Definition: Affiliations with the companies that supply your business with
goods and services
A lot of growing companies focus on one trait of their
suppliers: price. And price certainly is important when you're
selecting suppliers to accompany you as you grow your business. But
there's more to a supplier than an invoice--and more to the cost of
doing business with a supplier than the amount on a purchase order.
Remember, too, that suppliers are in business to make money. If you
go to the mat with them on every bill, ask them to shave prices on
everything 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 for
in suppliers. Good suppliers will ship the right number of items,
as promised, on time so that they arrive in good shape. Sometimes
you can get the best reliability from a large supplier. These
companies have the resources to devote to backup systems and
sources so that, if something goes wrong, they can still live up to
their responsibilities to you. However, don't neglect small
suppliers. If you're a large customer of a small company, you'll
get more attention and possibly better service and reliability than
if you are a small customer of a large supplier. You should also
consider splitting your orders between two smaller firms. This can
provide you with a backup as well as a high profile.
Stability is another key indicator. You will want to sign up
with vendors who have been in business a long time and have done so
without changing businesses every few years. A company that has
long-tenured senior executives is another good sign, and a solid
reputation with other customers is a promising indicator that a
company is stable. When it comes to your own experience, look for
telltale signs of vendor trouble, such as shipments that arrive
earlier than you requested them--this can be a sign of a vendor
that is short on orders and needs to accelerate cash receipts.
Don't forget location. Merchandise ordered from a distant
supplier can take a long time to get to you and generate added
freight charges quickly. Find out how long a shipment will take to
arrive at your loading dock. If you are likely to need something
fast, a distant supplier could present a real problem. Also,
determine supplier freight policies before you order. If you order
a certain quantity, for instance, you may get free shipping. You
may be able to combine two or more orders into one and save on
freight. Even better, find a comparable supplier closer to home to
preserve cost savings and ordering flexibility.
Finally, there's a grab bag of traits that could generally be
termed competency. You'll want suppliers who can offer the latest,
most advanced products and services. They will need to have
well-trained employees to sell and service their goods. They should
be able to offer you a variety of attractive financial terms on
purchases. And they should have a realistic attitude toward you,
their customer, so that they're willing and eager to work with you
to grow both your businesses.
Having fewer vendors is usually better than having many vendors.
Reducing the number of vendors you deal with cuts the
administrative costs of working with many. Closer relationships
with fewer vendors allow you to work together to control costs.
Getting rid of troublesome vendors can quickly increase the
efficiency of your purchasing and administrative staffs. So how do
you decide when to change vendors? Here are keys areas to
consider:
- Unreliability. When a vendor's shipments
start arriving consistently late, incomplete, damaged or otherwise
incorrect, it's time to consider looking for a new one. Every
company has problems from time to time, however, so check into the
matter before dumping your vendor. Vendors can experience temporary
difficulties as a result of implementing a new product line,
shipping procedure or training program. If you stick with a vendor
through a rugged interval, you may be glad you did. They might be
more willing to see you through a future cash flow crunch.
- Lack of cost competitiveness. Sometimes
vendors fail to change with their industries. When your vendor's
rivals start coming in with bids for comparable goods that are
lower than your existing supplier's, you need to investigate. Point
out 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 taking
some of those offers from competing suppliers.
- Insularity. Some suppliers will let you
visit their plants, talk to their workers, quiz their managers,
obtain and interview references, and even examine their financial
statements. These are the kinds of suppliers you should seek out.
The more you know about your suppliers, the better you can evaluate
whether you should continue to do business with them. If they shut
you out, perhaps you should cut them off.
- Extra-sale costs. The number at the bottom
of the invoice is only the beginning of the cost of dealing with
suppliers. You have to lay out money beforehand to draw up
specifications, issue request for proposals, evaluate them, check
references, and otherwise qualify your suppliers. You have to place
the order, negotiate the terms, inspect the goods when they arrive,
and deal with any shortages, damage or other errors. Finally, you
may have to train workers to use the newly arrived goods or
purchase more equipment and material to make use of them. While
some of these costs are inevitable, some are traceable to
individual suppliers. If too many costs are being tacked onto the
sale, check out some other suppliers.