.

The community agency serves as a middleman between JustNeem and the West African farmers by training locals and performing periodic inspections of the orchards and drying facilities, Radtke said.

“We visit every year, just to have that face-to-face contact,” she said.

Radtke found other vendors by searching online for specific ingredients, buying samples, and then getting to know the business through emails and phone conversations, fulfilled promises and face-to-face visits.

“The foundation of it all is having a personal relationship,” she said.

A relationship that she maintains as first-quarter sales have increased more than 500 percent compared to the same period last year.

Radtke, however, said she also maintains a list of backup vendors for cases of unexpected emergencies and discontinued products.

“You should always have a backup plan,” she said. “Never depend on one vendor.”

Bridges: 919-829-8917

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