As a business, you will depend on the sale of your products/services as your livelihood. It will be your suppliers who will provide you with those products. As a result, it is important to make sure you have a good relationship with a supplier that is trustworthy, reputable and able to service your business needs.
How to find suppliers
The best place to start when looking for suppliers, and the easiest, is by using the Yellow Pages. Other avenues for finding suppliers are to speak to your accountant, to ask others in the industry, trade associations, chambers of commerce, trade fairs or if you see a product you would like to sell in another store just ask who the manufacturer is.
Suppliers are generally made up of the following:
Manufacturers: Companies which produce products/goods on a large scale. Retailers usually deal with independent representatives or salespeople acting on behalf of these manufacturers.
Wholesalers: Also known as distributors, usually buy large quantities of products/goods from the manufacturers and warehouse them to sell to retailers.
Independent suppliers: These suppliers act independently and tend to service a niche market. They are usually small businesses themselves producing products/goods. Many tend to be from an artistic/craft industry.
Importers: Importers supply foreign goods usually through a domestic agent or importer representative.
What to look for when choosing a supplier
An unreliable supplier is a bane to any business. Not only do you risk losing business because of a lack of ability to deliver orders on time, it can be very frustrating. Poor suppliers may not just necessarily be the ones who deliver products late. It could be those suppliers who arrive at inappropriate times, send the wrong or inferior products, those who refuse to take returns or who offer uncompetitive prices.
If any of the above scenarios occur, your business could suffer as a result. It may lose its credibility with customers if supplies are delayed, especially if you have told customers you can get a particular product by a certain date but fail to deliver on that service promise because of your suppliers.
When looking for a supplier keep the following tips in mind:
Shop around. This is very important when choosing a supplier. You want to find suppliers that suit your business’ needs. You also want to make sure that they provide value for money and are competitive with the rest of the market place, especially in comparison with other suppliers in the same field.
Look for reliability. Ask for any testimonials or where appropriate, contact businesses which use that particular supplier and ask for a reference.
Look for evidence of quality consistency. This is extremely important. There is no use having a supplier show you a sample product which looks fantastic, but as your supplies begin to arrive you find that they are considerably inferior to the ones you were shown.
Find out the supplier’s order turn-around times. You will need to know how long it takes them to fill orders and what their delivery cycle is. You will also want to know about the frequency of supplies. There is no use dealing with a supplier for your product if they can only get it in stock twice a year.
If you want to stock products exclusively, you will want to find out if the supplier has the ability to provide your business with exclusive merchandise. This will mean that you are the only stockists, or one of a handful of retailers, to stock the particular items. If the supplier won’t give you complete exclusivity to a particular product, you could always ask that its sales representative not sell identical merchandise to other stores close by.
Assess the supplier for ethics. This will be up to your own intuition. It is important that you are confident that your supplier will do the right thing by you in particular business situations.
Make sure you are fully aware of the supplier’s credit and payment options and methods. You will want to know what kind of payment methods and terms are available to you, especially whether you can start an account and if they offer payment incentives or deals.
Assess the supplier’s financial security. You do not want to get involved with a supplier which is in financial difficulty and risks bankruptcy. This can also have an impact on your business. Your business may suffer as a result of unfulfilled orders and could lose money especially if the supplier folds and defaults on the delivery of ordered stock.
Tips when buying a particular product line
When buying a particular product line consider the following:
Does your competition stock the same line? If so, how does it rate as a “seller”?
What price is it sold at?
Does the particular line in question improve your range of stock or is it duplicating a style or product you have already?
Does it represent better value than other lines you may carry?
Is it a fad? Will it quickly go out of fashion?
Will it appeal to the majority of customers or is it a niche line?
Does it have proven saleability?
If and where appropriate, is the product line in question backed by after sales service?
Is it available different sizes, colours, models, etc?
Will the supplier be able to deliver when required and the quantity needed?
Does the product line come with an already established advertising campaign or strategy which the business can use?
Are there any incentives attached to the new product line, such as quantity discounts or rebates?
Will the new product line bring additional traffic?
Don’t be afraid to negotiate with the supplier for a better deal. There is no harm in trying and you never know, it could just pay off.
How much should you pay?
Suppliers may adopt one of three methods to determine the asking price for their products. These are “cost plus”, “going rate” or “flexible mark-ups”.
It is important to have some idea of the approach they are adopting when involved in the negotiating process for supplies. Cost plus means the seller estimates the cost of production and then adds on a margin to cover what is considered a reasonable profit.
At the other extreme is the going rate approach which comes from an awareness of the need to be responsive to market conditions, as determined by customer demand and competition.
