From small start-ups finding their feet in a new office to experienced businesses looking for more cost-effective changes, choosing the right supplier can have a huge impact on operational success.
But there’s more to it than simply scanning price lists and picking the cheapest one – you’ll have a whole host of factors that need weighing up first. From reliability and value for money to quality of service, the right supplier is ultimately representative of your business too.
If a supplier turns out to be unreliable or they offer shoddy products, then your business could well struggle to deliver a service that meets your customers’ expectations. To help you make the right decision, we’ll show you what to look for in a potential supplier, and how to go about selecting them to ensure you get the best possible service.
Taking a strategic approach to supplier selection
One of the first – and best – things you should do before selecting a supplier is consider your business needs and what you want to achieve from working with a supplier. Any supplier will be happy to sell you their products and services. But the most effective are those offering products or services that sync up with your business needs.
Say you want to speed up delivery time. A supplier that offers quicker shipping might be a better option than those competing on price alone.
You should also weigh up how many suppliers you’ll need. By whittling down the numbers to a considered group of suppliers, you could benefit from:
With that said, you shouldn’t be tempted to put all your supply eggs in one basket. Keeping your options open is important. After all, if your sole supplier runs into a problem, or goes out of business, who are you left with? Be sure to have some on standby should circumstances change.
Setting a list of criteria that you’d like your supplier to meet is a good idea. Everyone’s requirements will be different, but you might want to consider the following:
When you have some sort of criteria like the above, you can evaluate potential suppliers by matching them to your own list of requirements, ensuring you don’t overlook anything important in the process.
What you should look for in a supplier
Will your supplier come through with the goods? Or will they let you and your customers down? Likewise, is the quality of their supplies consistent? Customers will generally associate poor goods with you, rather than your suppliers. Can your business afford to take such a blow to its reputation?
Thinking locally when it comes to suppliers is a good idea. Local suppliers may be more affordable and flexible and could well enhance the sustainability of your business. Suppliers who are spread far and wide, on the other hand, might mean longer delivery times and extra freight costs. And if they’re abroad, there may be a language barrier to deal with.
While there are plenty of competitively priced suppliers out there, the lowest price is not always the best price. Buying cheap often means buying twice, as the saying goes. So, if it’s reliability and quality you’re after, you may have to weigh up how much you’re willing to pay, especially if you don’t want to risk doing damage to your own reputation.
The strongest suppliers will always keep communication lines open and give you plenty of warning whenever circumstances change. Unresponsive, dishonest, or delayed communication is a big red flag and a clear sign you should look elsewhere.
Some due diligence into a supplier’s financial background can be reassuring. If they have a strong enough cash flow, then it’s unlikely they’ll be able to match your needs. Be sure to conduct a credit check to confirm they won’t go out of business unexpectedly.
Lastly, when a supplier’s values and ethics are in line with your own, the relationship stands to become stronger over time. If you’re proud of your green credentials, for instance, then it’s worth investigating the supplier’s stance from an environmental or sustainability perspective.
Search the business’ website for examples of their values. For instance, Gazprom Energy’s Sustainability hub helps potential customers understand our commitment to the planet and the environment.
Choosing a supply vendor for your business
There are plenty of different avenues and channels when it comes to finding potential suppliers. Try looking at some of the following sources to help you build a broader base to choose from:
Once you’ve identified some potential suppliers, you can start creating a shortlist of sources by asking yourself the following:
With your shortlist prepared, you’re now ready to approach potential suppliers. You’ll want to provide a clear brief, summing up your requirements and providing them with an idea as to the level of business you’ll want to place. Once you’ve heard back from them, compare their responses for further reassurance.
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For instance, check whether your supplier will be outsourcing any work to subcontractors, or whether they’ll be relying on other suppliers for certain components or services. If this is the case, you may want to investigate these suppliers too.
Along with the right due diligence and credit checks, you should also get references for the suppliers from businesses who’ve worked with them in the past.
After whittling down your suppliers, you’ll have to negotiate with who you want to work with. Don’t be hasty here – a little preparation ahead of time is key. Draw up a list of the factors that are most important to you, like price delivery schedule or payment terms. From here, you’ll be able to work out what you’re prepared to compromise on, as well as what you’re not.
With some forward planning, you’ll have a strategy that keeps goals in view and lets you know when to walk away from a deal that’s not in sync with your needs. Both you and your potential supplier should state which parts of the deal you’re happy with, and which parts you’d like to discuss.
A good rule of thumb: don’t reveal that there are concessions and compromises you’d be willing to make too early in the negotiations. Use these instances to your advantage instead. You should make concessions in return for your supplier doing the same.
When it comes to price, if it seems low, then investigate further. Is it because the goods aren’t the highest quality, for example? And if the price includes features you won’t need, asking to have them removed can help to lower the price further.
Be warned, however: squeezing the price too low may result in you getting a poor deal. If the supplier ends up cutting costs in customer service, for instance, it could pose a bigger long-term risk for you instead.
Lastly, whatever you agree to, make sure to get the key points in writing.
With negotiations over, you must also draw up service level agreements (SLAs). These are agreements or contracts with suppliers that define the service – and the level of the service – to be provided. They also set out the respective responsibilities and priorities of the supplier and customer.
They are contractual obligations that are often built into a contract in the form of one or more clauses, or as an entire section. Where a service is being provided, SLAs can be used in any supplier contract.
Should a supplier fail to meet the agreed levels of service, then SLAs provide a compensatory crash mat in the form of rebates on service charges. Ideally, you should highlight the most critical components of the deal so you can apply the strictest penalties to them.
You should also conduct regular performance reviews into the SLA. After all, you’ll have to review your own performance to see if you’re holding up your own end of the deal. By sticking to your own agreements, you can ensure your supplier keeps their own standards high over the course of your supply relationship.
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