By Eric Parker
When one considers the elements that lead to the successful start-up and development of a business/franchise, the role of the suppliers is often forgotten or neglected.
Every business/franchise will tell you about suppliers that really helped them in the early days both from a supply point of view and offering extended credit where necessary. One can only hope that these businesses/franchises remained loyal to those suppliers when they grew and became a success.
In our experience, these are the areas where suppliers have played a meaningful role in the business/franchise growth and development.
1. Suppliers are a wealth of information.
Some suppliers have been in business for many years serving your industry. If you build up a good, trusted and respected relationship with them you will be able to gather valuable insights. You could even speak to them when you are compiling your business plan and budgets.
2. Work with your suppliers so that they can give you superior service.
The communication between you and your suppliers is of vital importance. Do you meet with them regularly to give them your projected needs? Do you give them confidence that you value them and expect a long term relationship with them? Don’t always be holding a gun to their head in terms of trying to negotiate better prices.
3. Supply in times of shortages
There will come a time when the product supplied to you is in short supply. If you have a good relationship with your supplier, you could get preferential treatment and your products could be kept in stock. A word of caution though, it is preferable to spread your risk and do not become completely reliant on one supplier who could sell the business or go out of business.
4. Suppliers play an important role in the way your business/franchise is perceived in the market.
A big reputable supplier becomes part of your Industry. If they believe in your business/franchise, you could see it as a good word of mouth referral since they could be talking highly of your business/franchise. They can also market your business/franchise because often, their potential customers will ask them who they recommend as a supplier in your industry for example.
Being a good buyer
Part of the good relationship is to let the suppliers know that you are a hard but fair negotiator. There is an art to buying.
A good buyer will do their research to try and establish the suppliers cost of the product.
Example: If you have fried chicken food franchise outlets, you should establish the supplier’s cost of the chicken by breaking it down into costs of raising the chicken.
You would be able to determine changes in price if, for example, the cost of maize to feed the chicken increases you will be able to alter the cost of the chicken. You can then do a deal with suppliers e.g., cost plus 20%. This helps a buyer as they are not working in the dark and can negotiate off a real objective base.
Other areas where you can negotiate with suppliers are:
- The price, based on fact related to your understanding of the product costs.
- Rebates, often called confidential discounts, based in a sales growth target.
- Suppliers contributing to your advertising, normally of a promotional nature.
- Extended credit terms.
- Settlement discounts.
- Supply of consignment stock.
Giving credit, where credit is due.
You can make your suppliers feel valued. A good idea is to rate your suppliers on a well scored subjective scale. If you have multiple suppliers, you could host a supplier of the year function with suitable prestigious awards which could be very well received. You can have various awards based on size of supplier, categories etc.
You can market your award-winning suppliers on your website, in your newsletter and by spreading the word. On the other hand, the suppliers will market the fact that they won an award from your company which could give you some potential leads.
Should you ever fire a supplier?
Yes, if you have done everything in your power to maintain a fair relationship and the supplier does not respond. This often happens when:
- A supply company is sold to a new company.
- The senior management in the company is sold.
- The supply company is listed on the JSE and is put under extreme pressure to show short term gains for shareholders.
- You perceive that the supply company is favouring your competitor over you.
Please value and work closely with your suppliers. They are an integral part of your franchise and will contribute largely to your success.