- Created by: JackBlack19
- Created on: 09-11-16 16:01
A business or individual that provides goods and services to another business.
Examples of Suppliers
Food Manufacturers - Raw materials and energy
Fashion Retailers - Suppliers of garments and landlords
Online Publishers - Authors and web designers
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.
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.
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.
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.
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.
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.
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.