When a vendor doesn’t deliver what they’d promised, you can’t afford to be passive. Here’s one firm's approach.
In my first year of business, I had two 10-ton shipping containers of imported chia—one of the main ingredients in our Holy Crap and Skinny B cereals—disappear en route to us. "This has never happened before," our broker told us.
A likely story. We didn't lose any money, but we actually ran short of ingredients, forcing us to take a two-week production hiatus—a terrible blow for a young company to take. We used the downtime to repaint our plant and install new equipment; otherwise-idle office staff were temporarily reassigned to in doing in-store demonstrations and tastings. In short, we made the best of a bad situation—but we sure didn't want it to happen again.
That's why, in our second year of business, we decided to dramatically change our supply chain. We chose invest in a 20-farm co-op in Morales, Mexico, which would grow close to two hundred tons of chia seeds for us—half our required supply for a year. The co-op model would essentially eliminate the need for traditional distributor services; we could buy this load directly from the farmers, and play an active role in our production chain from the start.
I went down to Mexico and met with the farmers myself, and together—with help from lawyers and bankers—came up with a contract that I thought would be mutually beneficial. I invested a considerable amount of money in their efforts to grow the crops. After harvest, the first 60 tons of chia were shipped to San Diego, where we were to pick it up for transfer to our B.C. factory.
Our trucks pulled up to the warehouse, only too be told there were paperwork problems and that we couldn't take the chia. It felt like a scene from The Untouchables. We tried relentlessly to talk to our contacts at the co-op—I'll bet we placed over 100 calls and emails. We got no response.
At least, until we discovered that the co-op had sold our chia—the chia we had already paid for upfront—to other brokers who offered more money.I was angry, of course, but I also felt extremely violated and taken advantage of as a rookie businesswoman. It rattled my confidence. I'd known some of these farmers for years; Spanish is my first language. How could I have been so wrong?
We confronted the co-op with potential legal action. That prompted some reaction—we started to receive money in dribs and drabs. A good start, but not nearly enough. So, I demanded my money back in full. Instead of apologizing and/or providing a repayment schedule, they responded with a threat: "If you tell anybody about this," they said, "you'll be the last people to ever get paid." Classic bully behaviour. How to respond?
I could have remained quiet and hope the money would magically reappear. But in the end I felt an ethical obligation to go public. I told a number of other buyers I know—many of which are competitors—about the co-op's deposit scheme. At the same time, I started moving ahead on the legal front; we've hired our law firm's partners in Mexico on a contingency basis to get all of our money back.
And what about our operations? In any deal you must have a contingency plan, and our initial supply shortage had taught me the value of diversifying my supply base. The chia from the Morales co-op only represents 50% of our supply, so we thought we'd be able to stay afloat by sourcing from other traditional suppliers until we get this resolved. Not so. With sales up 25% so far this year, we needed more seed than originally thought.
As a result, I recently ended up in a warehouse in Delta, B.C., purchasing 20 tons of chia with the co-op's name on the paperwork and lot numbers matching those we'd already paid for. That's right, we had to re-buy our chia. Such is the unfortunate reality when you're dealing with a small supply base. This whole experience has taught me some valuable lessons about supplier relations:
- I will never again pay 100% upfront for supplies. Ever. In fact, I won't even put deposits down any more.
- I will stick to my 30-day payment schedule—that's 30 days after inspection.
- Going forward, I will insist that a rep of our firm will accompany any significant crop from the field to our warehouses.
Do these measures seem extreme? Well, they are. You can't respond passively to bullies; you have to stand your ground. I will get all my money back. It's just a matter of time. And until that happens, I'm taking a stand. In doing so—and being candid in my experience—I now have a lot more friends on the buying side of this business, which is never a bad thing.
And the experience is opening up a potential new business arm for us. We are in negotiations to bring in a professional buyer to work with trusted farmers to grow chia on a long-term basis; we would become their brokers. This would give us a more secure supply chain—the supply chain we'd hoped to achieve with the co-op—while at the same time opening up a new opportunity to sell bulk hemp seed and chia wholesale. Finally, in some strange way dealing with our bully supplier has given me a chance to prove who I am, test my values in the real world and find out how I deal with real financial adversity. I'm only coming out stronger.