- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
SELECTING THE RIGHT SUPPLIER:
Your first task to selecting the right supplier is to make a list of possible suppliers that can provide the products you intend to sell or manufacture. Your next step is to obtain as much information as possible on each supplier so that you can narrow your list and determine which company can best meet your needs.
The best place to find suppliers is through Manufacturer and Wholesale Directories. The five most common Manufacturing Directories are:
The Thomas Net/Registry
Dun & Bradstreet Book of Manufacturers
American Wholesaler's Directory
Canadian Company Capabilities
Canadian Trade Index
Considerations when Selecting a Supplier:
The supplier's products must meet your desired level of quality. If your strategy is to offer high quality merchandise and your supplier carries products of low to medium quality, then your business will undoubtedly experience several problems. For instance, if a customer believes that the quality of your products is below average, he or she may feel somewhat cheated and may never purchase from you in the future. In addition, this customer may tell others of their unpleasant experience with your business, thus resulting in further lose of sales. Make sure your suppliers can meet your desired level of quality.
Location of the Supplier:
The location of a supplier can effect your decision to do business with them. Overseas suppliers may offer lower prices but they may not be able to fill your required orders when needed. Before you sign a contract with an overseas supplier be sure they will commit to filling and delivering your orders on time.
Who will absorb the cost of products that have been damaged during shipping? Ask each supplier whether or not they carry insurance on the products they ship to you. If they want your business badly enough, they will ensure that your products arrive "safely".
Damages and Liabilities:
Many businesses have gone out of business due to lawsuits, damages, and judgments resulting from faulty products. If you buy from a supplier, it is important for you to ask who carries the liability for products resulting in mental, physical, emotional or any other damage to a customer. Many manufacturers carry insurance for such occurrences, however, many other manufactures do not. Before signing a contract or deciding on a supplier, be sure this issue has been addressed.
Price of their Products:
Prices may differ among suppliers. Furthermore, suppliers use various pricing strategies when setting their prices. These strategies include; a cost based pricing strategy, a buyer based pricing strategy, or a competition based pricing strategy. Lets briefly discuss these pricing approaches; assuming the suppliers point of view. (Please Note: these pricing strategies are also available to you and your business when Setting Your Prices)
A supplier using a cost based pricing approach will first determine all costs associated with purchasing or manufacturing a product. A markup is then added to the cost resulting in the price charged by the supplier. A supplier using a buyer based pricing strategy does not rely on the cost of producing or purchasing a product, but rather they consider a buyer's perceived value as the major factor in setting their prices. A supplier using a competitive based pricing strategy will set its prices based on the prices charged by competitors, with little attention placed on its own costs or demand. For instance, suppliers offering similar quality, insurances, warrantees, purchase discounts, delivery times and purchase returns will usually charge similar prices. Suppliers offering better products and services, in many cases, will charge a higher price. Why is the suppliers pricing strategy important? The pricing strategy used by your supplier may conflict with your planned pricing strategy. This topic will be addressed later on in our discussion.
A third consideration one should examine when choosing a supplier is product availability. Will the supplier you choose be able to supply the products you need, when you need them? Can you imagine a retailer selling completely out of a product and not being able to replenish its supply. Or image a manufacturer unable to purchase the raw materials because their supply ran out. Both situations usually result in lose of customers to competitors.
The supplier you choose should offer back up orders and have a successful track record in filling such orders. Be sure to ask the suppliers for a list of references. A background check on each supplier could eventually save you hundreds, thousands, or even tens of thousands of dollars. If a supplier can not provide you with a reference list, chances are they are not the one for you!!!
Whether your supplier can offer backup orders, it is wise to have additional suppliers on hand who can fill your product needs. Remember anything can happen in business.
Will your suppliers offer your business a line of credit? Will you have to pay for the goods and services before you actually receive them? Usually suppliers require new businesses to pay in advance for goods and services purchased from them. After an "internal credit rating" has been established, however, the supplier will usually grant credit (an internal credit rating generally requires six months).
Usually suppliers who offer credit will provide a purchase discount. Purchase discounts are used to encourage early payment. For example, a supplier may provide the following credit terms; " Customers purchasing products on credit will have 30 days to pay. In addition, those customers paying within 10 days of the purchase date will receive a 2 % discount". (this is called a purchase discount). Suppliers offering purchase discounts are generally preferred over suppliers not offering these discounts. PLEASE NOTE: It is important for you to know each supplier's credit granting policy before a supplier is chosen.
Warranty on Products Purchased from Suppliers:
Most suppliers and manufacturers will provide a warrantee with their products. The following warranty issues should be addressed when deciding on a supplier.
The above items discuss some areas you should consider when selecting a supplier. Many suppliers have developed pamphlets, brochures, and sample contracts which can answer most of your questions. Ask each supplier to mail such information packages directly to your home address. This allows you to carefully examine each suppliers' policies without feeling pressured. In addition, we strongly urge you contact an attorney to review all major considerations that directly relate to your specific business endeavor. We also stress the important of consulting with an attorney when signing a contract with a supplier. An attorney may cost you a few hundred dollars, while a breach of contract or a lawsuit may cost you millions. Your attorney can also provide you with an objective opinion - something you will need when developing your new business.