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Choosing the right suppliers and vendors to work with

A contractor shaking hands with his wood supplier.
Rotem Tal
Published at | Updated:

As a business owner, you’re in the driver’s seat of most aspects of the business. You get the chance to choose the employees you hire, the way your store or website looks, and even your logo and brand colors. One of the most important things you’ll need to choose is who you get your products, supplies, and services from, in other words, who your vendors and suppliers are.  

Businesses heavily rely on their suppliers, and choosing the right ones is critical to business success. In this guide, we’ll deep dive into the importance of choosing the right suppliers, and assess the factors a business should consider when selecting the supplier that works best for them.

What’s a vendor and why are they so important?

A vendor, service provider, and supplier are all one and the same, and in this guide, the terms are used interchangeably. They sell their services or products to a business and are thus an essential part of a business’s supply chain. Examples of common products or services sold include inventory, office supplies, equipment, and legal and accounting services. 

Smaller businesses can have anywhere between 1-10 vendors, while retail giants like Walmart can have over 100,000 vendors globally. Vendors provide the service or product to the purchasing business and then collect payments or send them an invoice with credit terms.

Showing how a transaction works between customer and vendor.

Selecting the right vendor

Choosing the right vendor can make or break your business. A bad supplier can reduce the quality of your products and services, damage customer relations, disrupt operations, increase costs, and lower your margins and revenue. 

A good supplier, on the other hand, will get you quality products and services that will either match your business needs or even exceed them. They’ll be reliable and honest, always answer your calls, and deliver their goods and services consistently at the right time and for the right price.

Whether you’re seeking out the latest in shoe fashion for your retail store or are in need of the freshest ingredients for your vegan food truck, making sure you have suppliers you can rely on is crucial. A good relationship with your produce supplier, for example, means the difference between getting the freshest veggies delivered early in the morning or the saddest of the bunch delivered later in the day.

Common types of vendor risk

 

Types of vendor risk and description: Operational, Compliance and regulatory, Information security, Reputation, ESG (environmental, social, and governance)

Criteria for selecting a vendor

When it comes down to it, you can really only assess how reliable your supplier is after you’ve been working with them for a while. If you’ve sold out of a certain product or need that special ingredient for a recipe, how many vendors will take your call after 5 p.m.? How many of them will turn the world upside down, just to make sure their client gets what they need to get through the weekend rush? It’s like the old saying goes “hard times will always reveal your true friends”. If you replace the word “friends” with “vendors“ the saying still holds true. 

So, the question of the hour is: what should you look for when selecting your vendors?

1. Price

As a business, your goal should always be to get the maximum value for the lowest possible cost–that’s a no-brainer. To make sure that you’re getting the best price out there, you need to do your research and get multiple offers. 

The number of quotes you need to make a precise decision is dependent on the service or product you’re in the market for. Once you have at least 3 different offers, you can compare the price to the service or product other vendors are offering.

Negotiating

Be cautious when vendors give you price estimates that are much lower than others. That might be a sign that the products, services, or supplies are of much lower quality. There might also be hidden costs that weren’t a part of the quote, like extra delivery fees or taxes. If the products you get are poor quality or you are unaware of fees, supplies might end up costing you more in the long run.  Communicate your exact needs, so that potential vendors can give you an accurate quote.

Be sure to be firm about your needs and don’t compromise on quality. Stick to your original goals, otherwise, you may end up buying a walk-in cooler, when really a simple fridge would have done the job.

The fine print

Make sure the quotes include a description of every item and component of the service. It should be stated if the vendor intends on adding maintenance fees, travel charges, or administrative expenses.

If the quote or contract is complex or has a high cost, it’s always worth having an attorney review it and help make sense of the terms for you. Always read the fine print—that’s where you may find some hidden fees.

2. The quality of a service or product

If you’re getting a sweet deal on a certain product or service, but their quality is subpar, then is it really a deal? Price doesn’t matter if the product or service is poor quality.

When applicable, request to see samples of your supplier’s products. If, for example, you own a clothing store and want to order a large shipment of jeans from a new supplier, ask for samples. That way you can feel the fabric, see the stitching, and even try it on to get the feel.

3. Customer support

Vendors with good customer service will be sure to keep you happy and will be attentive to your business needs. Always ask your vendors what type of customer service they provide. For instance, is it 24/7? Only open during certain hours? Monday to Friday?

