20 percent of companies that open their doors in January will close them by December. That percentage gets significantly higher as time goes on.
There are a lot of reasons why good companies end up going out of business. The main reason is that their expenditures exceed their income. If you have a bad relationship with a supplier, the odds of you running into financial trouble can go up significantly.
External business partners are entities that you have limited control over who may have a big impact on your ability to operate. Consequently, supplier selection is extremely important from the onset and is a process that shouldn’t be taken lightly.
If you’re not sure how to go about engaging great suppliers, keep reading for nine bits of insight that can help you down your path.
1. Set Your Criteria
When you’re looking for a supplier, you shouldn’t be hopping from website to website to see how certain suppliers do business. You need to be the one telling companies how you do business so that suppliers who fit the bill can approach you.
Consequently, before you set out on your supplier search, define what you’re looking for in the way of order quantities, shipping, quality assurance, returns, and any other meaningful factors.
That way, you can make sure to attract a supplier that’s prepared to give you what you’re looking for.
2. Define Intricacies in Your Workflow to Attract Better Bids
The first step to attracting accurate bids is to draft up clear criteria which we just talked about. Once you’ve done that, the next thing that you’ll want to do is disclose intricacies in your workflow.
For example, do you require that suppliers wear protective gear as they transport glassware into your laboratory? That workflow specification might be something that you assume is the norm for a laboratory equipment supplier but might catch vendors by surprise.
The more specific that you can be regarding how suppliers can help prop up your existing workflows, the better.
3. Calls for Bids Can Be Published Widely
A lot of startups don’t know that it’s common to post what’s called a “Call for Bids” when you’re exploring supplier selection. These calls should outline your criteria and workflow intricacies.
In general, bid requests are either posted in trade publications, on a company’s website or in both places. Some companies will even put out press releases to help spread the word, although, the press isn’t likely to spread your call unless you’re a major business that’s of public interest.
4. Some Companies Will Engage Suppliers Exclusively
If you don’t have time to sort through a ton of bids and have an idea of who you might like to work with, you can skip putting out a mass call and instead engage companies exclusively.
Engagement can be initiated by sending an email to a supplier’s sales department. In this email, you can describe your company, what you’re looking for and ask if the recipient would be willing to submit a bid.
If the company that you’re engaging feels that they can comply with your criteria and workflow, you’ll likely hear back from them.
5. Price Shouldn’t Be Your Only Criteria
We tell startups time and again that picking a bid isn’t just about price. Price shouldn’t even be the primary factor that you look at.
There are massive amounts of suppliers out there that submit low bids to grab a business’s attention. What almost always happens when these low bids are accepted is that the supplier ends up billing for a number of unforeseen expenses.
This “bait and switch” tactic is not something that you want to deal with and can be avoided by understanding the fair market rate of the services that you’re looking for.
6. Estimates Can Be Exceeded, Quotes Usually Can’t Be
When you receive an estimate during the supplier selection process, it should be based on your supplier’s reasonable assessment of what their services are liable to cost. Reasonable assessments do not mean entirely accurate.
Estimates that come in around 10 percent to 20 percent over what was noted are common and are usually seen as reasonable.
Quotes, on the other hand, are binding if received in writing.
7. There’s Always Room for Negotiation
When you want to work with a supplier but find that a couple of their needs are deal-breakers, see if something can be worked out. Whether it be price, delivery timelines or anything else, a little bit of negotiation can go a long way when it comes to piecing together a successful business relationship.
8. Suppliers Should Be Monitored to Start
You never know if a supplier that impressed you during the selection process is going to turn out to be a dud in practice. Monitor your supplier over the first couple of months of your relationship to ensure that they’re following through on your expectations.
The sooner that you nip performance issues in the bud, the less likely that you’ll be to run into bigger problems down the line.
9. Productive Relationships Are Built on Mutual Respect
Remember, supplier relationships aren’t all about you. Your supplier is a business owner too that has goals and needs. Take the time to understand those needs and respect them.
If you do, you’ll create the foundation for a mutually beneficial relationship that can withstand the test of time.
Take Supplier Selection Seriously and the Rest Will Take Care of Itself
Supplier selection is something that you can either actively or passively manage. While passively hiring and managing suppliers can save you time, you’ll almost always run into price or performance issues with that mindset.
For that reason, we recommend putting effort into vetting and working with the external partners that you do business with. While doing so will certainly take more time upfront, you’ll find that your extra work ends up going a long way for your company.
For more insight that’s relevant to startups, read the newest content that we have published on our blog!
