Working with Suppliers
What this topic is all about <ul><li>What is a supplier? </li></ul><ul><li>Factors to consider in choosing a supplier </li...
What is a Supplier? A business or individual that provides goods and services to another business
Suppliers - Examples Example Business Typical Suppliers Food manufacturer Raw materials Energy (electricity, gas, light) F...
The Supply Chain – Simple Example Indian Restaurant Customers
The Supply Chain – Complex Example Origination Publishing Manufacture Distribution Retail Primary Activities Support Activ...
Why Suppliers are Important <ul><li>For a business to meet the needs and wants of customers, it needs an effective “supply...
What Makes an Effective Supplier? Factor Characteristics of an Effective Supplier Price Often considered the most importan...
The Importance of Supplier Price <ul><li>Textbooks like to emphasise importance of non-price factors (e.g. reliability, qu...
Strategic versus Commodity Suppliers <ul><li>Some suppliers are strategically crucial to a business </li></ul><ul><li>Stra...
Example – Strategic v Commodity Example Business Strategic Suppliers Commodity Suppliers Car manufacturer Car components E...
Choosing a Supplier – Sources of Info Source Why Word of mouth Often the best – a recommendation from another business (no...
Contracting with a Supplier <ul><li>Relationships with strategic suppliers are often formalised in terms of a supply contr...
Suppliers & Better Business Performance Lower purchase costs Better prices from a supplier lower the costs of a business B...
Suppliers and Cash Flow <ul><li>Managing suppliers is linked to managing cash flow </li></ul><ul><li>Trade credit = where ...
Test Your Understanding http://www.tutor2u.net/business/quiz/workingwithsuppliers/quiz.html
Working with Suppliers
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Aqa bus2-workingwithsuppliers

  1. 1. Working with Suppliers
  2. 2. What this topic is all about <ul><li>What is a supplier? </li></ul><ul><li>Factors to consider in choosing a supplier </li></ul><ul><li>Working effectively with suppliers to improve business performance </li></ul>
  3. 3. What is a Supplier? A business or individual that provides goods and services to another business
  4. 4. Suppliers - Examples Example Business Typical Suppliers Food manufacturer Raw materials Energy (electricity, gas, light) Fashion retailer Suppliers of garments (wholesalers) Landlord (shop lease) Online publisher Authors Web host & website designers
  5. 5. The Supply Chain – Simple Example Indian Restaurant Customers
  6. 6. The Supply Chain – Complex Example Origination Publishing Manufacture Distribution Retail Primary Activities Support Activities Procurement: Editorial management; sourcing writers Human Resources: Recruiting, rewarding, developing, firing Technology: Publishing design software & associated hardware; maintenance of content archive; online Infrastructure: Organisational design, finance, general management Originating of content Commission and acquisition of content Co-ordination of design production and promotion Control of content rights Printing and reproduction Warehousing, stock control and delivery to the points of sale (“POS”) Purchasing Stock Management POS, display and marketing Publishing a Newspaper
  7. 7. Why Suppliers are Important <ul><li>For a business to meet the needs and wants of customers, it needs an effective “supply chain” </li></ul><ul><li>Suppliers determine many of the costs of a business (e.g. raw materials, distribution) </li></ul><ul><li>Suppliers are closely linked to product quality </li></ul><ul><li>Suppliers can be an important source of finance to a business (trade credit) </li></ul><ul><li>For businesses that use lean production techniques, effective relationships with key suppliers are essential </li></ul>
  8. 8. What Makes an Effective Supplier? Factor Characteristics of an Effective Supplier Price Often considered the most important Value for money is crucial Lowest price not necessarily the best value – depends on quality Quality Consistently high quality The right product at the right time Reliability Delivers the correct product on time Goods and services work as described Communication Easy to communicate with supplier – e.g. place orders, develop trading relationship Financially secure Long-term trading relationship requires supplier to stay in business! Also more likely to offer better payment terms Capacity Ability to handle increased volumes of supply, perhaps at short notice
