Staying Healthy During the Busy Season

A poorly designed product sourcing strategy can often be more critical to the survival of your business than negotiating an individual sale. Besides dealing with common factors like price, strategic sourcing guides you on how best to acquire quality components and reliable sources of supply.

Good preparation, clear objectives and an awareness of common pitfalls are all you need to identify with the right suppliers.

This brief explains to you how a good product sourcing strategy should address issues like supplier selection, Understanding supplier?s priorities, maintaining good seller-buyer relations.

Where to Source Suppliers

Suppliers should be easy to find, through: Existing suppliers or competitors? suppliers.
Trade journals, trade associations and Chambers of Commerce.
Directories ? in the library or on the Internet.
Business directory websites, such as thelocalweb.net or scoot.co.uk. The Used Equipment Network (buyused.com) has used machinery, from aircraft to cellphones.
Suggestions from friends and employees.

Make up a shortlist and write to each supplier, explaining your exact requirements.
Ask suppliers to send you product details, price lists and other relevant information.
You can often obtain better terms by letting suppliers know that they are competing for your order.

Understanding the seller priorities

At this stage, you probably have a list of respondents and you should be applying your sourcing strategy to find out how much each of your potential suppliers needs your business. Establish how urgently or soon you need the order delivered to your business premises.
Find out all you can about the state of your potential supplier?s order book.
For example, there may be spare capacity that the supplier needs to fill.
Identify what the supplier's likely objectives might be.
For example, a company moving into a new market may set out to build market share initially, rather than make profits. This may give you more bargaining power on price issues.

Determine the supplier's negotiating strengths. Define what the supplier can offer that you value. This may include: Availability ? for example, time-sensitive or immediate delivery.
Quality ? for example, a product with a track record or recognized brand name.
Other factors, such as exclusivity, after-sales service or flexible payment terms.

Be aware that the supplier's negotiating strength increases in direct proportion to your need for the product

Establish what the supplier will value most.
This may include factors such as: immediate payment.
Larger volume purchases.
A commitment to repeat orders.

Be alert to clues about what the supplier cannot concede to.

For example, if cashflow is tight, the supplier may be unable to offer you the flexible credit terms you would like.

You should leave room for anticipating the supplier's approach as a strength to your sourcing strategy. In other words: Assess what you think the supplier's negotiating strategy will be.
Find out what the supplier knows of any weaknesses in your negotiating position.

Match or Identify several suppliers you believe can offer the quality of product and service you need. Compare them in terms of: Product suitability and reliability.
Reputation, based on references.
Quality and flexibility of service.
Location and ease of communication.
Speed and frequency of delivery.
Price range and order size.

For long-term supply contracts, make the effort to visit those suppliers that seem to meet your quality standards.
To assess how they are likely to perform, ask yourself: Are they professional, or sloppy?
Do they have too much work, or not enough?
How eager are they for your business?
Do they have the necessary equipment and space to cope with your order?
Do they appear to be financially stable?

Your bargaining style will play a major role in determining the effectiveness of your sourcing strategy. Get quotes, including details like discounts and payment terms, to use in your negotiations. Ask them how often prices will rise, what influences will cause them to rise, and how you will be notified.

Once you have narrowed the choice down to two or three suppliers, negotiate prices, discounts and levels of service. For a healthy long-term relationship, do not negotiate too hard a price at the expense of quality.Building Supplier Relations

Being straight, pleasant and easy to deal with can be a critical factor in a sourcing strategy, and will likely get you good results.

Build rapport with the seller. Where possible, get to know someone before serious negotiations start.
Make it easy for your opposite number.
Find out what information he or she needs to be able to justify the deal.

Build partnerships with regular suppliers. Visit suppliers and get to know the people who deal with your account.
Invite regular suppliers to meetings and keep them informed.
Send regular suppliers copies of your internal phone directory.

Put most of your effort into: Supplies you will spend the most on ? five or ten items may account for 90 per cent of the money you spend.
Supplies crucial to your production.

Avoid over-dependency on one supplier. What happens if the supplier goes bust?
Alternative suppliers provide competition.

Give most of your orders to just a few suppliers. If appropriate, ask for bulk or cumulative discounts (eg if you order 10,000 units in the next year, you get a five per cent discount on all orders during that period).

Treat suppliers well and they will treat you well. Keep them up to date with your needs.
Build a relationship of trust.
Ask for their views and ideas.
Consider establishing long-term partnerships with key suppliers. Co-operate to improve the goods and services supplied and relevant procedures and systems.

The secret between you and the next door successful competitor you admire may lay in their sourcing strategy. Consider consulting your CPA for professional advise or contact us, for a diagnostic review of your existing strategy.