Some businesses overlook this, but as a business owner, you know that the unexpected can and will happen. It might come in the form of an expensive tool breaking, or being stuck with limited raw materials for production.  

If you’re running a restaurant for example, and one of your stoves breaks down, you need your vendor to answer your call quickly and send someone to fix it before the dinner rush. If they don’t answer or can’t come to repair it in time, you stand to lose a lot of money.

4. Ethical standards

Your business’ integrity is highly connected to the people you work with, and as such, to the vendors you use. If you’re buying products from a factory that takes advantage of their employees and doesn’t pay them fair wages, that reflects badly on your business. The Better Business Bureau is a great resource for vetting prospective vendors.

A simple Google search can help you find out if there are any legal issues tied to your vendor. A search with your potential vendor’s name can provide a lot of important company information. The information can be either positive like a company’s involvement in charity events or fundraisers or negative like pending lawsuits. As with most things, it’s always best to know about any issues before you sign a contract and commit to a vendor.

Do your research

Now that you’ve figured out what to look for in a vendor, you still need to verify that they are the right fit for your business. You can’t judge a supplier solely based on their demos, samples, proposals, or bids. If for example, you choose a supplier that doesn’t meet your needs, canceling the contract and moving to a different vendor can temporarily halt your business activity and hurt your revenue.

Before closing any deal, do some research. Here are some tips on how to verify that your potential vendors are all they are cracked up to be.

Get recommendations

When you’re on the hunt to hire a vendor, you’re potentially looking for someone for the long run. It’s very similar to hiring an employee, that you want to be a dependable part of your business. And just like when hiring a new employee, getting recommendations for your vendors is always a good idea.

Word of mouth is always a great way to find a vendor. Trusted vendors are usually referred by colleagues or people in the industry. They’ll share honest opinions and often have answers to what you need based on a similar experience.

Ask around

If you just happen to find someone you want to work with, ask people in the industry if they’ve worked with them before. 

When asking around about the vendor, make sure to ask:

  1. Would you use them again?
  2. Were they on time for appointments or deliveries?
  3. Was their staff professional, polite, and responsive?
  4. How would you compare or rate the quality of their products or services?
  5. Were there any issues? And if so, how did they deal with them? Did they make it right?

If one of the answers you get feels a bit off or didn’t give you what you were looking for, ask follow-up questions. You’d be surprised how helpful most people are when it comes to finding a good supplier. If they enjoyed using them, you’ll hear a lot of praise. And if they didn’t, they won’t be shy about it.

Search for online reviews

Another good way of scoping out your vendor’s background is by looking online for reviews. These days, customer reviews and feedback are easy to find, and can give you an authentic depiction of people’s experiences.  If a customer had a bad experience with a vendor, they are usually more than happy to dish the dirt about it, online. Simply Google search for the vendor’s business’ name–what you find may surprise you.

Ask them for references

You can also ask the vendors directly to submit a list of references. If they can’t provide you with references or they show hesitation, that should raise a red flag.

Re-negotiate with current vendors

It’s not uncommon for certain vendors to raise prices after working with a business for a few years. So even if you already have a handful of vendors you enjoy working with, it never hurts to see what their competition is offering. 

Getting more quotes from competing vendors will provide you with more information regarding the price you’re currently paying. This can serve as a basis to negotiate a better price with your current vendor, find a new one, or help you realize that you’re currently getting a really good deal.  

Even if you’re getting a good price and quality service, it’s smart to ask your vendor for a discount after you’ve been working together for a few years.

What kind of supplier do you need: Single or multiple source supply?

It’s definitely easier to build a relationship with one vendor vs. multiple vendors over time. But what happens if they can’t provide you with the product you need when you need it? While buying the same products from one source has its merits, putting all of your eggs in one basket can be risky.

Let’s say you’re developing a website for your business. But, out of the blue, your graphic designer decides to go on a month-long backpacking trip in India. Are you supposed to halt your business until they’re back? Or, if you’re running a pizzeria and your vendor can’t supply the ingredients you need for your famous pizza sauce, should you change your recipe? 

While being loyal to your vendors is important, so is being loyal to your customers and to the service or product you provide them with.

Single source of supply

Using a single supplier means that you buy a specific product from one vendor, even if other suppliers can provide the same goods.

