When starting a new business, building a strong, effective network of business relationships is key. This is especially true when it comes to finding suppliers. These are the people you put your trust in to provide you with the products or services that are necessary for your business to run in a smooth and effective manner. You need to know that your suppliers will do what they say, when they promised it, at a price that is agreeable with you – often, you’ll need to be well-versed in the art of negotiation to achieve this.
As finding the perfect suppliers for you can be a task fraught with difficulties, this week we take a look at some of the things you should bear in mind when drawing up your shortlist.
The price you pay for products and services is arguably the most important aspect of the supplier selection process. While it is important to have a good working relationship with your supplier and have them located close to your own premises, neither of these matter if you are paying a fortune for the privilege.
Any perceived benefit has to be weighed up against the cost you are paying. For example, say you have a choice between two suppliers, one located round the corner who is a friend of a friend and another who is two miles away and you have had no previous contact with. On paper, the former seems the more appealing. However, if they want to charge you double for a product that is of similar quality to that offered by the latter, you have to decide whether these perceived plus points are worth the additional outlay.
When starting out, you need to do all you can to ensure your business makes the right impression. At the very least, this means keeping promises and delivering to your customers what they asked for when you promised it. Unfortunately, this isn’t as easy as keeping yourself organised. The majority of businesses are at the mercy of their suppliers.
As an example, imagine you run a sandwich shop and have an agreement with a nearby office that you will provide them so many sandwiches every day. Imagine one day your baker’s oven has a fault, and they can’t get it fixed for 48 hours. This means that you have to find another supplier at incredibly short notice, or risk letting a valuable regular customer down for two days running when you can afford to do it least.
As it is almost impossible to tell whether or not a supplier will be reliable when you first sign up with them, there are a few things you can do to help yourself out. Firstly, as you get used to working with suppliers, try and extend your delivery date with your customer by a day or two. This will give you a bit of breathing room should a new supplier not live up to expectations.
If your supplier wants you to sign a contract to agree to, say, a year-long partnership between the two of you, suggest a three-month trial period first. This way, you can find out what they are really like and how they do business before you lock yourself down for a prolonged period of time.
Your relationship with a supplier should be mutually beneficial. The supplier receives a decent chunk of guaranteed business while you get a guarantee of receiving the same quality of product or service for the same price over a predetermined time period.
However, the better the relationship, the better the service you will receive. That is why effective management of the relationship between yourself and supplier is incredibly important.
The best way to do this is to be as honest and open as possible. If you think you are going to struggle to pay your next invoice in full, let your contact know at the earliest possible opportunity and keep them informed of any developments. In business, nobody likes surprises so, while nobody likes to be paid late either, it is much more preferable to be informed in advance that there may be a problem rather than having it sprung on you the day it is due.
By acting in this manner, you are much more likely to be able to increase orders at short notice too should you receive a sudden rush of orders yourself, among a whole host of other benefits.
Quid Pro Quo?
Although maybe not entirely sustainable in the long term, operating on a quid pro quo basis with your suppliers could be an effective way of getting what you need without having to shell out in actual capital.
A good example of this is a marketing company agreeing to do a bit of free marketing for a supplier in return for materials they need. So long as the work carried out is of a similar value to the materials, a brand new business can add something to its portfolio of work, while receiving something they need in return. Obviously no business should be run on a completely quid pro quo basis, but in the early stages when capital is scarce, it can be an effective way to get what you need to progress.
Financials making your head hurt? Check out our handy tips about financials for beginners to get a handle on things. For more advice on company formation and running your business successfully, head over to the help centre.