1. Overview

There are many aspects to take into account while selecting and negotiating with suppliers. Your company objectives and strategy will determine how you prioritise and balance the significance of these various aspects.

This will assist you in determining what kind of provider you need, locating possible suppliers, and selecting your suppliers. It will also teach you how to handle your interactions with suppliers and get the most bargain.

2. Qualities to seek in a provider

When you are finding and shortlisting potential suppliers, there are many important attributes that you should consider.

Reliability and quality

You must maintain a constant level of quality in your goods since, rather than your suppliers, your clients will connect low quality with you. In the same vein, you risk disappointing your client if your supplier disappoints you with a defective product or a delayed delivery.

Speed and flexibility

Flexible suppliers enable you to react swiftly to unforeseen crises and shifting client needs.

Value for money

The greatest value for your money isn't necessarily found at the lowest price. You must choose the cost of your supplies and the ratio you want to achieve between price, dependability, quality, and service if you want quality and dependability from your suppliers.

Excellent customer service and transparent communication

Your suppliers must either deliver on schedule or, if they can't, they must be truthful and give you enough notice. The finest suppliers will want to have frequent conversations with you to learn about your requirements both now and in the future, and how they can better serve you.

monetary stability

Making ensuring your supplier has the cash flow to offer what you need when you need it, is always worthwhile. Checking their credit can make you feel more certain that they won't fail when you need them most.

3. Locating and selecting possible vendors

Suppliers may be found via a multitude of means. To provide you a wider range of options, it's helpful to compile a checklist of potential vendors from a variety of sources. Among them are:

• referrals from friends or professional contacts

• Listings

Trade organizations may provide industry-specific information. company advisors at Business Gateway can guide all aspects of the company. Exhibitions and trade publications are further resources.

Creating a supplier shortlist

You may create a shortlist of sources that fit your demands if you have a clear notion of what you need to acquire and have located a few possible vendors. 

• Are these providers able to provide what you need, when you need it?

• Do they have enough money?

• For what duration have they been in place?

• Do you know anybody who has used them and can vouch for their quality?

• Are they listed as authorized suppliers by the government or trade associations?

Once you've created a workable shortlist, speak with the possible vendors. Give a concise description of your needs and an indication of the volume of business you expect to put in the brief. After receiving the answers, evaluate the providers based on your top priorities.

Meet prospective suppliers in person whenever you can to learn more about how their companies run.

Verify if your supplier depends on other suppliers for essential parts or services, or if they will be contracting out any work to subcontractors. If so, you want to evaluate these vendors as well.

Keep in mind that your suppliers' labor and environmental records might be used to evaluate the reputation of your company. The ethical and environmental implications of your supply chain should be taken into account.

You should do due diligence on any supplier before signing a contract to ensure it can satisfy the terms of the agreement. It is advisable to do a credit check on prospective suppliers to make sure they possess the funds to fulfil your requirements on time. Obtaining recommendations for the provider from previous clients is also a smart move.

4. Negotiating with suppliers

Terms must be negotiated once you have chosen which vendors to engage with.

Make a list of the things that are most essential to you before you begin negotiating, such as the price, the delivery date, or the conditions of payment. Decide on what you are and are not willing to give in on.

Before starting discussions, your approach must be well thought out and documented. This will assist you in defining your objectives and determining when to walk away from a contract.

List the elements of the agreement that you are comfortable with as well as the topics you would want to explore before you begin negotiating. Request that the provider follow suit.

Avoid indicating too early in the negotiating process which points you are willing to give in on or compromise on. Rather, use them as negotiating chips and provide concessions in exchange for your supplier's concessions.

Insist that the supplier provides the beginning price as well as any information on any early-negotiation discounts. Make a modest counteroffer in response to any offer; never take the first one. The other side will probably return with an updated estimate. Never hesitate to inquire about additional options at the quoted price.

If the cost seems unusually low, consider the reason. Are the products made to a high enough standard? Are they worth the money? What kind of after-sales care can one expect?

Ask to have any features that you don't need to be removed from the package to attempt to negotiate a cheaper price.

To get a decent deal, you may also use your negotiating ability. For instance, you may request bulk discounts if you are a supplier's major client.

Squeezing the price too low might result in a bad contract; one method to do this is by threatening to stop the discussions. The supplier could have to make further cuts, including in customer care, which might end up costing you in the long term.

Write down the main aspects of any agreement you come to.

5. Creating service-level agreements with vendors

Service level agreements (SLAs) are contracts or agreements with vendors that outline the services they are required to provide, the quality of service that is expected of them, as well as the roles and priorities.

SLAs are legally binding commitments that are often included in contracts as one or more clauses or as a whole. SLAs apply to any supplier agreement in which services are delivered.

Standard service level agreements (SLAs) typically include the following: 

the service being provided; 

the standards of service; the delivery schedule; 

the supplier's and the customer's respective responsibilities; 

provisions for legal and regulatory compliance; 

service monitoring and reporting mechanisms; 

payment terms; the method of resolving disputes; 

confidentiality and non-disclosure clauses; 

and termination conditions.

SLAs often allow for compensation, most often in the form of service fee refunds, if providers fall short of agreed-upon service requirements.

Make sure to emphasize the most important aspects of the agreement when creating your SLA with your provider so that you may impose the harshest penalties on them.

You may sometimes have to accept the standard SLA offered by a provider. You may need to seek other providers or create backup plans in case the SLA is unable to provide the level of service you need.

6. Establishing positive rapport with vendors

Spending effort cultivating positive connections with your main suppliers will pay off. Think about carrying out the following actions:

• Have in-person meetings with your connections to learn about their businesses. You can see how your supplier can help your company more clearly if you are aware of how they operate.

• Stay in constant touch and inform them as soon as new items or strategic adjustments are made. They can adjust to such adjustments thanks to this.

• Find out whether they have any intentions to grow or expand. Does this have an impact on the products or services they're offering you?

• Assist your suppliers by putting in orders ahead of schedule, communicating deadlines clearly, and making timely payments.

• Ensure that your payment, inventory, and buying processes are effective.

• Be alert for any chances you may provide them; in a positive supplier-customer relationship, they will reciprocate.

•Your suppliers will work harder for you if you show them that you value their company. If you commit to using a certain provider alone, they could give you a better rate. However, if they fail, this might lead to serious issues.

Don't pass up chances that are available elsewhere. Keep an eye on the offers made by rival providers to ensure you have choices.

7. Terminating agreements with vendors

There are several grounds for breaking a deal with a provider. They could routinely fall short of your expectations when it comes to services or products, or you might be able to locate a more dependable or affordable source elsewhere.

To begin with, discover whether there are any penalties for ending the agreement early in the contract. Ideally, you will have agreed upon an exit provision that reduces your obligation to pay while drafting the contract. If not, the fines may essentially lock you into using that provider.

Switching to a new supplier with different systems or procedures might cause disruptions to your organization in addition to financial constraints.

To ensure a seamless transfer, make sure your current provider provides you with all the information you want. Try to arrange for your new provider to handle the switchover procedure on your behalf.

Consider the potential consequences of terminating a contract early during the contract negotiating phase to steer clear of such issues. When drafting significant contracts, you may want to consult an attorney.

To prevent alienating a supplier you may need in the future, it is a good idea to have policies in place for handling supplier contract termination.

Give the supplier an explanation for your contract termination. By decreasing the cost or improving the caliber of the products or services they provide, they may be able to present you with a better bargain while sparing you inconvenience.

See our outsourcing guide for more details.