Starting a Business Step 7 - Choosing Suppliers
Selecting the right suppliers is essential to ensure you deliver your products and services on time, at the right price.
Identify your needs.
The reputation of your business is based on the quality of products or services that you deliver to your customers. Consistency is key. Getting your suppliers wrong could have catastrophic effects on your business as customers will blame you, not them, if you let them down with faulty goods or late deliveries.
The lowest price is not always the best value for money as you may have to sacrifice price for quality and reliability.
For each of your suppliers, consider the following and prioritise what is important to your business:
- Customer service
- Speed of delivery
- Flexibility in an emergency
- Minimum order quantities
- Payment terms
Listing your needs allows you to compare different suppliers against your requirements.
Draw up a shortlist of suppliers. You can find potential suppliers from a variety of sources including the internet, recommendations, trade shows and the trade press.
Contact the companies on your shortlist and ask them for a quotation. Include the full details of the products or services you need along with quantities, delivery dates and any quality standards required.
Ask potential suppliers why you should be deal with them.
Check to ensure the quotations meet all your requirements and can deliver what you want when you want it.
Score each quotation against your priorities weighting the score accordingly to how important it is.
Check the contract obligations to ensure they are fair to your business.
Check to see if the supplier is financially secure and can fulfil any orders.
Ask for references if you have any doubts about a potential supplier.
Check to see if your supplier is outsourcing and, if so, how they are guaranteeing consistency of supply.
If possible meet suppliers face-to-face at their premises to see how they operate.
Once you have decided on your chosen suppliers, negotiate terms with them before signing any order.
Before any negotiations go back to your criteria and decide what, if anything, you are willing to compromise on. Decide on what you are happy with and the points you wish to discuss. Seek a concession from your supplier for every concession you are prepared to make
Don’t compromise too early. You are looking to get the best deal you can and once agreed it is difficult to go back and renegotiate.
Never accept the first offer. Always make a counter offer and let the supplier decide to decline or offer you a revised price. You can always accept the original offer later if the supplier is unwilling to compromise.
If the supplier is unwilling to compromise on price, ask if there is anything else they can offer.
Ask if there are any discounts for bulk purchases or early payments.
Look to achieve a balance where both you and your supplier are happy with the deal. If the price agreed is too low then you may suffer from poor quality or reduced customer service as the supplier seeks to cut costs.
Once you have agreed the deal, write up the main points and send them to the supplier to ensure there is no miscommunication.
Service Level Agreements
Where supplies are critical, it may be worth drawing up a service level agreement. A service level agreement normally covers the following:
- What is to be provided.
- When it is to be provided.
- The level of service.
- Responsibilities of customer and supplier.
- Payment terms.
- How the contract is to be monitored and reported.
- Confidentiality and non-disclosure arrangements.
- How disputes will be resolved.
- Termination procedures
- Penalty clauses for non-delivery.
If you are asked to accept a supplier’s service level agreement, check to ensure that you are happy with all points. If you are not satisfied, ask to negotiate on points, but be prepared to walk away and find another supplier if all your concerns are not met.
Develop an open relationship with your suppliers so that you get to know their business and they feel confident enough to warn you of difficulties before they turn into problems.
Regularly review supplier performance to ensure that they are still delivering as promised.
Keep an eye on other suppliers and ask to renegotiate if you can get a better deal elsewhere.
If your business is important to a supplier, they will work harder to keep it.
Keep a record of when things go wrong as this will help in any disputes
Ensure you have direct contact numbers and email addresses should things go wrong.
Order and pay in good time to build confidence.
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