Supplier Relationships

A lot of growing companies focus on one trait of their suppliers: price. And price certainly is important when you're selecting suppliers to accompany you as you grow your business. But there's more to a supplier than an invoice--and more to the cost of doing business with a supplier than the amount on a purchase order. Remember, too, that suppliers are in business to make money. If you go to the mat with them on every bill, ask them to shave prices on everything they sell to you, or fail to pay your bills promptly, don't be surprised if they stop calling.

After price, reliability is probably the key factor to look for in suppliers. Good suppliers will ship the right number of items, as promised, on time so that they arrive in good shape. Sometimes you can get the best reliability from a large supplier. These companies have the resources to devote to backup systems and sources so that, if something goes wrong, they can still live up to their responsibilities to you. However, don't neglect small suppliers. If you're a large customer of a small company, you'll get more attention and possibly better service and reliability than if you are a small customer of a large supplier. You should also consider splitting your orders between two smaller firms. This can provide you with a backup as well as a high profile.

Stability is another key indicator. You will want to sign up with vendors who have been in business a long time and have done so without changing businesses every few years. A company that has long-tenured senior executives is another good sign, and a solid reputation with other customers is a promising indicator that a company is stable. When it comes to your own experience, look for telltale signs of vendor trouble, such as shipments that arrive earlier than you requested them--this can be a sign of a vendor that is short on orders and needs to accelerate cash receipts.

Don't forget location. Merchandise ordered from a distant supplier can take a long time to get to you and generate added freight charges quickly. Find out how long a shipment will take to arrive at your loading dock. If you are likely to need something fast, a distant supplier could present a real problem. Also, determine supplier freight policies before you order. If you order a certain quantity, for instance, you may get free shipping. You may be able to combine two or more orders into one and save on freight. Even better, find a comparable supplier closer to home to preserve cost savings and ordering flexibility.

Finally, there's a grab bag of traits that could generally be termed competency. You'll want suppliers who can offer the latest, most advanced products and services. They will need to have well-trained employees to sell and service their goods. They should be able to offer you a variety of attractive financial terms on purchases. And they should have a realistic attitude toward you, their customer, so that they're willing and eager to work with you to grow both your businesses.

Having fewer vendors is usually better than having many vendors. Reducing the number of vendors you deal with cuts the administrative costs of working with many. Closer relationships with fewer vendors allow you to work together to control costs. Getting rid of troublesome vendors can quickly increase the efficiency of your purchasing and administrative staffs. So how do you decide when to change vendors? Here are keys areas to consider:

• Unreliability. When a vendor's shipments start arriving consistently late, incomplete, damaged or otherwise incorrect, it's time to consider looking for a new one. Every company has problems from time to time, however, so check into the matter before dumping your vendor. Vendors can experience temporary difficulties as a result of implementing a new product line, shipping procedure or training program. If you stick with a vendor through a rugged interval, you may be glad you did. They might be more willing to see you through a future cash flow crunch.
• Lack of cost competitiveness. Sometimes vendors fail to change with their industries. When your vendor's rivals start coming in with bids for comparable goods that are lower than your existing supplier's, you need to investigate. Point out the issue to your existing supplier and ask for an explanation. If you don't like what you hear, it may be time to consider taking some of those offers from competing suppliers.
• Insularity. Some suppliers will let you visit their plants, talk to their workers, quiz their managers, obtain and interview references, and even examine their financial statements. These are the kinds of suppliers you should seek out. The more you know about your suppliers, the better you can evaluate whether you should continue to do business with them. If they shut you out, perhaps you should cut them off.
• Extra-sale costs. The number at the bottom of the invoice is only the beginning of the cost of dealing with suppliers. You have to lay out money beforehand to draw up specifications, issue request for proposals, evaluate them, check references, and otherwise qualify your suppliers. You have to place the order, negotiate the terms, inspect the goods when they arrive, and deal with any shortages, damage or other errors. Finally, you may have to train workers to use the newly arrived goods or purchase more equipment and material to make use of them. While some of these costs are inevitable, some are traceable to individual suppliers. If too many costs are being tacked onto the sale, check out some other suppliers.