1. Working with Suppliers

2. What this topic is all about
• What is a supplier?
• Factors to consider in
choosing a supplier
• Working effectively with
suppliers to improve
business performance

3. What is a Supplier?
A business or individual
that provides goods and
services to another
business

4. Suppliers - Examples
Example Business Typical Suppliers
Food manufacturer Raw materials
Energy (electricity, gas, light)
Fashion retailer Suppliers of garments
(wholesalers)
Landlord (shop lease)
Online publisher Authors
Web host & website designers

5. The Supply Chain – Simple Example
Indian Customers
Restaurant

6. The Supply Chain – Complex Example
Publishing a Newspaper
Origination Publishing Manufacture Distribution Retail
Primary Activities
Originating of Commission and Printing and Warehousing, Purchasing
content acquisition of reproduction stock control and
Stock Management
content delivery to the
points of sale POS, display and
Co-ordination of
(“POS”) marketing
design production
and promotion
Control of content
rights
Support Activities
Procurement: Editorial management; sourcing writers
Human Resources: Recruiting, rewarding, developing, firing
Technology: Publishing design software & associated hardware; maintenance of content archive; online
Infrastructure: Organisational design, finance, general management

7. Why Suppliers are Important
• For a business to meet the needs and wants
of customers, it needs an effective “supply
chain”
• Suppliers determine many of the costs of a
business (e.g. raw materials, distribution)
• Suppliers are closely linked to product quality
• Suppliers can be an important source of
finance to a business (trade credit)
• For businesses that use lean production
techniques, effective relationships with key
suppliers are essential

8. What Makes an Effective Supplier?
Factor Characteristics of an Effective Supplier
Price Often considered the most important
Value for money is crucial
Lowest price not necessarily the best value – depends on
quality
Quality Consistently high quality
The right product at the right time
Reliability Delivers the correct product on time
Goods and services work as described
Communication Easy to communicate with supplier – e.g. place orders, develop
trading relationship
Financially Long-term trading relationship requires supplier to stay in
secure business! Also more likely to offer better payment terms
Capacity Ability to handle increased volumes of supply, perhaps at short
notice

9. The Importance of Supplier Price
• Textbooks like to emphasise importance of
non-price factors (e.g. reliability, quality,
location)
• But suppliers must offer a competitive price
(value for money)
• Supplier prices can be pushed lower by:
– Grouping purchases with fewer suppliers (use
bargaining power to get lower price)
– Ensuring suppliers compete against each other for
regular orders

10. Strategic versus Commodity Suppliers
• Some suppliers are strategically crucial to a
business
• Strategic = the business cannot succeed
without maintaining an effective supplier
relationship. These goods and services are
crucial to business success
• Other suppliers can be regarded as
“Commodity Suppliers” – they provide goods
and services that can easily be bought
elsewhere and which are not hugely
important to the business.

11. Example – Strategic v Commodity
Example Business Strategic Suppliers Commodity
Suppliers
Car manufacturer Car components Office stationery
Energy Magazines
(advertising)
National chain of fast Local fresh produce Shop cleaning
food sandwiches Product distribution Refuse collection
UK-wide car hire Vehicle suppliers Office water coolers
company IT systems Head office
photocopiers

12. Choosing a Supplier – Sources of Info
Source Why
Word of mouth Often the best – a recommendation from another business (not
necessarily in the same market). Note: a recommendation can be
positive or negative!
Trade associations Most industries have a trade body that provides directories of
businesses operating in the market. Sometimes they have an
“approved supplier” list
Exhibitions Traditionally popular way of meeting several potential suppliers at the
same time in the same place
Trade press + trade Websites, newspapers and magazines dedicated to a particular
websites market or industry
Directories E.g. Yellow Pages. A good source of suggestions for “commodity
suppliers” but not particularly reliable for “strategic suppliers”
Direct marketing + Introductions from the promotional marketing activities of suppliers.
advertising Often aimed at generating an introduction from a sales representative

13. Contracting with a Supplier
• Relationships with strategic suppliers are often
formalised in terms of a supply contract
• Contract sets out how a business and its supplier will
work together
• Key contents of a Service Agreement:
– What is to be provided (the product or service) – precise
description required, including quality standards to be met
– When – delivery timetable (including milestones where
appropriate)
– How much – pricing & payment terms
– Source of supply – any restrictions on materials to be used (e.g.
ethically sourced)
– Disputes – procedure for disputes and how they will be resolved
– Termination – how & when a supply contract will be terminated

14. Suppliers & Better Business Performance
Lower purchase Better prices from a supplier lower the
costs costs of a business
Better quality Crucial for a business to satisfy customers
Improved E.g. fewer late deliveries
customer service
Increased E.g. fewer production delays, less
productivity wastage (lean production)
More flexible E.g. ability of a business to work with
capacity suppliers to meet sudden increase in
demand

15. Suppliers and Cash Flow
• Managing suppliers is linked to managing
cash flow
• Trade credit = where a business buys goods
and servicers from a supplier and pays for
them later (e.g. 60 days)
• Extending trade creditor terms is a way of
improving cash flow (delays cash outflows)
• However, extending trade credit too far risks
damaging supplier relationships

16. Test Your Understanding
http://www.tutor2u.net/business/quiz/workingwithsuppliers/quiz.html

17. Working with Suppliers