Advantages of using a single source

  • Improved negotiations and payment terms: When you only use a single supplier, you may have more flexibility during negotiations. For example, your vendor may offer your business special payment terms and deals, if you only buy from them.
  • Reduced costs: Having one source can reduce the cost of materials and products. It can also help lower your operational or delivery costs, which will free up your budget for other expenses.
  • Increased consistency: If you’re ordering the same product from the same vendor, your vendor will gain knowledge about your particular preferences over time. Consequently, this can improve product quality and consistency and will guarantee that each product looks and works the same way.
  • Enhanced brand partnership opportunities: Working with one vendor can tighten the relationship between both parties. If a business and a supplier have a positive relationship, they may create brand partnership initiatives. This means that each business will promote the other, which could increase both businesses’ brand recognition, customer base, and profits. If you own a law firm for example, and you work with a specific notary public, you can promote them to your clients, and the notary service can do the same for you. That way you both gain more clients and make extra revenue. 
  • Minimized administrative work: One supplier providing all of a business’s services and products simplifies the purchasing process. This entails less paperwork and fewer administrative tasks. Fewer invoices to manage can speed up your payment process, and save your business time that can be allocated toward other business activities. Plus, your credit card or preferred payment method is more secure since it’s only used for one vendor–if it’s charged for things you didn’t buy, it’s much easier to spot and trace those charges.  
  • Personalized vendor relationship: If you only work with one vendor, they may provide your business with specialized treatment. This can mean better payment terms and faster production or shipment of goods. It can really pay off if your business is looking to go to market fast or is in desperate need of materials.
  • Higher-quality services and goods: If you maintain a long-term contract with a vendor, they’ll most likely give you the best quality services and goods possible. In order to keep you as a happy customer, the vendor will go out of their way to make sure the goods they provide are up to your standards. 
  • Quicker supply-related problem-solving: When dealing with only one supplier, it’s much easier to monitor their performance and identify ongoing issues. This can help a business resolve issues faster, and more easily.

Disadvantages of single supplier source

Relying on one source for your products can expose your business to risks that you should be aware of. Common issues that may arise include: 

  • Risk of supply chain issues: This could be due to supply chain interruptions, political events, higher tariffs, and even environmental circumstances. 
  • Dependency between your business and the supplier: Just like with any other type of relationship, being overly dependent puts you in a vulnerable position. What happens if your sole vendor goes out of business or becomes unable to meet the demand? You don’t want your business’s success to be dependent on only one supplier.

If you decide to source from a single supplier, you may be offered a better service, but in the long run some vendors may become complacent and drop their standards. This can lead to lopsided dependency, when the buying company becomes more dependent on the supplier than the other way around.

Multiple source supply

Using multiple suppliers means that you’re purchasing the same product from more than one source. This can be beneficial for businesses that prefer to spread their demand between a number of vendors, in order to minimize risk and increase capacity. Multiple sourcing is also essential if one of the suppliers doesn’t produce all the materials for your production. Computer manufacturers, for example, source different parts from different suppliers. The keyboard and screen can be made by one company, the chips made by a different one, and a third company puts all the parts together.

Advantages of multiple sourcing

  • You have a safety net if your supplier can’t meet demand.
  • Competitiveness between suppliers over your business, which can help you negotiate better terms and get higher quality goods. 
  • Flexibility to handle unexpected events that could risk your business’s capacity.
  • More suppliers mean less bottlenecks, as one of them will always be able to meet demand.

Disadvantages of multiple sourcing

While multiple sourcing can benefit your business’ flexibility, capacity, and dependency, it can also complicate supplier relationships and require more resources to keep track of. As the number of your suppliers grows, so too does the complexity of managing them. 

Some issues that may arise are: 

  • Higher costs due to purchasing less from multiple suppliers.
  • Sharing information becomes more complex as you need to communicate with multiple vendors. 
  • Multiple contract negotiations, logistics management, and process execution lead to higher administrative costs. This means it’s harder to manage quality control.  

Working with more than one supplier adds complexity to the supply chain, but it also provides protection against certain risks. Finding a balance between these two concerns is a key factor in deciding your optimal supply chain strategy.

Research goes a long way

Establishing and maintaining strong vendor relationships is important so that your business can operate smoothly. After all, without access to raw materials or services, your business can’t operate. When looking for the right supplier, spend time doing your homework and asking the right questions. If you choose a supplier simply because their samples were impressive and their offers are reasonable, you may run into problems in the future. On the other hand, a reliable and honest supplier will always be available to answer your calls and provide you with high-quality products and services.

You now know how to find the right vendors.Now learn how to build solid vendor relationships

*This guide is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.