When a limited company is formed and starts to operate, they must have identified suppliers of the products the business needs for sale or manufacture. Sourcing suppliers can be difficult and time-consuming, but it is well worthwhile to spend as much time as needed to find suppliers who you can negotiate with for the best deals for the company. Value for money is key, as this will impact on profits in the future.
Although it can be a protracted process, you will reap the benefits by identifying suppliers who can offer the best prices. Be prepared and have a clear idea of what your business requires and how much you are prepared to pay in order to obtain reasonable profit margins. Suppliers can be sourced through the following:
- Trade magazines
- Directories which are accessible in libraries or online
- Local Chambers of Commerce
- Recommendations from friends, family and colleagues
It is vital to know your requirements and budget before you contact suppliers directly. You will usually ask for price lists initially for the products you need, enabling you to sit down and work out what the outlay is likely to be compared to your desired profit margins. Do not accept the first quote you receive and inform the supplier that you are ‘shopping around’. This tactic can often cause companies to compete against others, ultimately giving you a great deal.
It is obviously vital to ensure that the suppliers you negotiate with offer exactly what fits your requirements. Most businesses work to deadlines for their products and services, so it is important to ensure that your supplier can meet these. Most professional and genuine suppliers will be keen to give you the names of other companies they have contracts with. You can then contact some of these to ask whether the supplier you are considering is reliable and professional.
If you require large amounts of stock items, it is a good idea to ask the supplier if you can visit them at their premises. You need to be happy that they can easily supply large amounts of especially bulky items, so do not be reluctant to ask to see their warehouse provision. Again, if not offered, ask about their other clients. If they are confident they can fulfil your requirements, there should be no hesitation in revealing names. You should be aware that suppliers do go bankrupt and the warning signs can be a lack of clients and sparsely filled warehouses.
Building relationships with your suppliers
Over time, your suppliers will be vital to your business and you should aim to have an open and friendly relationship with them. It can be an excellent idea to invite your preferred supplier(s) to business meetings. This will help them feel an essential part of the company. Forging these relationships before committing to a long term contract can be invaluable. If you have a close relationship with your suppliers, they can contribute much to the business.
However, there is still the slight chance that the supplier may get into financial difficulties at some point, so do have another reliable supplier in reserve. You will not want to break your promise on a large contract, with all the lost earnings, penalties and potential bad publicity that could ensue.
Getting the best prices from a supplier
When dealing with a supplier, you will obviously look for the best deal you can negotiate. However, the best deal is not necessarily the cheapest. Be honest about your budget and the major features of the manufacturing process (if applicable) and your delivery process, including:
– How items are paid
– Quality of your manufactured products
– If a specific product is essential for your business?
– If the supplier can guarantee delivery according to your requirements?
Know your expectations before you negotiate with any supplier. This is essential so you can build a trusting relationship based on your hopes and their ability to fulfil your requirements. Keep to the Boy Scouts motto ‘be prepared’ when you are talking to suppliers. This transparency on both sides will ensure you enjoy a mutually agreeable arrangement for years to come.
When making your business presentation to suppliers
It is recommended that you include a small team of your staff when making a presentation to suppliers. This way, you can rely on an expert delivery of the presentation itself, and people who can ask and answer any questions which may arise from either side. This will also prove to the supplier that you are a professional organisation to do business with. Remember, the negotiations and eventual agreements are pertinent to both sides. By taking this route, you can eliminate uncertainty and misunderstanding.
Negotiating skills are important
If you are new to negotiation, the following hints will be useful:
1) Some suppliers will try the ‘hard sell’, especially if they sense any hesitation on your part. Before you know what is happening, you may have agreed to something you are not sure about. If you notice pressure beginning to build during the meeting or presentation, ask for a break to collect your thoughts.
2) Be aware that you do not have to agree to the initial offer when dealing with suppliers. Most of us have had experience of bartering, and this is the time to try this. There are several ways to try and reduce the unit costs etc, including negotiating lower ongoing costs or asking to eliminate features which are not required. It is not good business sense to pay for elements you do not need.
3) Before signing a contract, you should perform credit checks on the supplier you are considering. Any variance to what they claim could mean that they are being dishonest about the health of their finances.