Suppliers are essential to almost every business. Without raw materials to
make what you sell or manufacturers to provide what you resell, you will
have a tough time growing. There are also many supplies and services
your business consumes as part of general overhead, from paper clips to
Suppliers and vendors-the terms are used interchangeably here-can do
much more than merely supply you with the materials and services you
need to do business. They can also be important sources of information,
helping you evaluate the potential of new products, track competitors'
actions and identify promising opportunities. Vendors can turn into
partners, helping you cut costs, improve product designs and even fund
new marketing efforts. If you don't make selecting good suppliers and
vendors a part of your growth plan, you're likely to regret it.
Evaluating Your Suppliers and Vendors
Suppliers can be divided into four general categories. They are:
Manufacturers. Most retailers buy through company salespeople or
independent representatives who handle the wares of several different
companies. Prices from these sources are usually lowest unless the
retailer's location makes shipping freight costly.
Distributors. Also known as wholesalers, brokers or jobbers,
distributors buy in quantity from several manufacturers and warehouse
the goods for sale to retailers. Although their prices are higher than a
manufacturer's, they can supply retailers with small orders from a
variety of manufacturers. (Some manufacturers refuse to fill small
orders.) A lower freight bill and quick delivery time from a nearby
distributor often compensates for the higher per-item cost.
Independent craftspeople. Exclusive distribution of unique creations is
frequently offered by independent craftspeople who sell through reps or
at trade shows.
For many years, we have worked hard to build strong,
long-term relations with our suppliers, based on mutual trust and
transparency. This allows us to disclose the names and locations of
their factories without major concerns about the ongoing competition on
the best available production capacity in our industry.
In contrary, our experience showed that this step incentivizes our
suppliers for increasingly taking ownership over their sustainability
and that it recognizes the progress they make.
This is why we have gone even further now. Besides the names and
addresses of our direct supplier factories and any subcontracted
factories they might use, you can now also find the most important 2nd
tier suppliers. These are fabric and yarn suppliers-to-our-suppliers
that are involved in making about 35% of all products within the H&M
We hope that this step will further contribute to increased transparency
and sustainability in our entire industry.
What Makes a Good Supplier?
A lot of growing companies focus on one trait of their suppliers: price.
And price certainly is important when you are selecting suppliers to
accompany you as you grow your business. But there's more to a supplier
than an invoice-and more to the cost of doing business with a supplier
than the amount on a purchase order. Remember, too, that suppliers are
in business to make money. If you go to the mat with them on every bill,
ask them to shave prices on everything they sell to you, or fail to pay
your bills promptly, don't be surprised if they stop calling.
After price, reliability is probably the key factor to look for in
suppliers. Good suppliers will ship the right number of items, as
promised, on time so that they arrive in good shape. Sometimes you can
get the best reliability from a large supplier. These companies have the
resources to devote to backup systems and sources so that, if something
goes wrong, they can still live up to their responsibilities to you.
However, don't neglect small suppliers. If you're a large customer of a
small company, you'll get more attention and possibly better service and
reliability than if you are a small customer of a large supplier. You
should also consider splitting your orders among two smaller firms. This
can provide you with a backup as well as a high profile.
Stability is another key indicator. You'll want to sign up with vendors
who have been in business a long time and have done so without changing
businesses every few years. A company that has long-tenured senior
executives is another good sign, and a solid reputation with other
customers is a promising indicator that a company is stable.
Don't forget location. Merchandise ordered from a distant supplier can
take a long time to get to you and generate added freight charges
quickly. Find out how long a shipment will take to arrive at your
loading dock. If you are likely to need something fast, a distant
supplier could present a real problem. Also, determine supplier freight
policies before you order. If you order a certain quantity, for
instance, you may get free shipping. You may be able to combine two or
more orders into one and save on freight. Even better, find a comparable
supplier closer to home to preserve cost savings and ordering
Finally, there's a grab bag of traits that could generally be termed
competency. You'll want suppliers who can offer the latest, most
advanced products and services. They'll need to have well-trained
employees to sell and service their goods. They should be able to offer
you a variety of attractive financial terms on purchases. And they
should have a realistic attitude toward you, their customer, so that
they're willing and eager to work with you to grow both your businesses.
Changing Your Supplier Relationships
You can usually get discounts, obtain improved service and receive other
features you need by making a request of your current suppliers-although
it may not be as simple as merely asking. Here are some of the options
and negotiating strategies for turning mediocre suppliers into top-shelf
Getting discounts. If you walk into a department store and purchase a
pair of shoes, you'll pay the same price any other shopper would. But
business-to-business commerce is more complicated. Businesses that sell
to other businesses commonly have a whole range of quoted charges,
offering discounts of 50 percent or more depending on the quantity
purchased, the terms, the length of the relationship, and other
considerations. You may be able to comfortably conform to some of these
requirements, qualifying you for a lower price. To find out, ask about
discounts and what is necessary to earn them. You may be able to get
anything from an interest-free loan in the form of trade credit to a
substantial discount for paying early.
Improving service. It is the rare businessperson who knows exactly what
is happening in all parts of his company at all times or what is going
on with all his customers. You probably don't, and you shouldn't assume
your suppliers do, either. If you have a service-related problem with a
supplier, bring it to someone's attention. If you don't get
satisfaction, move up the chain of command until you get what you want
or are as high in management as you can get. Odds are, someone will be
concerned and possess enough authority to remedy the situation.
A better relationship. Not every customer wants to buddy up to
suppliers, so the fact that your suppliers aren't offering to work
closely with you to improve quality, reduce defects and cut costs
doesn't necessarily mean they don't want to. They may be under the
impression that you are the reluctant one. So if you want a tighter
working relationship with suppliers, let them know. You may also drop a
hint that those who don't want to work with you may see some of their
orders being diverted to those who are more agreeable. Either way,
you'll know whether it's your supplier's reluctance, or their perception
of your reluctance, that's getting in the way.
Unreliability. When a vendor's shipments start arriving consistently
late, incomplete, damaged or otherwise incorrectly, it's time to
consider looking for a new one. Every company has problems from time to
time, however, so check into the matter before dumping your vendor.
Vendors can experience temporary difficulties as a result of
implementing a new product line, shipping procedure or training program.
If you stick with a vendor through a rugged interval, you may be glad
you did. They might be more willing to see you through a future cash
Lack of cost competitiveness. Sometimes vendors fail to change with
their industries. When your vendor's rivals start coming in with bids
for comparable goods that are lower than your existing supplier's, you
need to investigate. Point out the issue to your existing supplier and
ask for an explanation. If you don't like what you hear, it may be time
to consider taking some of those offers from competing suppliers.
Insularity. Some suppliers will let you visit their plants, talk to
their workers, quiz their managers, obtain and interview references, and
even examine their financial statements. These are the kinds of
suppliers you should seek out. The more you know about your suppliers,
the better you can evaluate whether you should continue to do business
with them. If they shut you out, perhaps you should cut them off.
Extra-sale costs. The number at the bottom of the invoice is only the
beginning of the cost of dealing with suppliers. You have to lay out
money beforehand to draw up specifications, issue request for proposals,
evaluate them, check references, and otherwise qualify your suppliers.
You have to place the order, negotiate the terms, inspect the goods when
they arrive, and deal with any shortages, damage or other errors.
Finally, you may have to train workers to use the newly arrived goods or
purchase more equipment and material to make use of them. While some of
these costs are inevitable, some are traceable to individual suppliers.
If too many costs are being tacked onto the sale prices, check out some