These sellers are price takers. However, costs can’t be ignored altogether in their pricing decision because it is costs which determine whether the business survives and therefore, takes or leaves the price offered in the market.
Flexible mark-ups come from a blending of these two approaches. Mark-ups are added to whatever cost base is considered appropriate (full cost wholesale, cost etc) in a flexible manner to reflect demand and competitive conditions.
This allows the supplier to be sensitive to the market when pricing, but still be aware that if prices fall below cost, the business’ profitability may suffer.
Keep the following tips in mind when discussing prices with your supplier:
Assess the price at which you believe the stock/product will sell for in your business. Have in mind the gross profit margin (discussed later in this chapter) you want to achieve on that product and ask the supplier “how much?”
Have a clear idea at what price you are willing to buy the stock, even if this does not come to fruition it is still wise to have an idea of what you want to pay. This will help in the negotiation period.
Try to have an understanding of how desperate the supplier is to land your account and to sell the particular stock.
Make sure to ask about any advertising subsidies, quantity discounts, rebates, etc.
Try and resolve all issues at the one time when discussing stock price with your supplier.
Ask about any offers on clearance lines.
Maintaining supplier relationships
Reliable suppliers are an asset to your business. A good supplier will often go that extra step to help you especially if you find yourself in a situation where a customer has made a difficult or specific request. As long as your business is profitable to them, you should find that they are accommodating.
Suppliers, like all businesses, are in business to make money. If you argue with them about every account, if you ask them to reduce prices on everything they sell to you, if you fail to pay their accounts on time, you may find your supplier relationship becoming strained.
As you’re a starting a new business, you will want to try and strike a good relationship with your supplier from the outset. However, it is important to remember that if at any time you are not satisfied with the level of customer service or treatment you receive from the supplier, it may be worth reconsidering that particular company and taking your business elsewhere.
Try to remember that when setting up your suppliers to keep in mind that relying on one supplier can be a potential problem for your business. For instance, if you rely on one supplier for all your needs and the supplier goes “bust” then you will not only be left “out-of-pocket” but you could also face a serious stock shortage problem.
Where possible, use more than one supplier. An idea is to also keep a list of alternative suppliers in case you find yourself in the situation where your supplier can no longer provide you with what you need. By having other avenues to pursue, the problem may be quickly resolved.
How to secure supplier credit
Arranging initial credit for supplies and services is fairly easy. While most service-based businesses invoice you automatically without requiring credit references, equipment and stock suppliers and wholesalers are more cautious.
As you are just getting started, you probably won’t be able to supply trade references and your bank will probably not be able to give you a credit rating if your account has just opened.
Honesty and a personal financial statement are the answer. If your supplier is small, the manner in which you present yourself is an important factor when applying for initial credit. If you are dealing with a large supplier and the credit manager is protecting his/her position, you may find the going more difficult. Again, a personal visit will help you to ultimately gain acceptance.
Present your financial statement and a description of the prospects for success in your new business. Don’t try to inflate your financial statements to cover a lack of references. Some suppliers will provide you with a Cash on Delivery (COD) status for a couple of months.
The supplier will then run a number of credit checks, bank references and check your ABN and will also judge your payment performance while you are on COD status before issuing you with a line of credit and an account.
The supplier will know that if you are under-financed, as you will soon have problems with paying COD. If your financial position is solid, you will have proven yourself as a reliable customer and an account should be issued to you. However, just how much credit you will be afforded will depend on the supplier.
What is trade credit?
When a supplier gives you credit and time to pay, charging the purchase to an account, this is effectively known as trade credit. Trade credit gives you an interest-free short-term loan which can be of particular benefit to traders.
The following are tips for making the most from trade (supplier) credit:
If you can, take full credit of the creditor’s (supplier’s) credit terms. If under the credit terms you have 30 days to pay as of the date of purchase, and there is no discount for early settlement of the account, take full advantage of the full period available to you. Remember, you don’t have to pay before the 30 days expires but it is also advantageous not to pay late!
If under the credit terms a one or two per cent cash discount is awarded as part of an early payment scheme, for example if you pay the supplier within 14 days of the purchase, it would be wise to consider early payments as one per cent over 14 days is equal to approximately 26% pa. It is important to remember late payments may also incur a fee which will also add up over time.
By building a good rapport with your supplier and establishing a relationship where you are considered to be a prompt and reliable payer, you may be able to negotiate longer credit terms with your suppliers. This is of particular importance if you run into cash flow problems and need time to restructure finances.
Treat your trade creditors/suppliers with respect. They will provide a good, cheap and easy source of short-term credit. Abusing their terms and “trust” could lead to difficulties for you and your business if you find yourself in a financially strained situation.
