Selecting Suppliers: Three Factors to Consider

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Many businesses find it difficult to identify reliable suppliers who can deliver quality product on time. Whether you are a manufacturer, a wholesaler or a retailer, liaising and negotiating with suppliers can be a stressful and time-consuming process. Let’s look at three key factors you should consider when selecting a supplier.

Negotiating prices

Procurement costs are a major consideration for any business, but finding a supplier who is willing to negotiate on price is often particularly important for small, growing businesses. The advantages of a less expensive supplier are straightforward – if you are purchasing inventory for a lower price, you can afford to buy a little more or to invest the surplus elsewhere in the business.

That said, an inexpensive supplier will not always work out as the most affordable option. If a less expensive supplier delivers a poor quality product, you are likely to incur extra costs for returns; refunds, repairs and replacement products do not come cheap! Additionally, if you sell poor quality products, you risk compromising your business’ image and hindering its future growth prospects. Ultimately, price is a major factor to consider when selecting a supplier, but it is important to keep quality and reliability in mind.

Import or buy from domestic suppliers?

If your business is a manufacturer or a wholesaler, you will need to carefully consider whether to source products and materials domestically or to import them from overseas. Importing from major manufacturing markets such as China, India and Vietnam is likely to be cheaper than procuring stock domestically. The size of these markets leads to significant competition as well as a fair degree of innovation. Another advantage of overseas suppliers is that, due to their scale, they may be in a position to carry more inventory and therefore ship product more quickly. Provided you have a reliable supplier, this can be particularly useful for the dropshipping and just-in-time business models.

On the other hand, imported products and materials often carry a stigma, whereas locally produced products may have a reputation for quality. As a small business, it can often be much easier to develop a relationship with a local supplier since they are locally-based. This makes factory inspections, labour standard verification and price negotiations easier. Although overseas suppliers may be able to ship product more quickly, local suppliers are significantly closer to market, which may result in lower overall lead times.

Reliability

Supply chains are often intricate, well-oiled machines, but when something goes wrong, the consequences can be dramatic. Reliability is one of the most important factors to take into account in selecting a supplier. Even once you have selected a supplier, you should regularly assess their ability to deliver orders to the correct specification and on time.

Larger suppliers may have more robust systems in place and may have larger reserves of safety stock. That said, you are likely to develop a more personal relationship with a small supplier. Having a good relationship with suppliers is generally useful, but is particularly important in tricky situations such as urgent orders or requests for flexible terms.

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Melanie - Unleashed Software
Melanie

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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