Working with suppliers

• SUPPLIER- an organisation which provides a business with the materials that it requires to carry out their business activities e.g. raw materials
• JUST-IN-TIME- a system where items of stock arrive just in time for prodution or sale
• PAYMENT TERMS- the arrangements made about the timing of payment and any other conditions agreed between buyer and seller.

The key criteria that you must be aware of are:

• Price
• Payment Terms
• Quality
• Capacity
• Reliability
• Flexibility

For businesses operating in luxury markets the quality of supplies will be of utmost importance. 

They will accept the higher costs of a good supplier, knowing that they are more reliable and more flexible to their needs and able to provide a high quality product. 

However, a business trading in a highly competitive market will be more inclined to seek the cheaper deals with suppliers so as to cut their own costs and to remain competitive within the market. 

The risks of this are that cheaper suppliers might be cheap due to greater inflexibility, poor reliability or inferior quality product. 

a business will set key measurements for their suppliers in relation to reliabilty. These might include:

• consistent quality
• reliable delivery of goods
• accurate quantities of supply

Businesses will look for evidence of a suppliers history in meeting customer orders and they might build-in penalty clauses into any contract to minimise the financial implications of mistakes.

as a business grows, its important that its supplier is able to meet its changing needs. 

A good supplier relationship should allow them to plan for changing product requirements in terms of quantity or specific modifications to a product.

A supplier also needs to be able to cope with sudden and unexpected changes in demand. 

the role of suppliers in improving operational performance

Unit Costs

• raw materials are one of the major costs of a manufacturer so competitive suppliers with good credit terms are sought after. 

Quality

• Consistency and evidence of quality standards plus general reliability and flexibility are qualities which are in great demand. 

Capacity Utilisation

• a supplier must offer a reliable and flexible means of a firm increasing or decreasing their output at short-notice to satisfy customers.