Finding your suppliers
Finding and retaining the right suppliers is critical for building and running a strong business. Reliable suppliers will help you provide your end customers with quality products and services in a timely manner. Take the time to thoroughly research potential suppliers and select those that best suit your business and its needs. Make sure you have explored all the possible options and alternatives.
Once you have identified potential suppliers, compare and analyse their strengths and weaknesses to determine which ones best fit your business. Different suppliers will have different services, offerings and features. They may differ in terms of price, quality, reliability, size, returns policy, location and background.
• Price and quality – expensive supplies may jeopardise your profitability. However, cheap goods may impact the quality of your products or services and thus lower customer satisfaction and overall revenue. Find the right balance for your business.
• Reliability – you should be able to rely on your suppliers and to be sure they can deliver the right goods or services on time. The time the supplier has been operating in the market can be an important factor. An experienced supplier can provide a greater level of stability and is usually a better option if you are looking for a long-term contract. However, a new supplier may put in more effort when providing a service, allowing you to grow your businesses together.
• Size of supplier – larger suppliers have better resources and more mature business systems which should enable them to provide a higher quality of service in most aspects. On the other hand, it is easier to establish closer relationships with smaller suppliers and they can provide you with a more personalised experience.
• Reverse logistics – returns of goods, either at the end of the product lifecycle or if an order is cancelled, represent a growing cost of doing business. Reverse logistics, also known as the aftermarket supply chain, is the process of recapturing value from finished goods back through the supply chain, through resale, refurbishment, servicing or other means. This presents a number of unique challenges to businesses involved in the sale, manufacture, storage and distribution of goods through often complex domestic and international supply chains and channel partners. You may handle this yourself or outsource reverse logistics to a third-party service provider.
• Returns policies – if you cannot precisely estimate the demand for your products and services, returns policies will play an important role in your business. If your suppliers have fair and balanced returns policies, it may reduce your costs and enhance the flexibility of your business operations.
• Payment policy – some suppliers may ask for advance payments or bank guarantees, or charge extra service costs for small orders. By strengthening your relationships with your suppliers you can agree on better payment terms. Keep in mind that you might need to renegotiate your payment terms if your business goes through a crisis.
• Location – even though suppliers that are located further away may provide better prices, they might have longer delivery times and extra freight costs. Local suppliers can benefit your business if you need products or services within a short timeframe.
• Supplier background – when choosing a supplier, do background research and collect references. Knowing the past experiences others have had can help you determine the level of service you can expect from a supplier.
Negotiating supplier contracts
When you have decided on a supplier, start the negotiation process to agree the right contractual terms. Well-written contracts help you deal with possible future disputes regarding each party's rights and responsibilities. Within the document you should define:
• the subject matter of the contract (what is being supplied)
• the manner and timeframes in which products and services will be provided
• the price and payment terms.
It is advisable for the contract to further specify:
• the quality expected
• warranty periods
• insurance coverage
• dispute resolution terms
• termination and exclusion clauses
• any other considerations.
When drawing up the contract you should ask yourself whether it will be sufficiently clear about what happens should things not go to plan and your relationship with the supplier breaks down.
If possible, seek professional legal advice to review the document.
Aim to negotiate outcomes that both parties are happy with to ensure a good, long-lasting and resilient business relationship.