Many businesses concentrate on customers and neglect their suppliers. In fact there is much to be gained from establishing good communications with reputable suppliers. This guide reviews the benefits of good supplier relationships and steps you can take to build rapport with your suppliers.

Choosing a supplier

Make the task of selecting a supplier easier by working through this checklist. The qualities most people look for in a supplier are:

• Reliability. You can’t do business if you’re unsure when goods or services will arrive. Look for a supplier who is dependable and consistent: always able to meet delivery deadlines and commitments.
• Quality. Avoid the shoddy at all costs. Your business reputation is on the line if goods or services are of poor quality. People will blame you, not the supplier. Plus all the problems that accumulate from complaints, lost customers, returns and repairs make quality essential.
• Value for money. There is a trade off between price and quality. Clear your mind by focusing on long-term benefits rather than short-term profits. Your aim should be to stay in business, not make a quick dollar.
• Just-in-time (JIT) delivery. Is the supplier capable of JIT delivery? If so, you can cut down on your inventory costs and free up working capital. It’s better to have the goods sitting in the supplier’s warehouse than yours.
• Back-up and service. Check that suppliers stand behind their products or services and that they will continue to stock spare parts for products for at least the expected lifetime of the product.
• Promotional support. Is the supplier prepared to help you with brochures, cost of advertising, free products or services for special events and promotions, etc?
• Branding. How well known is the supplier in the marketplace? For instance, if the supplier has a well-known brand, can you add the brand logo to your brochures, website and stationery to build your own credibility?

Environmental concerns

Environmental issues will become increasingly important. All things being equal, choose the supplier who is the most environmentally responsible. For example, one that:

• Uses renewable resources and recyclable materials (for instance, exploiting rainforest hardwoods is no longer acceptable in the marketplace).
• Accepts consumables back for recycling.
• Meets or exceeds environmental codes.
• Does not use toxic chemicals or manufacturing processes that harm the environment (such as ozone destroying chemicals)
• Produces goods in a non-exploitative way. In recent years, for instance, some international brands have been attacked for manufacturing their products in third world factories that use child labour.

The last thing you need is for an environmental group to seize on one of these issues: the results could be very damaging to your business.

Competitive advantage

On the other hand, your choice of an environmentally responsible supplier should be cited in your brochures and built into a competitive advantage. If the supplier uses eco-labelling (products are organic or biodegradable, etc.) make good use of this in your promotional material.

Evaluating alternative suppliers

The Internet provides a good resource for finding alternative suppliers. But remember to carry out thorough checks if you’re dealing with overseas suppliers. It is easy to get ‘taken for a ride’ when you’re dealing with a business half a world away.

You can source alternative suppliers too through your business networks, by visiting the library to research trade directories, or by contacting similar businesses (perhaps in a different city or town) and asking them who they use. Also contact your local Business Enterprise Centres, because some keep databases of local suppliers who could meet your needs.

If you’re considering a new or unknown supplier, include a background check to:

• Find out how long they have been in business, their credit history and their reputation in the marketplace.
• Ask for product samples to check quality.
• Ask for references from other businesses they supply and contact these businesses.
• Satisfy yourself that they have a proper spares and back-up capability and offer appropriate warranties or guarantees.
• Work through the items on the previous checklist as well.

Contracting for supplies

Having found a new supplier, you need to specify your requirements. A golden rule in business is that clarity in communications prevents many disputes. This holds particularly true if you’re dealing with overseas suppliers who might speak a different language. There is much to be said for a written supply contract that:

• Spells out what is required, when it is required, where and how it should be delivered.
• Specifies the required quality standards (for example, delivered goods must match a supplied sample).
• Sets out the terms of payment clearly.
• Includes any other appropriate conditions (such as arbitration procedures if there is a dispute).

