Finding suppliers for your business

Successful businesses have a thriving ecosystem of employees, suppliers, contractors, advisers, and other professionals all working together to mutual benefit. Building strong relationships with your suppliers is an essential part of keeping that ecosystem healthy. Here are some considerations for managing your suppliers.

A few major suppliers are likely to be critical to your business. For example, if you’re planning to start a manufacturing business, you’ll need supplies of raw materials. If you’re a retailer, you’ll need suppliers or wholesalers to stock your shelves with products. If you’re starting a service business, you may need to draw on the resources and skills of others to complete your projects.

But it’s important to think more widely, because behind most businesses there’s a whole web of suppliers which could include:

• The telco company you use for phone and internet services
• Digital providers, such as website designers and any experts you use to maintain and update your site
• Printers and suppliers of office stationery and other products
• Suppliers of packaging material for your product or service
• Suppliers of courier, transport, and shipping services for incoming materials and outgoing deliveries to customers
• Any other suppliers specific to your type of business.

Once you’ve identified your suppliers, make a list of the top five or ten and then consider these questions:

• Can you rely on key suppliers to supply consistent quality goods or services on time?
• What could disrupt their supplies or services? Think of issues such as strikes (both here and overseas), poor management, natural disasters, or economic slumps.
• Can you rely on them if their supplies are limited and in hot demand, or will they give preference to larger companies or longer-established customers?
• Can they keep pace with your growth? If you suddenly got an order for a container load of products on a tight delivery schedule, would your main supplier have the capacity to meet the deadline?

You can’t control how your suppliers run their businesses. But there are a few actions you can take with your key suppliers to make sure your own business isn’t disrupted, should they run into challenges.

If necessary, run a credit check to make sure the supplier’s business is solid. The last thing you need is for a supplier to go under while you’re waiting for critical supplies.

Check with your supply chain first if you suddenly win a large order with tight delivery times – they may be flat out on other work. As a result, you may end up paying late delivery penalties and losing the goodwill of the customer.

Look at setting up contracts with key suppliers if this is the best way to secure supplies or avoid volatile prices. Always run the contract past your lawyer before you sign to check that the terms are fair. Think carefully before signing long-term contracts, such as cell phone contracts that could lock you out of lower rates later.

Meet with your advisers to consider what’s critical to your business and how else you can guarantee secure supplies.

Sourcing a large proportion of your goods or services from one supplier can have benefits (for example, volume discounts or the benefit of a steady, long-term relationship). But if that supplier shuts up shop or goes under, your business might be left high and dry.

It's important to spread risk by having a range of customers; the same can be done with your suppliers too. Develop a ‘Plan B’ supply chain so your business isn’t disrupted if something happens with a key supplier. Here’s a few things to check off your ‘to do’ list.

Search online for backup suppliers who can provide a similar standard to your key supplier. Get samples to confirm they can match the quality of existing supplies.

Get quotes or tenders for supplies such as insurance, telecommunications, power, and other utilities. You can use your pricing research in negotiations with existing suppliers – many will be prepared to offer you a deal in order to keep your business.

If you use cloud services for accounting or other supplies, make sure you have backups so you can recover the data if necessary and continue operating.

It might pay to use contractors rather than undertake certain work in-house. This option can cut down on funding and staffing requirements in your new business and save you from having to buy assets that won’t be used all the time. For example:

• Contracting out part or all of a manufacturing process could save having to buy expensive machinery.
• Contracting out bookkeeping and payroll functions may make better sense than hiring a bookkeeper or accountant, especially if your team or business is small.
• Contracting out specialist tasks such as graphic design, software coding, or other service tasks could save the cost of developing the skills in-house and paying for downtime when work is light.

Weigh the advantages of contracting out against the disadvantages. Contracting out may mean your business remains dependent on subcontractors and never acquires the skills or capacity to complete the work in-house. You may also have less management flexibility and control over the work.

On the other hand, in addition to cost saving, contracting out can enable you to undertake work or projects that are otherwise beyond the resources of your business.

A good relationship with suppliers is just as important as managing your debtors well. Build a good credit history with suppliers by paying bills on time – it builds up goodwill, which can pay off in tough periods. 

Get up to speed on creating a cash flow forecast for your business (your accountant will be able to help). This will help ensure that your business has the cash available to pay supplier bills on time.

If you foresee a problem in paying a bill, approach suppliers as early as possible. They’re more likely to accept an arrangement if you’re open and honest about a cash-tight situation.

Once you build a good relationship, chat to suppliers about what is happening in your industry. They may know of important developments and opportunities, such as a competitor’s plans to expand or shut down.