Suppliers are essential to almost every business. Without raw materials to make what you sell or manufacturers to provide what you resell, you will have a tough time growing. There are also many supplies and services your business consumes as part of general overhead, from paper clips to Internet access.
Suppliers and vendors-the terms are used interchangeably here-can do much more than merely supply you with the materials and services you need to do business. They can also be important sources of information, helping you evaluate the potential of new products, track competitors’ actions and identify promising opportunities. Vendors can turn into partners, helping you cut costs, improve product designs and even fund new marketing efforts. If you don’t make selecting good suppliers and vendors a part of your growth plan, you’re likely to regret it.
Related: How to Find Suppliers for a New Business
What are suppliers?
A supplier is any person, business or other economic entity giving a product or service to another entity.
For example, a manufacturing company that ships goods or raw materials to a retail business so that the retail business can sell products to consumers is a supplier. Suppliers include product providers, wholesale suppliers, small business shipping companies, and dropshipping clients.
Dropshippers occupy an exciting space within the supply chain. Instead of selling their products on an online store such as Amazon or Shopify, they manage inventory for retail merchants, like the eCommerce business giant Alibaba, and ship orders to their customers. Since the pandemic, many have turned to dropshipping as a viable online business model.
Suppliers’ primary role is to give products to end-sellers or retailers, not to sell products themselves (in most cases).
Instead of selling products, suppliers sell transportation infrastructure, labor and time. In this way, suppliers are essentially intermediaries between manufacturers and or retailers.
Depending on their job responsibilities and business model requirements, suppliers may:
- Deliver goods and services to retailers or business partners.
- Operate as communication intermediaries between manufacturers and retailers.
- Ensure that stock is sufficient for retailers, including doing work to source products through procurement services.
- Adapt to economic conditions and changing supply trends, such as recent sustainabilityinitiatives.
While suppliers are mostly known for moving products from place to place, this does not mean they never create products themselves. Some suppliers are also known as manufacturers, meaning they both make and ship products to retailers or consumer locations.
The roles of suppliers
Suppliers have many different roles in supply chain management, such as:
- Complying with local laws and regulations. Suppliers must comply with relevant laws and standards to their business, like human rights protections and child labor laws.
- Ensuring equitable, fair transactions from all retailers. Suppliers are legally required to provide equal opportunities for stores and other retailers to do business with them. Retailers cannot be rejected because of location or other reasons.
- Getting the best price possible to retailers. Suppliers do this both because of legal regulations and to maintain trust or good relationships with excellent retail clients, ensuring that they get repeat business.
Related: Financing Growth Through Suppliers
Why are suppliers important?
Suppliers are essential in the product lifecycle for one primary reason: retailers need them to be able to sell their goods and services to their customers.
For example, a retailer might have a store stocked with products for a week. But as those products are sold, and new consumers want more products, they rely on suppliers to bring them promptly.
Suppliers are also crucial to ensuring that retailers profit from their sales. A supply chain cannot be so expensive that the retailer or end store doesn’t profit from what it sells — otherwise, the entire supply chain would break down.
Because of this, suppliers have to strike a careful balance between charging competitive prices and fair prices relative to the broader supply chain/market.
Given the importance of suppliers in all industries, it’s essential to know how to evaluate suppliers and vendors for maximum business profits and efficiency.
Evaluating your suppliers and vendors
Suppliers can be divided into four general categories. They are:
- Manufacturers. Most retailers buy through company salespeople or independent representatives who handle the wares of several different companies. Prices from these sources are usually lowest unless the retailer’s location makes shipping freight costly.
- Distributors. Also known as wholesalers, brokers or jobbers, distributors buy in quantity from several manufacturers and warehouse the goods for sale to retailers. Although their prices are higher than a manufacturer’s, they can supply retailers with small orders from a variety of manufacturers. (Some manufacturers refuse to fill small orders.) A lower freight bill and quick delivery time from a nearby distributor often compensates for the higher per-item cost.
- Independent craftspeople. Exclusive distribution of unique creations is frequently offered by independent craftspeople who sell through reps or at trade shows.
- Import sources. Many retailers buy foreign goods from a domestic importer, who operates much like a domestic wholesaler. Or, depending on your familiarity with overseas sources, you may want to travel abroad to buy goods.
What makes a good supplier?
A lot of growing companies focus on one trait of their suppliers: price. And price certainly is important when you are 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.
Related: Walmart Can Say No to Suppliers’ High Prices — But What Can We Do?
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 among two smaller firms. This can provide you with a backup as well as a high profile.
Stability is another key indicator. You’ll 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’ll 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.
Changing your supplier relationships
You may not need to find new suppliers to get a new deal. You can usually get discounts, obtain improved service and receive other features you need by making a request of your current suppliers-although it may not be as simple as merely asking.
Related: Build a Good Relationship With Suppliers
Here are some of the options and negotiating strategies for turning mediocre suppliers into top-shelf ones.
- Getting discounts. If you walk into a department store and purchase a pair of shoes, you’ll pay the same price any other shopper would. But business-to-business commerce is more complicated. Businesses that sell to other businesses commonly have a whole range of quoted charges, offering discounts of 50 percent or more depending on the quantity purchased, the terms, the length of the relationship, and other considerations. You may be able to comfortably conform to some of these requirements, qualifying you for a lower price. To find out, ask about discounts and what is necessary to earn them. You may be able to get anything from an interest-free loan in the form of trade credit to a substantial discount for paying early.
- Improving service. It is the rare businessperson who knows exactly what is happening in all parts of his company at all times or what is going on with all his customers. You probably don’t, and you shouldn’t assume your suppliers do, either. If you have a service-related problem with a supplier, bring it to someone’s attention. If you don’t get satisfaction, move up the chain of command until you get what you want or are as high in management as you can get. Odds are, someone will be concerned and possess enough authority to remedy the situation. Only if you ask for better service and don’t get it should you sever the relationship.
- A better relationship. Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren’t offering to work closely with you to improve quality, reduce defects and cut costs doesn’t necessarily mean they don’t want to. They may be under the impression that you are the reluctant one. So if you want a tighter working relationship with suppliers, let them know. You may also drop a hint that those who don’t want to work with you may see some of their orders being diverted to those who are more agreeable. Either way, you’ll know whether it’s your supplier’s reluctance, or their perception of your reluctance, that’s getting in the way.
Making a change
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 incorrectly, 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 requests 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 prices, check out some other suppliers.
Related: Dealing With Suppliers
Ready to work with suppliers?
Suppliers are critical elements of product life cycles and the supply chain. They provide retailers with the products and services they sell to end consumers, so it’s essential to know how to find and work with the best suppliers to improve your business’s success.
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