Profit margins are a driving force in any business interaction. Any business strategy book will tell you that companies have a variety of reasons for doing what they do—something to give their business purpose (why they choose to earn income by doing X rather than Y). Those differentiators help provide meaning and direction to the company. But of course, a company that isn’t profitable won’t survive. So it’s also important to make money.
But where do you make your money? In the sale of a product, the business hopes to receive more for the item than they paid for it. The same goes for a service they provide: they’ll charge a customer more for an employee’s time than they pay the employee per hour.
So if you need to increase your profit margin, do you meet your goal by charging your customers more or by paying your suppliers less? Fairness matters. It’s common to think of fair business practices in terms of how companies treat consumers. But what about business-to-business relationships? What happens when you increase your own profit at the expense of your supplier?
In the B2B world, larger companies carry most of the clout within the supply chain, though they often rely on small businesses as their vendors. Paul Kumler, PE, examines the implications of this power dynamic and considers how business transactions can avoid greed and be fair for everyone in this opinion piece for South Carolina Manufacturing.