Supply Chains


A business or individual that provides goods and services to another business.

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Examples of Suppliers

Food Manufacturers - Raw materials and energy

Fashion Retailers - Suppliers of garments and landlords

Online Publishers - Authors and web designers

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Why Suppliers Are Important

  • Need an effective supply chain to meet needs and wants of customers.
  • Suppliers determine many costs of the business such as raw materials and distribution.
  • Suppliers closely linked to product quality.
  • Can be important source of finance to a business through trade credit.
  • For businesses which use lean production, effective relationships with key suppliers are essential.
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Factors Of An Effective Supplier

  • Price - Often considered most important as value for money is crucial. Lowest price not always best value however as it depends on quality.
  • Quality - Consistently high quality needed and the right product at the right time.
  • Reliability - Suppliers need to deliver the correct product on time and goods and services need to work as described.
  • Communication - Suppliers need to be easy to communicate with so orders can be placed and relationships can be built.
  • Financially Secure - Long-term relationships require the supplier to stay in business. May also offer better payment terms if cash flow is good.
  • Capacity - Need to be able to handle increased volumes of supplies/orders at short notice and peak times.
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Importance of Supplier Price

Suppliers need to offer competitive price so as to offer value for money.
Supplier prices can be pushed lower by:

  • Grouping purchases with fewer suppliers by using bargaining powers to get lower prices.
  • Ensuring suppliers compete against each other for regular orders.
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Strategic v Commodity Suppliers

  • Some suppliers strategically crucial to a business. This means the business cannot succeed without maintaining an effective relationship with the supplier. The goods and services are crucial to the business' success.
  • Other suppliers are commodity suppliers who provide goods and services which can be easily brought elsewhere and are not hugely important to the business.
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Example Business Suppliers

  • Car Manufacturer - Strategic suppliers include those which supply car components and energy whilst commodity suppliers are those offering office stationary and magazine advertising.
  • Fast Food - Strategic suppliers include those which supply local fresh produce and distribute the products however commodity suppliers are those providing cleaning equipment and refuse collection.
  • Car Hire - Strategic suppliers are the actual suppliers of the vehicles and IT systems but commodity suppliers are those providing office water coolers and the photocopiers at head office.
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Supplier Impacts on Performance

  • Low purchase costs lower the costs of a business.
  • Better quality is crucial for a business to satisfy customers.
  • Improved customer service can be achieved with fewer late deliveries.
  • Increased productivity such as fewer production delays and less wastage (lean production).
  • More flexible capacity achieved by businesses working with suppliers to meet sudden increases in demand.
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Suppliers and Cash Flow

  • Managing suppliers effectively helps a business to manage its cash flow.
  • Trade credit is where a business buys goods and services from a supplier and pays for them after a time period.
  • Extending trade creditor terms is a way of improving cash flow as it delays cash outflows.
  • Extending trade credit too far risks damaging supplier relationships.
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