Choosing a Small Business Supplier: Why Price Isn’t the Only Factor

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Loyal customers are worth their weight in gold, but you can’t achieve a strong customer base without quality suppliers. Like productive employees, good suppliers are also vital to a successful business. But how do you go about choosing a supplier for your business?

Consider the situation facing Scott, a plumbing contractor. He’s had the same supplier since starting the business, but he isn’t sure he’s getting the best vendor prices and wants to hire a new supplier.

What are the factors a business should consider when choosing a supplier? The typical response is to go with the lowest price, but is this the best approach?

Looking Beyond the Supplier’s Cost

Your supplier’s prices will affect how you price your products and services. For example, Scott’s new supplier offers lower prices than his original supplier, which will allow him to offer competitive prices. So he places an order and tells the supply house clerk that his mechanic will come the next morning for pickup.

The next morning, Scott’s $30/hour mechanic arrives with his $15/hour assistant, but the order isn’t ready. The clerk takes another 30 minutes to complete the order, putting Scott’s crew behind schedule. Though it may seem like Scott gained money because of the supplier’s cheaper prices, he actually lost money due to the delays.

The best price is a balance between cost, quality, service and reliability. The cheapest price doesn’t always win. If you’re constantly negotiating with your supplier for lower prices, you may find your relationship suffers as a result.

Owner chooses a supplier for his business by touring their inventory warehouse

5 Qualities You Need in a Supplier

After searching online, Scott found some potential new vendors. (Shopify lists some manufacturer directories if you’re planning a search of your own.) How can he determine if they’ll be a good fit for his business?

A good supplier should have these qualities:

Stability – How long has the company been in business? Do they have frequent employee turnover? You’ll want to know the company will be around for a long time.

Location – Depending on the type of business, is it important that the supplier is located close to your shop? For example, Scott needs a supply house close by to reduce drive time for his employees, but he can order office supplies online and wait a few days for delivery.

Competency – Is the supplier’s staff well-trained and knowledgeable about the products? Will they be a good source of information when you have questions?

Alignment – Should you buy from a large supplier who may not have as much time for your business, or should you select a smaller company where you would get more attention?

Financial stability – Is the supplier financially stable? Pull a credit report to get the rating.

Measuring a Supplier’s Performance

Here are several performance factors a business should consider when choosing a supplier:

Merchandise in stock – Take a tour of the supplier’s warehouse. Are the shelves stocked or do some bins look empty? Will the supplier always have the items you need in stock?

Fast delivery – Time is money. How long does it take for the supplier to process an order, assemble the items and deliver it, or have it ready for pickup? Consider the money lost when Scott’s employees were waiting instead of working.

Timeliness – Suppose you need prices to submit a bid to a contractor. How long will it take the supplier to get back with a quote?

Communication – Will you and your employees have open communication with the supplier’s personnel? Things don’t always go as planned, and dialogue is essential to quickly solve problems.

Reliability – Good suppliers will consistently process orders accurately and deliver on time. If they’re short some items, they will immediately notify you so you can make other arrangements.

Based on Scott’s needs, he decided to pay slightly more for a new supplier that was closer to his headquarters, and he funded the investment through a working capital loan so he wouldn’t tie up his cash flow.

When choosing a supplier for your business, you’re entering into a partnership that goes beyond the cost of the inventory. Good suppliers can help you cut costs, suggest different products and keep you aware of competitors’ actions. If it’s time to seek out some new suppliers, get to know the vendor beyond the dollar signs.

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