Business, industry and trade

Good relations with suppliers are essential to building a successful business.

If you cannot source vital raw materials, parts or merchandise when you need them, you can ultimately lose your ability to trade.

On this page:

Choosing a supplier
How many suppliers
Tips on maintaining good relations with suppliers

Choosing a supplier

Choosing a good supplier is vital. The cost associated with poor suppliers can be significant. Get it wrong and you can incur additional costs for delays, returns and replacements. As well as the risk of losing business, there is also an emotional cost in the form of frustration and stress.

Choosing a supplier involves an assessment of all the factors important to your business, not just pricing. Ask these questions before entering into a supplier relationship:

• How long has the supplier been in business?
• What is the supplier’s record for on-time deliveries?
• Is the supplier’s business quality-assured?
• What lead times does the supplier need for the supply of goods and services to your business?
• What capacity does the supplier have to meet rush orders?
• What payment terms does the supplier offer?
• What is the supplier’s policy on damaged goods or the supply of goods that don't meet specification?
• Does the supplier have a local representative with whom you can deal?

Then ask yourself:

• How does the supplier’s pricing structure compare with those of competitors?
• Is the supplier willing to negotiate supply contracts over a period of, say, 12 months?
• Are there alternatives if there is a delay in supply?
• What will I do if the chosen supplier goes out of business overnight?

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How many suppliers?

A single source of supply usually means less time spent on chasing prices and easier negotiation of discounts and trade credit.

Because of the partnership arrangement between your business and the supplier, you should find:

• priority orders rushed through
• less variation in quality of goods and services supplied
• ordering, inventory management and accounting procedures are generally simpler.

On the other hand, a single supplier for a particular range of goods or services could expose your business to risk should a serious problem arise.

Having multiple suppliers provides a form of insurance against problems that may arise with a single supplier. There is also the advantage of price competitiveness.

Whatever approach you adopt, it is good practice to review the relationship with all your suppliers on a regular basis.

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Maintaining good relations with suppliers

Once you have set up your supplier or suppliers, work regularly on developing your relationship with them. The importance of good relations with suppliers cannot be under-estimated.

Here are some tips for maintaining good relations with suppliers:

• Talk to your suppliers regularly.
• Pay your suppliers’ accounts promptly.
• If you foresee a delay in paying an account, talk to the supplier before the due date for payment.
• Build good relations with your suppliers’ representatives.
• Be fair but firm with industry sales representatives – they can easily take up a lot of your time.
• Avoid rush orders wherever possible – they can cause significant stress in your business and put a strain on the relationship with your suppliers.
• Monitor the financial position of your suppliers – talk with industry colleagues and competitors about the general financial stability of the businesses supplying goods and services to you.
• Raise any concerns about the relationships with your suppliers as they arise.
• Return damaged or faulty goods promptly, with supporting documentation.
• Be prepared to review and negotiate the terms of trade with your suppliers from time to time.

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