Choosing and Managing Suppliers

Channel 4’s new series Risking It All is proving that business programmes are the new home improvement shows, following hard on the heels of the BBC’s Dragon’s Den.

‘Green’ entrepreneurs are followed through the first year of their business by a business guru who watches their trials and tribulations from the side lines.

Sinking all your money – and possibly a considerable amount of other people’s into a business venture can be very daunting and new business owners can be faced with a variety of responsibilities that they do not have a great deal experience with.  

An important part of setting up in business is to choose and manage suppliers correctly, whether it is the buying and shipping of raw materials or the ordering of office stationery, businesses large or small will have to liaise with suppliers to fulfil their own business needs and that of their clients.  For business owners choosing suppliers correctly involves a great deal more than scanning price lists to find the cheapest one.  Other factors such as value for money, quality, reliability and service are now much more important and have a large influence on the overall decision.

Joyce Duncan, director of operations at Enterprise says, “In order to be competitive businesses are having to be increasingly strategic in choosing their suppliers.  The first step is to identify what you need from your supplier, this can be reliability, quality or speed.  The supplier that can offer the services to meet these needs will be the most likely one to be chosen, over those who cannot.”

Taking a strategic approach to choosing suppliers can help businesses understand how their own customers and clients weigh up their own purchasing decisions explains Joyce.  “Customers have needs and wants and will purchase items or services which fulfil these needs and wants, for example if they want to send a package guaranteed next day delivery by 12noon, they are likely to opt for a courier company that offers this service over ones that do not.  The same applies to choosing suppliers; identifying what is needed from the supplier will help businesses to choose a dealer that can meet or exceed these requirements.  However, new start businesses may not have experience in dealing with providers and in the early stages of start up price will often have the largest bearing on their decisions.  Choosing suppliers because they are cheap can often be at the compromise of other factors such as quality and reliability and it is often the case that low cost and poor service often goes hand in hand.  Enterprise business advisers can work with businesses to select and manage suppliers to ensure that the business relationship benefits both parties.”

Strategic Thinking
Identify what you want to achieve by buying, rather than simply paying for what suppliers want to sell you. Develop a good understanding of the difference between a strategic supplier – who provides goods, or services that are essential to your business and non-strategic suppliers who provide low-value supplies e.g. stationery.  You will need to spend much more time researching and selecting strategic suppliers rather than non-strategic ones.  In order to select strategic suppliers you should create a checklist which outlines factors which are important to your business and can include the following information:

Reliability
If you promise your customers they will have their ‘goods delivered on time’ but your supplier delivers them late, letting both you and your customer down – this will reflect badly on your company as the customer is likely to blame your company for being unreliable not the supplier.

Quality
The quality of your supplies needs to be consistent – select suppliers that operate within the same quality control as you to ensure that standards are the same.

Value for money
Choosing the supplier that is the cheapest is not the best way to get value for money, as you may have to compromise on other factors such as reliability and quality.  Therefore you will have to strike a balance between cost and reliability, quality and service and set a budget on how much you are willing to pay to ensure that your suppliers meet your expectations.

Service and Communication
In order to meet your customer’s needs it is very important that you are able to deliver on time; therefore you need your supplier to arrange for your items to arrive when you need them, or to be honest and tell you in advance if they can’t.  A good supplier will communicate with you regularly to find out what your needs are and outline how they can serve you better.

Financially Secure
It is very important to know that your supplier is in a financially secure position to deliver what you need and are not going to disappear over night. Carry out credit checks before you start your business relationship to re-assure you that they will not go bust when you need them most.

Identifying Potential Suppliers
Once you have a clear list of guidelines for choosing your supplier, you should then draw up a shortlist of potential providers.   Build up a broad base by asking friends or business acquaintances that have done business with the supplier, as they will be able to give you an honest assessment of their strengths and weaknesses.

Choosing your pool of suppliers
Depending on your business operations it is worth examining how many suppliers you may need.  In terms of strategic suppliers it can be very dangerous to give all of your business to one company, if that supplier cannot fulfil what is expected of them, this can result in the company losing time and money, so it is vital that a pool of suppliers are selected so you have sufficient backup. 

To get an accurate assessment of the supplier’s service you should approach them and ask for a quotation or sample.  Supply the dealer with a written brief which clearly outlines what you are looking for, the frequency that you will need their services and the level of business you hope to place.

When you receive the quotations compare each supplier in line with your business needs and requirements, for example punctuality and reliability may be most important, while location may not matter, so you would eliminate the suppliers that are unable to provide fast delivery on time.   

Weighing up the factors that are important to your business and matching them with the suppliers that can meet these needs, should help you to make an informed decision.  Furthermore, opting for dealers that are certified by national and international certification bodies can ensure that you will always get a quality service from your suppliers.  The most widely recognised is ISO 9001, to meet this quality system companies must be seen to improving key processes and deliver consistently on promises made.

Managing Your Suppliers
To get the most out of your suppliers it is advisable to develop a strong business relationship with them.  Showing your supplier how important they are to your business will make them realise how important your custom is, and in turn they are more likely to go the extra mile to provide a high quality service.  To formalise what you expect from your supplier, draw up a service level agreement (SLA).  This document will outline targets and specify performance standards agreed between you and the supplier.  The SLA can also guard against complacency on the part of the supplier.

Invest time in building good relations with key suppliers as this can help save money and improve the quality of goods and services purchased. Engaging in regular communication, face-to-face with your contacts, will also give you an insight into how their business operates and provide a better sense of how they can benefit your business.  If you help your suppliers they will help you; so you should place orders in good time, be clear about deadlines and pay on time and this will encourage them to keep their standards high. 

Review Your Suppliers’ Performance
Reviewing your supplier’s performance on a regular basis will help you assess the business/supplier relationship and uncover whether you are getting the best possible deal.  The service level agreement will allow you to measure the supplier’s performance based on the expectations and responsibilities agreed between you and the supplier.

The review should discuss price – are you getting the best possible price, are there any discounts available? Quality – is the quality of their supplies meeting your expectations?  Innovation – do suppliers keep you updated on any new products or services that may improve your business?  Delivery – are supplies delivered on time and in good order?  Account management – are orders or queries responded to quickly?  SLAs – are suppliers carrying out their responsibilities outlined in the agreement?

If on completion of the review process your suppliers are not meeting certain needs and expectations of the agreement you should demand changes such as increased activity for the same price, discounts and favourable credit terms if you are an important customer or offer trusted suppliers more business in return for lower prices.

Enterprise business advisers provide business support and advice for more than 900 companies in the north east of Scotland each year.  For more advice on choosing and managing suppliers contact Enterprise by calling 01467 672595 or visit www.enetrust.com.

ENDS

For more information contact

Laura Cox
Senior Account Executive
Tricker PR
Telephone: 01224 646491
Direct: 01224 654081
Email: lcox@trickerpr.com