Factors to consider when choosing a suitable supplier
Price
- Is the price affordable and offering value for money?
- Does the supplier offer price discounts for bulk orders or setting up a contract?
- Does the supplier offer free delivery?
Why is Price Important?
- If the cost of materials is too high, the price of finished products will increase and may become uncompetitive.
- An organisation must be able to cover its costs and make a profit.
How is Price Influenced?
Influenced by customer expectations:
- If the product is bespoke, then high price materials are to be expected.
- They should still be ‘value for money’ in relation to quality
Quantity
- Is the supplier offering raw materials of a standard that is fit for the purpose required
Why is Quantity Important?
- The quality of the finished product depends on the quality of the inputs and must reflect customer expectations and the price being charged.
How is Quantity Influenced?
Influenced by the desired image, and expectations of the target market. This would be less important if producing a product for a budget market.
Location of Supplier
- How far away is the supplier from the organisation (physical distance)?
Why is Location of the Supplier Important?
- The further away the supplier, the longer the lead-time and the greater the chance delays or damaged to inventory.
- Environmental issues may arise with suppliers located overseas and/or in third-world countries.
- The organisation may end up paying higher delivery charges.
How is Location of the Supplier Influenced?
- Influenced by the predictability of demand, and capacity to store.
- Customer expectations may be relevant e.g. some customers prefer to buy local produce to lower carbon emissions from food miles.
- Others may want to buy only from a Fairtrade supplier.
Lead Time
- What is the period of time between an order for materials being placed and the materials being delivered.
Why is Lead Time Important?
- The further away the supplier, the longer the lead-time and the greater the chance delays or damaged to inventory.
- Environmental issues may arise with suppliers located overseas and/or in third-world countries.
- The organisation may end up paying higher delivery charges.
How is Lead Time Influenced?
- Influenced by the predictability of demand, and capacity to store.
- Customer expectations may be relevant e.g. some customers prefer to buy local produce to lower carbon emissions from food miles.
- Others may want to buy only from a Fairtrade supplier.
Reliability/Reputation
- Will the supplier consistently deliver the right quantity and quality of materials in the agreed time scale?
Why is Reliability/Reputation Important?
- Production may get behind schedule, causing missed deadlines, resources lying idle and dis-satisfied customers if kept waiting for the product.
How is Reliability/Reputation Influenced?
- Level of reserve inventory the organisation is holding.
- The organisation may be willing to hold more reserves in return for the lower prices of less reputable suppliers.
Quantity
Can the supplier respond to a sudden increase in demand for raw materials?
Why is Quantity Important?
If there was a sudden surge in demand e.g. if the organisation is in a growth market, the supplier must be able to respond to a larger than usual order at short notice.
How is Quantity Influenced?
If the organisation can hold a reserve of non-perishable inventory, this may be less important.
Supplier Credit Terms
- How long a period of trade credit is being offered?
Why is Supplier Credit Terms Important?
- Longer periods of credit help cash flow management allowing time to produce and sell before paying the supplier.
How is Supplier Credit Terms Influenced?
- Influenced by the cash flow situation, and length of time taken to sell the finished product.
- The amount of inventory being purchased at once eg a larger amount may need a longer period of credit.
