August 7, 2012

Dealing with Suppliers

When shopping for suppliers for our S2 product, I was faced with some hard decisions: I was working in a start-up, I had no past supplier relationships, and did not have the resources to visit suppliers in person. I had to trust their websites and a few emails to make decisions about whether or not to work with them. I was in trial and error mode, which can translate into make or break costs when you’re a start-up. Supplier mistakes can really affect your cash flow and your schedule, and hence your whole business. Here are some tips for some of the product supply.

Quality Assurance & Customer Satisfaction

I had issues with suppliers every step of the way leading up to the product launch. The most deceiving one was when the product quality did not meet the requirements (Shipping boxes were the wrong size, parts of the product didn’t quite fit together, assembly instructions of subparts weren’t followed, and so on).  Were they bad suppliers or was it only miscommunication? I am still not sure. To avoid having errors in your order or poor quality products, ask as many questions as possible not just to make sure the product requirements are met but to gain insight into a supplier’  approach to customer satisfaction. What kind of pre-shipment testing do they do? Can you get a trial run or prototype made before ordering, or a sample sent? If they are confident about their supplies, they will be more than willing to show you what they have to offer (within limits). In my experience, even with specific descriptions of what I needed and followed up often over the phone, it seemed that some misunderstanding still came up and corrections had to be made. Possibly the more important thing I learned during this process was which suppliers were willing to make corrections at their cost for their mistake, or give me the refund I requested, and the ones who simply did not bother returning my calls.

Negotiate Payment Terms

This part is important in any business, but can really break you if you are a start-up. If you can create a chequings account and pay in 30 days after receiving your product, it allows you to better manage your cash flow, and will allow you to negotiate with suppliers if there are any issues with the shipment. In a small company, especially in a start-up, your suppliers don’t know you and may not trust you with a chequings account. They might require credit card payment even before the supplies are in production mode. In this case, you can negotiate including additional things in the package. If price and payment terms are not negotiable, you can deal on things like delivery time, shipping insurance, or refund policy for example. Establish what the priorities for your business are and try to include them in the deal.

Ask Others

Even if you have not dealt with a specific supplier before, try to see if you know anyone who has dealt with them and could give you an honest reference. You can even ask the supplier for references from some of his clients. If no one deals with the supplier you found, you might be safer sticking with people you have references or connections with. It will first allow you to establish a relationship to your advantage by leveraging people you have in common and second, you will know what to expect from them. If it happens that you are in a business where you don’t know people in the same industry that can hook you up, go with local suppliers. It will allow you to visit their offices, check out their product in person, and create a more personal relationship when meeting them face to face.  You also reduce your chances of having issues with shipping and handling if you can pick the product up yourself!

Create a relationship

Let them know you are a person, not a credit card number. Maintain regular contact with your suppliers, follow up, and coordinate with them. To create a trusting relationship, make sure the terms are as transparent as they can be and that you show a good image of yourself and your business by being punctual, thorough, polite, positive and reasonable. Be loyal to good suppliers and pay them on time. This will give you an advantage when dealing with them in the long term. Invite them to understand your product and your business; they might suggest better methods of doing things and new products that better suit your needs.

Suppliers can become a valuable ally. Chose them well and establish a positive relationship with the good ones. This being said, don’t put all your eggs in the same basket. You should never stop looking and shopping for new suppliers and better deals as you never know what can happen with your favourite suppliers. They might not be able to deliver on time, they might stop producing supplies you need, and they can go out of business. Keep notes of your dealing with suppliers during the trial and error stage and make a backup list of suppliers, your history with them, payments terms, prices, delivery times and overall relationship status.

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