Managing supply chains

33.1 Influences on the choice of suppliers 

Cost:

Cheaper supplies mean higher profit margins. The incentive to find a cheap supplier is huge for any firm; therefore, the price charged will be a key factor in the relationship between a firm and it's suppliers. Large purchasers may almost be able to dictate prices to their suppliers. This is because the qualities they purchase may account for most of the supplier's output, giving a huge amount of power to the buyer. However, for small businesses with limited purchasing power, the supplier may have the upper hand. The lower the purchase price, the lower the buyer's variable costs and therefore the higher its gross profits. 

Quality:

There is likely to be a trade-off between the price charged by suppliers and the quality of their offering. The cheapest supplier may be one with a poor reputation for the quality of its products or service. Choosing to use a supplier with quality problems is likely to lead to operational problems. Poor-quality quality supplies can lead to machinery breakdowns, along with poor-quality output. This can lead to worsening customer complaints, guarantee claims or reputation. Choosing the cheapest supplier may sow the seeds of long-term problems for a business.

Reliability:

Supplies at the right price and of a high quality may be of little use if they arrive late. It is important that a supplier can offer reliability to the purchaser. Failure to deliver on time can stop a manufacturing process or leave shop shelves empty. Suppliers' reliability will be easy access once a business has started working with them. However, a new business or a business sourcing new supplies may need to rely on word-of-mouth reoutation to inform its choice.

Frequency:

Depending on the type of business and the production system it uses, frequent deliveries may be needed from suppliers. Firms selling fresh produce will need to ensure that they are using suppliers that can supply and deliver frequently - probably as often as often as a new batch each day. Similarly, a firm that uses a JIT production system will need very frequent deliveries to feed its production system without it having to hold stock. For firm such as these, it makes sense to look for a local supplier, they are far more likely to be willing to deliver with a greater level of efficiency. 

Flexibility:

In a similar way to ensuring the right frequency of supplies, many firms will need to find a supplier with the capacity to cope with widely varying orders. Businesses selling products with erratic demand patterns, caused by changes in the weather or fashion, will need to find suppliers that can meet their ever-changing needs. Probably the most common scenario is to ensure that suppliers have the spare capacity avaliable to cope with sudden rush orders. A key to supplier flexibility is a short lead time.

Payment terms:

Most business treansactions are on credit, not for cash. If Tesco wants 2000 crates of beans, the bill is unlikely to…