It is often a good business practice to maintain a good rapport with your suppliers. Maintaining a healthy relationship with your supplier will, in most cases, benefit both parties financially, but it is what the supplier is willing and able to provide to your business which will ultimately decide how successful the business relationship is.
Having good relationships with your suppliers requires that you:
settle all accounts on time – if a delay is inevitable, warn your supplier (ie. before the due date)
be considerate to sales representatives – never waste their time so they don’t waste yours
avoid submitting orders at the last minute – stock shortages are often a result of poor planning
all complaints and damage claims should be submitted promptly with evidence – for example, if you receive goods broken, dirty, soiled or water damaged, make sure you return the goods to the supplier – don’t discard them.
If you are able to build a good relationship with suppliers, often they will go that extra step for you when you really need help.
Choosing reliable suppliers
An unreliable supplier is a bane to any business. Not only do you risk losing business due to your lack of ability to deliver, it can also be extremely frustrating.
If you are having problems with any of your suppliers, you will have to critically assess whether you should continue the business relationship with them or consider other, more reliable suppliers. Often a “threat” of change may also bring your supplier into line.
Poor suppliers are not necessarily the ones that deliver your goods late – they may have a poor sense of timing (always turn up at the most inconvenient time), send the wrong or inferior products, refuse to take returns or offer uncompetitive prices.
Your business will stand to lose credibility if these problems occur. If you suspect this, you will need to record and report any problems immediately.
Never be afraid of putting a supplier on notice. If you feel that the level of service provided by the supplier is below par, notify them in writing, either by letter, fax or e-mail. It is usually a good idea for the complaint to be written rather than verbal to avoid any future misunderstandings after a conversation has finished. Tell them your opinion and expectations (ie. if quality is unacceptable and you expect an improvement).
Imply that in future you will be claiming for losses arising from their non-compliance or delayed supply (for example, overtime pay when staff have to wait for deliveries) or charging a percentage of the cost of lost sales. Once the supplier’s business begins to suffer, often they fall into line rather quickly.
Building alliances with other businesses is another way of sharing supplies and costs during lean periods.
In the final analysis you may have to decide whether price or service is most important to your business. Good prices and lousy service may not be the best combination for your business. Paying a little more for reliability, service and perhaps better payment terms may be a better business strategy.
The best thing is to work with a company that provides good quality products and service to you and your customers at fair price.
Over-reliance on one supplier
Never depend on one supplier for your business’ goods or services, as this exposes your business to risks if that particular supplier has difficulty producing or delivering or you have problems in dealing with them. Any problems here may mean that your supply also falls short.
Remember, a delay in your supply could cripple your business, especially where you may rely on one supplier for most goods or a vital component for your operation.
What would you do if one of your suppliers all of a sudden went out of business or its prices shot up dramatically? It is worthwhile considering a fallback position, as businesses do fail or close down.
Losing your supplier can happen and if you are in this vulnerable position, you should take steps to reduce your exposure, including the following:
Keep a list of alternative suppliers in your file. You will not regret it. In fact, it wouldn’t hurt to pull them out once a year and take a look at them in comparison to the suppliers you currently have.
You might discover that changes have occurred that make one of your back-ups more attractive than your regular supplier.
If nothing else, you may discover new products and/or possible relationships that could be useful in renegotiating supply contracts with your current suppliers.
Build and maintain good relationships with your current suppliers’ sales representatives: that way if a situation arises, such as goods in short supply, you may get serviced quicker.
Warning signs
Look for these warning signs that you may be over reliant on one supplier:
Your business relies on one large trade creditor. For example, in your creditor ledger, a high proportion is represented by a single supplier.
The business is trading in a specialised field or a new or developing field and because of the nature of the industry involved, only one supplier is available.
It may have been easier to deal with one supplier.
When you first used the supplier your business was not yet established in terms of skills or reputation. Therefore you were unable to negotiate other terms.
What should you do about it?
Check to see if other suppliers are available who might be willing to give better terms.
Look to local suppliers to avoid extra transport costs, such as freight, postage, courier or handling costs.
Now that your business is established, it may be possible to renegotiate your terms of trade with the existing supplier.
Cross trading with your supplier is a distinct possibility. You buy from them, so why not try and sell to them?
In the longer term you may want to consider producing the materials in-house, especially if you are reliant on a single component. You may even be able to buy the supplier if you have the resources.
Evaluate the supplier’s financial condition. You need to be confident of their ability to perform. If they are on shaky ground financially, they will be hard pressed to provide the quality you require and to stand behind their work. Review their operating statement and balance sheet, and run a credit check.
Find out if alternative raw materials can be used or developed. For example, in some circumstances glass may be more appropriate than plastic or vice versa.
Maintain close ties with your suppliers. This may include taking them to lunch, sending cards for special occasions such as Easter or Christmas or inviting them to business functions and events. Remember that the key people (for you) may not be management. An occasional cake at morning tea in the warehouse may do wonders for the amount of help you get when loading goods.
Dealing with poor customer service from your supplier
If your business misses out on the supplies that it needs, this can disrupt the quality of service your business provides to your customers.
Similarly, a large number of poor quality items and returns can cost you time and money, even if they are replaced free of charge.
Late supplies can also cost you money by having your staff wait around for delayed deliveries.
Late supplies can be due to poor coordination at your supplier’s business or to late placement of orders by your staff. You should check that your stock levels are appropriate.
If you have a supply problem, initially you should meet with the supplier and ask what you can do to help improve delivery time, reduce order and billing errors and so on.
Invite suggestions from the supplier and then put your own thoughts forward. If possible, this should be a frank, off-the-record discussion with the people who actually work on your account on a day-to-day basis: you’re looking for people with titles like project coordinator or account rep. — not vice president or general manager.
Focus on subjects such as these:
Timing: What are realistic time frames for the various types of work? What can you ask for if you have a real need for faster service?
Information transfer: What can you do to reduce errors associated with orders and service requests?
Coordination: What can you do to ensure that your business works effectively with the supplier?
Ask what problems your supplier faces in delivering good service. Perhaps you can’t solve those, but understanding your supplier’s problems can often help you to plan your work more effectively.
Having problems paying your suppliers?
Sometimes you may find it difficult to meet your suppliers’ terms. If so, it is time to address this problem if:
Your business is incurring considerable penalties as a result of late payment
Suppliers are constantly phoning regarding payment progress
Your reputation is suffering and your business does not have a good credit rating.
Solutions you should look at include the following:
Examine your accounting and bill payment process with a view to streamlining it so you have full management and control. Give the responsibility for generating payments to one person (ie. accounts payable).
Examine the timing of your payments to all your suppliers.
Where the requirements are too burdensome, contact the suppliers and negotiate more reasonable payment terms. As much as possible, use suppliers who offer better, reasonable terms.
Record all invoices to be paid. Invest in a good accounting software package to help you prepare weekly reports on payments which are due.
