4 Things You Must Consider When Choosing a Supplier
These days we're all trying to save money by getting better prices from our suppliers. But is getting a better price always a better deal?
I can tell you from experience that price should be only one factor. Let's examine the four most important things to consider when choosing vendors:
1. Price - Yes, price is important. But if your supplier cannot make a reasonable margin on your business, then something is going to suffer. And if the supplier doesn't cut somewhere, he might find out too late and then put his entire business at risk. And that's risky for you if you don't have back-up suppliers.
2. Service - We are highly dependent upon our blinds manufacturers because we outsource the product. Over the past year we've been measuring the effect of fill rates, late orders, time to resolve an issue, and time to import invoices, and how all of these things affect not only our expenses but also impact customer satisfaction. We've been able to calculate direct correlations between our customer satisfaction scores and our supplier scores.
3. Quality - This applies not only to vendors' adherence to specifications, but also whether the product is packed adequately, labeled correctly, and includes agreed-upon marketing materials.
Most business owners know to look for these metrics but they seldom measure how well a vendor actually meets them. It's important for you to know the actual cost of a supplier's failure in any of these categories.
4. Alignment - It's this fourth category that many companies fail to consider. And it's just as important as the first three. We have about 20 suppliers. Three of them are considered first-tier in our industry and combined they represent the vast majority of market share. One of them suddenly decided this year to stop supplying us with a portion of their products. We've been buying from that company for more than 20 years. But here's the thing: The key decision makers have visited us only a few times -- and never in the last few years. We've asked them for ways to help us learn more about our customers with their research, asked for special promotions that would help both of our businesses, and offered to partner in any way they think would strengthen our business together. That's what partners do, right? But we've been consistently underwhelmed.
Then there are the two other suppliers. Both have visited us frequently to learn about us -- how we sell, what's important to us and to our customers, our core values, environment, and so forth. One of them even hired an outside consulting firm to find ways in which we could grow our businesses.
As a result, we've found together how their research, suggestions, programs, product assortments, and pricing can be used more effectively. Their insight into our business has enabled them to create incentives that make sense to both of us so that we can both grow profitably together. And we have. Since Supplier 1 vacated, the other two have more than filled the void -- with combined volume from the remaining two suppliers greatly exceeding that of all three before Supplier 1 left.
That's because these partnerships are better aligned -- on everything from providing customer insight and additional tools and processes, to developing unique promotions and volume incentives.
Do you have a supplier who will take your business, but only on his terms? It seems to me that when a supplier is not aligned with your long-term interest, then you should stop buying from him -- or at the very least, limit your buying.
Now that we've become the largest online retailer of blinds in the world, our purchasing power is a strategic competitive advantage. But it's not just low prices we get. We are now building true partnerships where our suppliers have just as much concern for our customers and our long-term success as we do. I'll buy that.
Photo courtesy of Flickr, by Alex Bellink
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