Supply Chains

A business or individual that provides goods and services to another business.

Food Manufacturers - Raw materials and energy

Fashion Retailers - Suppliers of garments and landlords

Online Publishers - Authors and web designers

• Need an effective supply chain to meet needs and wants of customers.
• Suppliers determine many costs of the business such as raw materials and distribution.
• Suppliers closely linked to product quality.
• Can be important source of finance to a business through trade credit.
• For businesses which use lean production, effective relationships with key suppliers are essential.

• Price - Often considered most important as value for money is crucial. Lowest price not always best value however as it depends on quality.
• Quality - Consistently high quality needed and the right product at the right time.
• Reliability - Suppliers need to deliver the correct product on time and goods and services need to work as described.
• Communication - Suppliers need to be easy to communicate with so orders can be placed and relationships can be built.
• Financially Secure - Long-term relationships require the supplier to stay in business. May also offer better payment terms if cash flow is good.
• Capacity - Need to be able to handle increased volumes of supplies/orders at short notice and peak times.

Suppliers need to offer competitive price so as to offer value for money.
Supplier prices can be pushed lower by:

• Grouping purchases with fewer suppliers by using bargaining powers to get lower prices.
• Ensuring suppliers compete against each other for regular orders.

• Some suppliers strategically crucial to a business. This means the business cannot succeed without maintaining an effective relationship with the supplier. The goods and services are crucial to the business' success.
• Other suppliers are commodity suppliers who provide goods and services which can be easily brought elsewhere and are not hugely important to the business.

• Car Manufacturer - Strategic suppliers include those which supply car components and energy whilst commodity suppliers are those offering office stationary and magazine advertising.
• Fast Food - Strategic suppliers include those which supply local fresh produce and distribute the products however commodity suppliers are those providing cleaning equipment and refuse collection.
• Car Hire - Strategic suppliers are the actual suppliers of the vehicles and IT systems but commodity suppliers are those providing office water coolers and the photocopiers at head office.

• Low purchase costs lower the costs of a business.
• Better quality is crucial for a business to satisfy customers.
• Improved customer service can be achieved with fewer late deliveries.
• Increased productivity such as fewer production delays and less wastage (lean production).
• More flexible capacity achieved by businesses working with suppliers to meet sudden increases in demand.

• Managing suppliers effectively helps a business to manage its cash flow.
• Trade credit is where a business buys goods and services from a supplier and pays for them after a time period.
• Extending trade creditor terms is a way of improving cash flow as it delays cash outflows.
• Extending trade credit too far risks damaging supplier relationships.