Whether you’re in retail, consumer services, or business-to-business, it’s crucial to find the right suppliers. Here’s some advice on doing just that...

What types of suppliers are there?

Here are the main types of suppliers.

Services. These include suppliers of electricity, water, telephones, IT, email, website hosting, stationery, facilities, transport, etc.

Sub-contractors. If you’re in a trade business, these will include other tradespeople. If you’re a consultant, training provider, etc, these will include other consultants, trainers, etc. You might contract these people direct or through an agency.

Manufacturers/producers. For some types of business it’s possible to buy products or components direct from the earliest point of the supply chain – the manufacturer. This is normally the least expensive option, as the items won’t have been marked-up by other parts of the chain. However, sometimes manufactures have a minimum order size, which can be too high for many smaller businesses. If you’ve invented a product you’ll need to find a manufacturer.

Distributors. Brokers and wholesalers buy large quantities from a range of manufacturers. Although they mark-up the prices, distributors can supply smaller orders that manufacturers may refuse.  Distributors can also supply items from different manufacturers.

Importers. They act like a domestic distributor, only the items they buy are from overseas. In some countries, because of the way supply chains work, it can be difficult, even for importers, to buy direct from manufacturers – they may have buy from wholesalers in those countries.

Checklist: What should I be looking for in a supplier?

Here are key factors to consider when selecting suppliers. Login to save this checklist to your profile for future use - as you work through the list, any checkboxes that are ticked or unticked will be automatically saved to your profile. (To register to join and enjoy the benefits of membership click on the link at the top right of the page. It will only take a few minutes to create your profile).

What might a supplier be looking for in me?

In the same way that you’re seeking a financially stable, reliable supplier who won’t muck you around, they’ll be looking for the same in you. If they’re extending credit to you, they may well run credit checks and ask for references, especially if you’re completely unknown to them.

Suppliers can get many requests for quotes, samples, etc, many of which come to nothing. Make sure you behave in a way that lets them know you’re serious. Have all your requirements worked out before you approach them, so that you can give them a very clear brief. And don’t make your approach unnecessarily complicated, for example by asking for a multitude of different pricing options.

In some business sectors, the boot can sometimes be on the other foot – the supplier holds the power in deciding whether to accept you as a customer. In retail for instance, some brands are picky and choosy about who they let stock their products. Also, if you’re a new shop on the block, some distributors may be reluctant to deal with you for fear of damaging their relationship with other businesses they already supply, i.e. your competitors.

How do I decide between different suppliers?

Short-list several suppliers – perhaps five or so – and assess each of them against the criteria outlined above (price, minimum order size, delivery time, etc). You could give marks for each criteria and you might want to weight some categories more than others. For instance if price is far more important to you than other aspects you could award double or triple marks for this. Adding the total marks you’ve awarded to each supplier enables you to rank the shortlisted ones.

Depending on your type of business and your specific circumstances, you might want to have several suppliers. If you only have one, this could be disastrous if they suddenly let you down, or their business collapses. Having several suppliers is far more likely to keep them on their toes, and prevent complacency from creeping in.

Should I enter into a formal agreement with my suppliers?

Verbal agreements and understandings are fine… until things go wrong. If things get nasty it’s really difficult to prove what was actually agreed. Having a contract protects both you and your suppliers.

If the supplier is providing services, you may need a service level agreement (SLA), which covers things like response times, the number of staff assigned, the conditions on which an agreement can be terminated, and so on.

For example, one of the provisions of an SLA with a web hosting supplier may be for 99.9% ‘up time’. It may also give the customer the right to terminate the contract without paying any compensation to the supplier if this provision is not met.

Many service suppliers have standard agreements that they’re unlikely to change unless you’re giving them masses of business. So read the agreements really carefully, and if you’re not happy, go elsewhere.

What sort of relationship should I be looking for with suppliers?

Obviously, you need to get a good deal from your suppliers, so don’t take their first offer as their final position: be prepared to negotiate.

But you also want to establish good working relationships with them. You don’t want to clamp them down so much on price that they feel resentful, or to the degree that if you do agree a deal it turns out to be unsustainable.

Take a win-win approach that helps to build a professional, open and trusting relationship. When things go wrong – as they may from time to time – you need your suppliers to be honest and give you fair warning, but also to pull out all the stops to solve the problem.

Make sure that you pay them on time and treat them with respect. Also, look beyond what they’re doing for you in the present and involve them development of your products and services. They’re likely to have their finger on the pulse regarding new technologies, materials, ingredients, production techniques, processes, approaches, etc. Encouraging them to share this knowledge with you can be extremely useful in helping you to improve and extend what you offer to your customers.

Next Steps

To find a relevant trade association go to the Trade Association Forum website

The Trade Association Forum encourages the development and sharing of best practice among UK trade associations and promotes the role of effective trade associations to government, industry and the wider public.

Read more

What taxes do small businesses pay?

There are a number of factors which will impact on which taxes your small business will need to pay. 

Read more

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