Supply chain · 14 September 2015

Five things you need to ask of suppliers before buying from them

Don't put pen to paper unless you've thoroughly vetted a new supplier
Don’t put pen to paper unless you’ve thoroughly vetted a new supplier

Our sourcing suppliers expert outlines the critical questions to put to any potential supplier, before putting pen to paper.

Selecting new suppliers for your business is something that should be done with diligence and care, but often it’s easier said than done. I’ve pulled together some key questions to ask suppliers so as a micro business, you can put yourself in the best position possible from an early stage.

(1) What can you do for us?

This is absolutely crucial. You need to know that suppliers can do exactly what you need them to do for your business. So, it’s critical that you define your requirements very clearly, explain them well to potential suppliers and then ask them to clearly demonstrate they can do what you want.

(2) Where else do you provide this product/service?

It’s important to know about suppliers’ track records. Establish what other customers they have; what they do for those customers and how satisfied their customers are. And don’t be afraid to ask for references. You can discover a lot about a supplier by talking to an existing customer base. Of course you can ask them to put you in touch with some customers to find out about their experience. Whilst that will give you some level of comfort, you should ask some of those that the supplier doesn’t put you in touch with. Only then will you get a real sense of the quality of their service and how easy they are to work with.

(3) How will you improve my business?

You wouldn’t employ a new member of staff and not expect to see them add value to your organisation. The same is true of suppliers. You want to ask them to be specific about the improvements they will make – for example they may supply an enhanced service or product that will enable you to better serve your customers. They may provide a product or service that reduces your bottom line or if they don’t reduce your costs, they may make your costs more predictable.

(4) Is your business viable?

You need to ensure you ask the right questions about the supplier’s ability to operate, and importantly you need to continue to ask these questions throughout the duration of any contract with a chosen supplier.

Viability covers a number of elements:

Financial stability – Does the supplier make money? Does it have a healthy balance sheet? Health cash flow? How much debt is it carrying?

Operational infrastructure – Can the supplier meet the demand you are proposing to place on it as well as the demand it already has from its customer base?

Supply stability – Has the supplier created a robust and ethical supply chain? You need to know that they can still supply you at short notice for example, or respond to poor forecasting. You also need to know that the companies they buy from operate in an ethically sound manner, for example not employing minors.

Customer base – It’s important you ask the supplier about their existing customer base so you can understand whether or not they have an over-reliance on one or two key customers. You need to know how important your business is to them so you can be comfortable about the level of service you can expect.

Business continuity – A good supplier will show you their continuity plans and explain how they would work in practice. This is an essential check from a customer’s point of view. By choosing a supplier you are making them an integral part of your supply chain. Your customers do not care if it is your business or your supplier’s business that is the root cause of your inability to supply them. You are ultimately accountable for satisfying your customer and therefore also accountable for the performance of your suppliers.

(5) How much will it cost?

Finally, you need to know what the supplier will charge you, but this question is more than just asking for a price. You want to understand all of the charges that you will receive from a supplier because you need to determine if they are fair. Visibility is key – ask the supplier what will be the total cost of their product or service being delivered to you in the way you want it. Remember to include things like maintenance, service upgrades, exceptional orders and so on. Ask the supplier to show you the costs they will incur in the delivery of the service they will be supplying. Then ask them to show you the margin they will make. You want them to make a reasonable margin so they can continue to be a viable business. You don’t however want them to make an excessive margin. Of course, this is where the negotiation starts.

Following the above guidelines should provide a useful indication as to what any new supplier can offer to you and your business – minimising the risks of selecting an option that will harm your firm and possibly your relationship with customers.

Image: Shutterstock

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ABOUT THE EXPERT

Simon Dixon is the managing director of supply chain and logistics advisors Hatmill. He has worked in supply chain management for the past 19 years, both in industry and in consultancy. Simon's client experience includes the top four UK supermarkets and over 50 other clients spanning sectors such as construction and ecommerce.

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