  9. 9. The Importance of Supplier Price <ul><li>Textbooks like to emphasise importance of non-price factors (e.g. reliability, quality, location) </li></ul><ul><li>But suppliers must offer a competitive price (value for money) </li></ul><ul><li>Supplier prices can be pushed lower by: </li></ul><ul><ul><li>Grouping purchases with fewer suppliers (use bargaining power to get lower price) </li></ul></ul><ul><ul><li>Ensuring suppliers compete against each other for regular orders </li></ul></ul>
  10. 10. Strategic versus Commodity Suppliers <ul><li>Some suppliers are strategically crucial to a business </li></ul><ul><li>Strategic = the business cannot succeed without maintaining an effective supplier relationship. These goods and services are crucial to business success </li></ul><ul><li>Other suppliers can be regarded as “Commodity Suppliers” – they provide goods and services that can easily be bought elsewhere and which are not hugely important to the business. </li></ul>
  11. 11. Example – Strategic v Commodity Example Business Strategic Suppliers Commodity Suppliers Car manufacturer Car components Energy Office stationery Magazines (advertising) National chain of fast food sandwiches Local fresh produce Product distribution Shop cleaning Refuse collection UK-wide car hire company Vehicle suppliers IT systems Office water coolers Head office photocopiers
  12. 12. Choosing a Supplier – Sources of Info Source Why Word of mouth Often the best – a recommendation from another business (not necessarily in the same market). Note: a recommendation can be positive or negative! Trade associations Most industries have a trade body that provides directories of businesses operating in the market. Sometimes they have an “approved supplier” list Exhibitions Traditionally popular way of meeting several potential suppliers at the same time in the same place Trade press + trade websites Websites, newspapers and magazines dedicated to a particular market or industry Directories E.g. Yellow Pages. A good source of suggestions for “commodity suppliers” but not particularly reliable for “strategic suppliers” Direct marketing + advertising Introductions from the promotional marketing activities of suppliers. Often aimed at generating an introduction from a sales representative
  13. 13. Contracting with a Supplier <ul><li>Relationships with strategic suppliers are often formalised in terms of a supply contract </li></ul><ul><li>Contract sets out how a business and its supplier will work together </li></ul><ul><li>Key contents of a Service Agreement: </li></ul><ul><ul><li>What is to be provided (the product or service) – precise description required, including quality standards to be met </li></ul></ul><ul><ul><li>When – delivery timetable (including milestones where appropriate) </li></ul></ul><ul><ul><li>How much – pricing & payment terms </li></ul></ul><ul><ul><li>Source of supply – any restrictions on materials to be used (e.g. ethically sourced) </li></ul></ul><ul><ul><li>Disputes – procedure for disputes and how they will be resolved </li></ul></ul><ul><ul><li>Termination – how & when a supply contract will be terminated </li></ul></ul>
  14. 14. Suppliers & Better Business Performance Lower purchase costs Better prices from a supplier lower the costs of a business Better quality Crucial for a business to satisfy customers Improved customer service E.g. fewer late deliveries Increased productivity E.g. fewer production delays, less wastage (lean production) More flexible capacity E.g. ability of a business to work with suppliers to meet sudden increase in demand
  15. 15. Suppliers and Cash Flow <ul><li>Managing suppliers is linked to managing cash flow </li></ul><ul><li>Trade credit = where a business buys goods and servicers from a supplier and pays for them later (e.g. 60 days) </li></ul><ul><li>Extending trade creditor terms is a way of improving cash flow (delays cash outflows) </li></ul><ul><li>However, extending trade credit too far risks damaging supplier relationships </li></ul>
  16. 16. Test Your Understanding http://www.tutor2u.net/business/quiz/workingwithsuppliers/quiz.html
  17. 17. Working with Suppliers
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