An important decision that has to be made early on in the process of starting your business is the selection of a supplier(s). Without consistent and reasonable suppliers, you cannot provide your end product or service, which makes satisfying your customer nearly impossible. A mindful selection process will prevent future misunderstandings and financial mistakes. Take the time to research your potential suppliers by following the basic steps below.
Identify the Needs of your Business
Ensure you understand and are able to communicate what you need in the relationship. Be wary of sales pitches that may offer you products you do not actually need. Aside from the actual product(s) that you need to purchase, consider other expectations your supplier may need to fulfill. Think about what you would require in terms of:
- future product assortment offering
- availability of supplier deals and volume discounts
- order turnaround time
- shipment accuracy timeliness and reliability
- method of shipping goods and delivery / pickup locations
- prepayment and credit options
- availability of cash discounts to reward early payment of credit
- policy on defective, damaged, non-selling, or overstocked merchandise
- advertising support
- supplier locations
- exclusivity agreements
- communication methods and frequency
- product quality and control
Identify Potential Suppliers
Before making contact with potential suppliers, create a list of who you’d like to work with. You can find suppliers through a combination of:
- Attending business events, workshops and tradeshows
- Joining trade and business associations
- Reviewing directories such as the Government of Canada Directories of Canadian Companies
- Talking to a SK Startup Institute Advisor to acquire listings
Create a Shortlist of Suppliers
Once you’ve got a clear idea of what your business needs, and you’ve identified some potential suppliers, organize your list based on your preference. When considering who you should shortlist, ask yourself the following questions:
- Can the supplier deliver what you want and when you want it?
- Is the supplier financially secure?
- How long have they been established?
- Do you know anyone who has used and can recommend them?
- Is the supplier on any approved lists from associations or government?
Typically, buying from a strategic group of suppliers over the long term, and more frequently, will reap benefits that will be lost if you buy from many suppliers less often. Your business will become increasingly important as your own business grows, and trust can be built that may result in discounts, free product or expedited shipping. In contrast, exclusivity may make your supplier think your business is granted and ignore their service and product standards.
Your shortlist should be no more than five candidates.
Approach your Preferred Suppliers
Once you have a shortlist, start reaching out the potential suppliers. It’s best to provide them with a clear brief summarizing what you require, how frequently you’ll require it and what volume of business you hope to place. Viewing your supplier as strategic partner will benefit both parties, so take this approach if you are unsure how they will react to you. Remember to:
- Get a quotation including discounts for long term or high volume
- Compare potential suppliers against what your needs are
- Ask about product quality and sources of materials
- Ask about where the product is made and who makes it
- Consider fringe factors like reliability, financial security and communication
Wherever possible, it is always a good idea to meet a potential supplier face-to-face and see how their business operates. Understanding how your supplier works will give you a better sense of how it can benefit your business. Keep in mind that your business’ reputation may be judged on the labour practices of your suppliers. It makes good business sense to consider the ethical dimensions of your supply chain.
Negotiate Terms and Conditions
In some cases, you may want a written contract outlining both parties’ responsibilities and expectations. These may include:
- After sales service
Review your initial list of business needs and priorities before you start to negotiate. Decide what you are and aren’t prepared to compromise on.
Drawing up a Contract for your Purchase
Consider formalizing your agreement with a written contract. This is not necessary in every case, but if you are investing in a long-term, lucrative relationship, you may want to protect it with a written agreement.
Typically, your supplier contract will include price, quantity, payment terms and delivery schedule. It may also include a clause stating the supplier’s right to ownership of the goods until they’re fully paid for and a clause limiting the seller’s contractual liability – taking into account the purchaser’s statutory rights.
The contract may also include contingencies such as breakage during transportation, replacing individual faulty goods and delayed or back orders.
Lastly, consider your exit strategy. What are the terms to ending the relationship?
Lawyers are experts in contract writing and negotiation, so consider getting legal advice before you sign anything. Depending on who holds the bargaining power in the relationship, the terms and conditions used may be your own, the supplier’s or a mixture of the two.