Relationships with suppliers
Most businesses donât produce a product completely. Instead, they have suppliers that supply some of their raw materials or componentA part that when put together makes a product.. Finding suppliers that can meet all of a businessâ needs is essential for a business to remain competitive and successful.
There are five key factors a business needs to consider when trying to build a relationship with a supplier:
- Cost is a vital consideration. If a business can get supplies cheaply, this keeps its variable costsVariable costs are expenses a business has to pay which change directly with output, eg raw materials. low, allowing it to maintain higher profit marginThe amount by which sales is greater than costs.. Often, the more products businesses buy from suppliers, the more power they have to negotiate discounts.
- Quality is essential, even when a product is marketed as a âbudgetâ or a low-cost option. For example, whether a business is making a gourmetRefined and elaborately prepared food. or supermarket own brandA product that is packaged and marketed under the brand name of the supermarket. bar of chocolate, the quality of the raw products must be considered. Businesses need to make good-quality products that customers want to buy, but at different price points.
- Delivery is also important, as the products that are ordered have to arrive on time. For manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock. To avoid this, some businesses fine suppliers a small percentage of the value of any late deliveries. Businesses want quick delivery with minimal lead timeThe time it takes from ordering stock for it to arrive. so suppliers often set up their businesses near their customers. For example, Silicon Valley is made up of technology companies such as Apple and Facebook and their suppliers.
- Availability and capacity of suppliers to meet an unexpected increase in orders is very important. For example, during a heat wave, a local corner shop might increase the quantity of ice creams and ice lollies it orders, and it would need its suppliers to meet the demand.
- Trust between the business and the supplier is needed, as many businesses buy using trade creditThe ability to buy stock now and pay for it at a later date. to allow time to sell products to customers before paying their suppliers. Businesses also need to trust their suppliers to keep designs and other information confidential.