Supplier Relationships Definition:
Affiliations with the companies that supply your business with goods and services
A lot of growing companies focus on one trait of theirsuppliers: price. And price certainly is important when you'reselecting suppliers to accompany you as you grow your business. Butthere's more to a supplier than an invoice--and more to the cost ofdoing business with a supplier than the amount on a purchase order.Remember, too, that suppliers are in business to make money. If yougo to the mat with them on every bill, ask them to shave prices oneverything they sell to you, or fail to pay your bills promptly,don't be surprised if they stop calling.
After price, reliability is probably the key factor to look forin suppliers. Good suppliers will ship the right number of items,as promised, on time so that they arrive in good shape. Sometimesyou can get the best reliability from a large supplier. Thesecompanies have the resources to devote to backup systems andsources so that, if something goes wrong, they can still live up totheir responsibilities to you. However, don't neglect smallsuppliers. If you're a large customer of a small company, you'llget more attention and possibly better service and reliability thanif you are a small customer of a large supplier. You should alsoconsider splitting your orders between two smaller firms. This canprovide you with a backup as well as a high profile.
Stability is another key indicator. You will want to sign upwith vendors who have been in business a long time and have done sowithout changing businesses every few years. A company that haslong-tenured senior executives is another good sign, and a solidreputation with other customers is a promising indicator that acompany is stable. When it comes to your own experience, look fortelltale signs of vendor trouble, such as shipments that arriveearlier than you requested them--this can be a sign of a vendorthat is short on orders and needs to accelerate cash receipts.
Don't forget location. Merchandise ordered from a distantsupplier can take a long time to get to you and generate addedfreight charges quickly. Find out how long a shipment will take toarrive at your loading dock. If you are likely to need somethingfast, a distant supplier could present a real problem. Also,determine supplier freight policies before you order. If you ordera certain quantity, for instance, you may get free shipping. Youmay be able to combine two or more orders into one and save onfreight. Even better, find a comparable supplier closer to home topreserve cost savings and ordering flexibility.
Finally, there's a grab bag of traits that could generally betermed competency. You'll want suppliers who can offer the latest,most advanced products and services. They will need to havewell-trained employees to sell and service their goods. They shouldbe able to offer you a variety of attractive financial terms onpurchases. And they should have a realistic attitude toward you,their customer, so that they're willing and eager to work with youto grow both your businesses.
Having fewer vendors is usually better than having many vendors.Reducing the number of vendors you deal with cuts theadministrative costs of working with many. Closer relationshipswith fewer vendors allow you to work together to control costs.Getting rid of troublesome vendors can quickly increase theefficiency of your purchasing and administrative staffs. So how doyou decide when to change vendors? Here are keys areas toconsider:
- Unreliability. When a vendor's shipmentsstart arriving consistently late, incomplete, damaged or otherwiseincorrect, it's time to consider looking for a new one. Everycompany has problems from time to time, however, so check into thematter before dumping your vendor. Vendors can experience temporarydifficulties as a result of implementing a new product line,shipping procedure or training program. If you stick with a vendorthrough a rugged interval, you may be glad you did. They might bemore willing to see you through a future cash flow crunch.
- Lack of cost competitiveness. Sometimesvendors fail to change with their industries. When your vendor'srivals start coming in with bids for comparable goods that arelower than your existing supplier's, you need to investigate. Pointout the issue to your existing supplier and ask for an explanation.If you don't like what you hear, it may be time to consider takingsome of those offers from competing suppliers.
- Insularity. Some suppliers will let youvisit their plants, talk to their workers, quiz their managers,obtain and interview references, and even examine their financialstatements. These are the kinds of suppliers you should seek out.The more you know about your suppliers, the better you can evaluatewhether you should continue to do business with them. If they shutyou out, perhaps you should cut them off.
- Extra-sale costs. The number at the bottomof the invoice is only the beginning of the cost of dealing withsuppliers. You have to lay out money beforehand to draw upspecifications, issue request for proposals, evaluate them, checkreferences, and otherwise qualify your suppliers. You have to placethe order, negotiate the terms, inspect the goods when they arrive,and deal with any shortages, damage or other errors. Finally, youmay have to train workers to use the newly arrived goods orpurchase more equipment and material to make use of them. Whilesome of these costs are inevitable, some are traceable toindividual suppliers. If too many costs are being tacked onto thesale, check out some other suppliers.
