10 Considerations For Choosing Suppliers
April 28, 2017
A supplier is an important element of every business. A supplier could be a provider of good and or services which the business in turn resells or adds value to. The quality of suppliers a business has directly impacts or affects the quality of service delivery. It is important to select your supplier for the right reasons. While you may have once-off suppliers from time to time, it is riskier as there is no definite service level guarantee and long term commitment. Such suppliers are to be avoided as much as possible. In some companies, procurement is only done from a list of vetted registered suppliers who would have met stringent criteria and scrutiny. It is easy to find any kind of supplier. When you put considerations and conditions you can easily sift and select those suppliers who meet the standards and status of your organization. There is a supplier for every size and class of business. Not every supplier that exists is a genuine partner to rely on and build your business on. Below are considerations and tips that will help you get the best suppliers to partner with your business.
1. Supplier Capacity and Reliability – In what way is the organization you are considering as a supplier capable of meeting your needs. How long have they been in operation? What is their production capacity and level of pressure they are already under from their existing customers? Consider the reliability and track record the company may have. You may need to speak to other customers who have already started using the services of this particular supplier to get a second or third opinion. Without traceable references you are left to assume that the supplier is reliable. Also consider the levels of stock that the supplier keeps at any given time. This will indicate to you whether your order will be fulfilled instantly the next time you order. Some suppliers do not even keep stock, they only order from their own suppliers once they get an order in which case delays are experienced which could affect how you offer services to your own clients. It is important to note that the reliability on lack of it on the part of your suppliers has a direct impact on the business’s reliability. You cannot support your customers fully with unreliable suppliers whom you are not sure to find in the same place the next time you visit them. Take time to cut out those who let you down constantly.
2. Corporate value system – The value system of a business tells you what they believe in and their general work ethic. Always study the value systems and choose suppliers who seem to live according to their value in real life. Values become the habits and character definition of the people serving you. However, some suppliers simply hang values on the wall and that is where it all ends. A company would rather have 3 values which they advocate for and live by than have ten flowery values which remain imaginary not real. Are the values in any way telling you anything about the service delivery, the customer focus etc? Find a supplier who matches your values and beliefs. A supplier who does not cut corners in a bit to make a sale. A supplier who would rather lose the order than supply imitations purporting to be supplying originals.
3. Quality of products – Most organizations thrive because they offer quality products. You may have sales people who are very jovial, with a positive attitude, smiling all the time but if the product range you are dealing with leaves a lot to be desired in terms of quality then your service mars the business growth totally. No one will ever want to resell products that are not tried and tested. One thing most customers avoid is having to deal with the comebacks or return as this impacts on profitability and reputation. I have noticed that each time I have provided good and services to a customer and there are some concerns and comebacks, I have had to work overtime to retain that customer than in cases where I have given a product or service of high quality. In such cases customers have gone out and spoken well of my business and in turn became my silent sales people.
4. Credit terms – The payment options that supplier provide help them to retain and serve their customers satisfactorily. Most customers are not keen on partying with cash on the very day they receive the goods or services. Customers require time to process payment and be able to strengthen their cash flows through these legal delays in payment. While credit terms are attractive, some customers tend to abuse such facilities by over extending their credit payments. If you are selecting a supplier, always agree on reasonable credit line such as 7 to 14 days which is not too short or too long. It gives a win-win scenario. Realize that you also may have customers who require the same credit facility. In cases where suppliers refuse to give you such terms, then you also need to tighten your cash-flow position by ensuring that your customers pay as you deliver the goods. I have seen companies collapse at the weight of having to finance other businesses all because they simply wanted orders and debtors. You rather not have the order if you are not getting terms and your customers are putting pressure for terms. You can only give away what you have been given.
5. Proximity and Distance – This is an important consideration. You could have suppliers on other continents outside of your own. Realize that there is a delay in shipment that occurs between the time of placing an order and getting the order into your own stock room. You may need to keep contact with suppliers that also close in case you run out and receive urgent orders. In you manage your imports properly you may be able to get all your material from other continents. In that scenario distance ceases to be an issue. The advantage however of dealing with smaller local suppliers is that you have a backup plan and in the event of returns, it is an easier process to get product back to the supplier without huge transportation costs
6. Competitive Pricing – Businesses desire to be profitable. After all, the reason why businesses exist is to make a solid consistent profit for the benefit of the investor and all stakeholders. One way to increase on profits is to ensure that you do not unnecessarily purchase your inputs from expensive suppliers. Having registered suppliers and also a consistent relationship with existing suppliers allows the customer to leverage on pricing. They can negotiate for bulk purchase discounts. In most companies, even after selecting a pool of suppliers to deal with both locally and abroad, there is a policy for procurement staff to get 3 quotations for the same product from different suppliers. The $5 difference in price does make a difference in your pricing of the same product. The goal is to ensure they get the best pricing possible so as to forward the same benefit to the end user.
7. Warranty Issues – It is one thing to supply a product and it is a totally different ball game to ensure that there is valid warranty on it. Make it clear as you purchase the product that you want warranty card or certificate. You can only give warranty to your clients based on the warranty given to you by the supplier. This is where paying attention to detail is of paramount importance. You must be able to return the product if it fails to deliver what the manufacturer claims to be the proper life and performance capacity. The warranty must not be assumed but be in writing. If you have bought from the local channel, it is easier to process your warranty than in situations where you go to alternative channels or markets. I had a rude awakening once when I established a supplier in United States of America while running a business in Zimbabwe. It took 2 weeks for the huge machine to get to my office. The machine was delivered to the client immediately. After two weeks the huge machine failed and had to come back to my office. Because I had not bought the machine through the established channels, I had to ship the machine back to America. The cost of shipping alone equated to the profit I had received a few weeks earlier. It is not worth it; rather focus on a channel that honors international warranty.
8. After Sales Support – Depending on the nature of product you intend to be procuring from a supplier, you need to establish what happens in the event that they have sold you the items and you now need support and technical assistance. Always assess the capacity to support you after the sale has been done. Likewise you also need to develop or hire skills to ensure they offer the first level of support and maintenance of the equipment you are selling.
9. Up to date Product Range – How up to date is the product range that your supplier is giving you. There are always new products being developed daily if your supplier sticks to the old range, soon enough your company will be left behind. Technology advancements have ensured that new releases of better, faster, more efficient and cost effective products come on the market. The goal is to make more modern products available to the market at competitive pricing. This is made possible as companies invest in research to ensure they make the same products if not better at a lower cost all the time. Sometimes it is good to partner with a supplier who has a broader range of choices than where one range is being marketed. The broader the range the more the choice you have available to yourself to choose from.
10. Lower Lead times – systems efficiency – When choosing suppliers you have to consider how much longer you normally have to wait for your order or for queries to be responded to. Some companies grow to levels where they can no longer give individual promises to customers and stick by them. You are left unsure about whether upon placement of an order you will get it instantly, after 3 days or 3 weeks. Your own customers usually dictate the lead times they need from you. In the event that you are experiencing delays in your service, endeavor to communicate with the customer as much as possible to ensure that lead time issues do not affect their loyalty to your services. Partner with suppliers who have efficient systems. I usually get annoyed when I have to wait for 20 minutes as the red tape in a company is laid out. All I want in most cases is to pay, get a product with my receipt or invoice. If the supplier’s internal processes are that you