SupportBiz lists 10 things that you should ponder before choosing a supplier for your firm.
1. Payment terms
One of the most important things you must consider while choosing a supplier is the payment terms. How soon are you expected to make payment for the raw materials you will be ordering? Determine whether the terms are suitable to a business of your kind. Find out if the supplier is willing to offer you a discount for early payments.
2. Other costs
While you are negotiating payment terms with your suppliers, you should find out if there are any other costs that you would have to bear if you purchase raw material for them. For instance, will there be a fuel surcharge? Will you have to incur any costs if you return material? Choose a supplier with whom you do not have to worry about any hidden costs.
3. Late delivery
Discuss with your supplier of choice the course of action you should take when the raw materials ordered by you do not arrive on time. If you have already purchased the material from an alternative source by the time they arrive, can they be returned? Is the supplier willing to offer you a discount on materials that get delivered late? Ensure that you are in agreement with the supplier on these aspects, before you decide to go ahead with him/her.
4. Bulk purchases
Is the supplier willing to provide you a discount in case you order a bulk of raw materials from him/her? Do not forget to discuss this aspect, while you are trying to decide upon a supplier for your business.
5. Changes in price
You should find out from the supplier of your choice the possibilities of a change in the prices of raw material in future. What factors influence a change in the price? Ensure that you are agreeable to the reasoning offered by the supplier before you agree to work with him/her.
6. Time allowed for inspection
Once the raw materials are delivered to your premises by the supplier, are you supposed to take immediate ownership of it? What is the time that you are allowed to inspect the raw materials and satisfy yourself whether they are in good condition? Make sure that you consider this aspect before you choose a supplier for your business.
7. Return policies
Have a detailed discussion with the supplier about the return policies that he/she has. Will you be able to return the unused raw material for a product that does not sell? Will you have to bear any charges for the same? Within what timeframe can you return such raw material? You should be in agreement with the supplier on these terms before you choose to trade with him/her.
Consider the profit margin that you will have on the finished product, after paying for the raw material and other charges. You should be able to make a decent profit, without raising the price of the finished product exorbitantly.
9. Long-term relationship
Make sure that the supplier will be able to provide you the required raw materials, at the agreed terms, for a long period of time. You do not want the raw material supply to stop, for any reason, after having invested considerable time and effort in creating a stable demand for the finished product.
Do find out if the supplier has got insurance coverage for the raw material, in case it malfunctions. Ensure that such insurance, if it exists, is renewed annually.