Recently, my son told me that he was going to open a store in another state and was scouting the area that he wanted to establish it in to determine if there was enough of a population and traffic to warrant a successful store. He started to relate a flow of consciousness about this thoughts, and enumerated a few of them including which suppliers to have, who would bring in the olive oil, cheeses and beer at a good price. I voiced my thoughts and then thought that the following would be good information for other aspiring entrepreneurs to contemplate.
For any business, there is heavy reliance on their suppliers. Any interruption in the supply chain could seriously impact their long-term viability. Choosing the right suppliers and using performance measures to re-evaluate existing supplier relationships can help reduce risk and prevent problems down the line.
Customers are also affected by poor supplier relationships. They can’t find what they were looking for because the supplies weren’t delivered. They don’t care, as far as they are concerned, it is your fault that they can’t get what they want.
So, how do you determine whether a supplier is viable or not. There are three factors which you must consider:
- The suppliers’ financial and organization stability
- How much of a priority you are to them given your size
- How willing and proactive they are in communicating with you. Are you notified of issues before they arise so you can be proactive instead of reactive with your customers?
Investigate the supplier. Ask for references to determine if they are reliable and treat you with respect. And follow up on them. Consider four factors with measuring performance:
- Cost. Not just the cost to you, but does it cost you money to do business with your suppliers?
- Quality of their products or customer services
- Responsiveness to your needs
- Their use of technology – are they more efficient because they adopted new technologies in their inventories and billings and communication with you?
If any problems arise with your suppliers collect data specifically on that one so that you can have a “fact-based” talk with it about any issues.
Investigate problems. If a problem should arise, find out why the performance is not up to par instead of terminating the relationship. You should strive for long-term partnerships. Think of it this way: your supplier is a stakeholder in your business, if you fail, he loses a customer and his sales go down. Therefore, it is important to maintain that relationship.
Taking on a supplier. You may decide to take on a new supplier if he has a new product or brings something different to the table. In general, it pays to not rely on a single supplier in case problems arise.