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Selecting Suppliers and Will Suppliers Supply You?
This article gives the new business owner a checklist of things to look for when selecting a supplier, but you also have to find out if the supplier wants to do business with you.
Before you go into business, make sure you have lined up all of your suppliers, especially if you are a retailer. Many times suppliers protect larger establishments in the market place.
When considering what supplier to purchase from the following is what needs to be considered:
- Price breaks
- Freight costs
- Turnaround time
- Minimum quantities
- How does the vendor stand by their product?
- Restocking charges
- How efficient is the product to handle
- How efficient is the product packaged
- How efficient is the product to use
- What type of support are you getting from the vendor to help sell the product i.e. sales reps at big sales events, co-op advertising or signage, special displays and fixtures?
- How flexible is the Vendors credit department
- What products that the vendor sells do your competitors sell
- Can orders be cancelled without penalty?
Looking for the best price is obvious, but understanding where the quantity discounts or price breaks as compared to other suppliers is important. Some suppliers offer free freight, so if you are not getting anywhere negotiating prices with the vendor ask for free freight. Have you ever heard of asking a vendor for markdown money? Markdown money is partial credit from the vendor for product that sells through poorly. If you are a credible business and can show the vendor that you gave every effort to sell the product and it did not sell through have the vendor share that responsibility.
Understand what the turn around time is and how quickly you can get product once ordered. Companies with cash flow problems need to time their inventory receipts more precisely so turnaround time plays a greater role. What are the minimum order quantities? Once again this plays more of a role with clients with cash flow problems because sometimes you just need small quantities.
It is very important that a vendor stands by their product. If something is wrong with the product either quality wise or technically the client must have assurances that the vendor will issue proper credit upon the products return. Understand what the vendor’s restocking fees are for product incorrectly ordered. Unless the client is in an industry where there are a lot of special orders, vendors should wave restocking charges.
Efficiency in handling the product is important for the receiving department. Remember, anywhere you can save costs throughout the entire process must be considered in the decision from logistics to manufacturing to merchandising/packaging to how efficient the product is to use. For example, although the pink panther insulation is more expensive, it is much easier to install and more recognized in the construction industry making up for any increase in the price of the inventory.
The type of support that you get from the vendor to help you sell the product is a big plus whether they are free displays; marketing materials or coop advertising programs these programs tell you that the vendor is really interested in working with you. In the event you run into a cash crunch it is always nice to know that the vendor is willing to work with you and that their credit policies are flexible enough to work through shifts in the economy or industry downturns.
Another consideration is what the competitors sell. Sometimes you can work a better deal with a vendor who is not with a major competitor because that vendor does not have much market share in the market you serve.
What would happen if a major supplier goes out of business? It is important to have a back up supplier not only to protect against a major supplier going out of business but also if a major supplier decides to change your credit terms unfavorably, or cut you off to protect a larger customer in your market, or discontinues a product line that is important to you. I have seen suppliers do all of these things.
Always be on the lookout for a back up supplier. When you go to trade shows identify possible target suppliers and start to develop relationships with them. In the long run it can really pay off and you will be prepared when the unthinkable happens to one of your key suppliers.
Another good thing is to do a relationship check up with your suppliers. See how content or discontented they are in doing business with you. These checkups can give indications as to what their next move might be.
One last rule: Do not over buy inventory as it is one of the most common reasons why businesses get in trouble. This is especially true for retailers. Your CFO should prepare an inventory plan. The flexibility to cancel orders without penalty helps prevent you from overbuying. Don’t let suppliers lure you into excessive quantities of inventory!!!
Learn more about the author, Michael Barbarita.
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- starting a business
- selecting suppliers