Doing Better Business With Small Suppliers
PurchTips edition #141
By Charles Dominick, SPSM, SPSM2, SPSM3
Can You Predict Risk With Small Suppliers?
In PurchTips Edition #139, you learned that there are risks associated with doing business with big suppliers. Small suppliers do have certain advantages such as fewer channels to go through to get responses and sometimes even lower cost due to less overhead.
But you also need to understand that small suppliers can cause big problems when they perform poorly. Three precautions I recommend taking with a new, small supplier are: investigate the supplier's history, evaluate the supplier's capacity, and don't pay 100% up front.
Investigate The Supplier's History. I get shocked when buyers don't even do a quick Internet search on suppliers for small orders. That's inviting trouble.
Beyond Google, though, the Better Business Bureau (BBB) offers a valuable free service for consumers and corporate buyers to investigate supplier histories. "[The BBB can] help by collecting and reporting information on over 3 million businesses to help prospective buyers make informed decisions," said Warren King, President of BBB of Western Pennsylvania.
Through www.bbb.org, you can learn if a supplier has had any complaints filed against it and, if so, whether they typically resolve them. It's a great way to identify a problem supplier before experiencing problems yourself.
I recommend that you use the BBB to resolve disputes with suppliers. Doing so creates a "social history" of supplier problems so that all buyers can benefit from others' experiences and fewer mistakes will be made.
Evaluate The Supplier's Capacity. With small suppliers - especially 1-person firms - you have to worry whether they will have too much work to respond to you. Interview the supplier and find out their other commitments, both in progress and in the pipeline. Make them demonstrate their available capacity.
When doing business, you need fast supplier response. Before ordering, call the supplier a few times to test if the response time is adequate for "real" situations.
Don't Pay 100% Up Front. When capacity fills, a supplier must prioritize the customers that it will serve on time. If you're concerned about a new, small supplier's capacity filling, it's best to pay in multiple payments rather than up-front, even if you end up paying more. Having to earn a payment is a strong incentive for a supplier to deliver high-priority performance.
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