Ask your legal adviser to check the supply contract you draft for suitability. If things do go wrong, be firm but fair. There is no reason for you to accept less than you have specified in the contract. Try from the outset to make your requirements as clear and specific as possible. Your aim should always be to avoid getting into legal disputes.

Dealing with large suppliers

Small businesses often feel at a disadvantage in dealing with a large or monopoly supplier because they lack the ‘clout’ that volume buyers gain. One way round this is to create buying alliances with similar businesses sourcing from a large supplier, so that you can gain volume or group discounts.

Think also of the advantages that large suppliers offer rather than disadvantages. Can you trade on their credibility in the marketplace, use their logo on your stationery and promotional material (remember to always seek permission when using another business’s logo or business name) and/or ask for help with advertising, signage and promotions? Nurturing good relationships with suppliers’ sales representatives can also bring you the kind of benefits discussed in the rest of this guide.

Developing a relationship

There are a number of good reasons for building a closer relationship with your suppliers. For example, if you establish a good credit history through prompt payment of suppliers’ invoices, you are in a better position to negotiate preferential terms. You might, for instance, then approach them to:

• Give you better cash terms or discounts.
• Allow you extended credit for goods or services supplied.
• Support you with promotional subsidies in the form of shared advertising, signage, etc.

In addition, a good relationship with your suppliers will stand you in good stead if you experience a cashflow problem. It is easier in such a case to ask the supplier to wait or to accept a part payment of an invoice.

Building a closer relationship often means just simple things. It doesn’t take much to build rapport with suppliers’ sales representatives by treating them courteously. For many sales representatives this will be a novelty, since they are used to off-hand or brusque treatment and they are likely to warm to you. If you find that they tend to call at inconvenient times (for example, when your business is full of customers) then simply ask them to make an appointment before they call. But when they do arrive, give them some time and offer them coffee or tea. A good relationship with sales representative will pay dividends. For example, you might find that you have over-ordered an item. In such a case the representative might be willing to taking some of the stock back, either permanently or temporarily until trade and/or your cashflow position improves. In addition, you’re in a better position to:

• Get first notice of special deals and close-outs (stock lines being discontinued) or discounts.
• Get advance warning of market changes or new products that the supplier is bringing to the market.
• Ask if they can help out with training of your staff or customers, or new product demonstrations.
• Lend you equipment or goods for special demo evenings to build sales.
• Tell you about promotions and tactics that their other customers have used to good effect.

It’s a good idea to keep a log of any glitches or niggles in your relationship with suppliers, so you can correct these the next time.

Building a partnership

Although it is tempting to switch suppliers when better terms are on offer, there is also the longer-term view to consider. If you frequently switch suppliers, you never get the chance to develop a meaningful relationship with any one supplier, and suppliers will have no particular reason to show any loyalty or special favours towards your business.

Many businesses - especially smaller businesses - are building a competitive advantage by developing their relationship with key suppliers into something like a partnership. You are after all both after the same ends: to gain more business, so it makes sense to view your shared aims as a partnership rather than as a supplier/customer relationship. Smaller businesses especially have much to gain in the way of competitive advantage from strategic alliances with key suppliers.

Negotiating on price and other issues

There is a natural tendency for a business to neglect the supply chain once it has been satisfactorily established. We all feel more comfortable dealing with the known and the familiar rather than the unknown, and we expect an established relationship just to ‘continue as normal’. But the business world is never static. Even in an established strategic alliance there is no need to be complacent about the relationship. You can still let your suppliers know that you are aware of other possibilities or alternatives in the marketplace in case they take your business for granted. It’s also good practice to:

• Review prices and other supply conditions regularly.
• Ask for more favourable terms.
• If the supplier won’t negotiate on price, ask about subsidies (advertising rebates, free promotional material, or product/services, etc.).
• Keep alert for changes in the market that may require you to review your whole supply situation.

As with any other relationship, your business relationship with your suppliers needs regular attention if it is to prove most effective for your business. The best results occur when both parties are prepared to contribute towards the partnership.

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