Developing products in scales comes with challenges, and one of the first hurdles is deciding who to source from and how to go about it. Before writing a check, there are a few things to know, starting of with types of vendors. Once you know who to talk to, you need to figure out how to connect, select and create partnerships with vendors and when things are all said and done, analyze a vendors performance. That is exactly what this blog is going to cover.
Suppliers are an important component in healthy profit margins in business and a key component in strategy, such as in Porter's Five Forces. To better understand what type of vendor to work with, one must look at their market and the competitive landscape to determine the power suppliers have within a certain business environment and what vendor could give a competitive advantage. Manufacturers are businesses that create products (think Foxconn and technology), and can require a minimum order for many buyers, but do allow for a competitive advantage offering rare (VIRO) and less costly products. Wholesalers act as a middleman that purchases large quantities and resells the goods in smaller amounts to retailers. Wholesalers are more expensive, but can provide quick delivery, a range of products and offers less risk. Brokers create connections and sell the merchandise on behalf of a manufacturer to a buyer, and takes a percentage of the sales. Rack Jobbers are vendors who advise clients (i.e. supermarkets and department stores) on assortments not within the core offerings of a store. Rack jobbers take full responsibility for keeping a shelf and have more expertise than a retailers employee.
Finding a vendor is done through market trips, trade publications or word of mouth. It is important to think about the terms of an agreement, if the purchase will be on credit or if there will be a discount applied. Some sales deals will talk about service deals such as: cooperative advertising arrangements, advertising aids, return and exchange privileges, promotion sharing, sales training, stock control, and preticketing merchandise.
Keeping a vendor diary is also a good suggestion as it allows a buyer to keep track of communications and creates sustainability in the job, for the next person who steps into a buyers shoes and needs to re-evaluate their vendors.
Technology can help manage relationships between buyers and suppliers with electronic data interchange (EDI), universal product codes (UPC) and automatic reordering systems.
When thinking if you should source your tech (proprietary) from China, or silk dresses from Bangladesh, it is important invest in the relationship with suppliers. Do your research of your market, industry standards and what can give your company a competitive advantage. Go visit suppliers, get a sense of how different vendors operate. Define the terms your as a business owner need, is it delayed payments, exclusive products, quick delivery? Set objectives and build relationships that will help your business succeed and thrive.