Operations - Working with Suppliers


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Operations - Working with Suppliers

  1. 1. Working with Suppliers
  2. 2. What this topic is all about• What is a supplier?• Factors to consider in choosing a supplier• Working effectively with suppliers to improve business performance
  3. 3. What is a Supplier?A business or individualthat provides goods and services to another business
  4. 4. Suppliers - ExamplesExample Business Typical SuppliersFood 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 Customers Restaurant
  6. 6. The Supply Chain – Complex Example Publishing a NewspaperOrigination Publishing Manufacture Distribution RetailPrimary ActivitiesOriginating of Commission and Printing and Warehousing, Purchasingcontent acquisition of reproduction stock control and Stock Management content delivery to the points of sale POS, display and Co-ordination of (“POS”) marketing design production and promotion Control of content rightsSupport ActivitiesProcurement: Editorial management; sourcing writersHuman Resources: Recruiting, rewarding, developing, firingTechnology: Publishing design software & associated hardware; maintenance of content archive; onlineInfrastructure: Organisational design, finance, general management
  7. 7. Why Suppliers are Important• For a business to meet the needs and wants of customers, it needs an effective “supply chain”• Suppliers determine many of the costs of a business (e.g. raw materials, distribution)• Suppliers are closely linked to product quality• Suppliers can be an important source of finance to a business (trade credit)• For businesses that use lean production techniques, effective relationships with key suppliers are essential
  8. 8. What Makes an Effective Supplier?Factor Characteristics of an Effective SupplierPrice Often considered the most important Value for money is crucial Lowest price not necessarily the best value – depends on qualityQuality Consistently high quality The right product at the right timeReliability Delivers the correct product on time Goods and services work as describedCommunication Easy to communicate with supplier – e.g. place orders, develop trading relationshipFinancially Long-term trading relationship requires supplier to stay insecure business! Also more likely to offer better payment termsCapacity Ability to handle increased volumes of supply, perhaps at short notice
  9. 9. The Importance of Supplier Price• Textbooks like to emphasise importance of non-price factors (e.g. reliability, quality, location)• But suppliers must offer a competitive price (value for money)• Supplier prices can be pushed lower by: – Grouping purchases with fewer suppliers (use bargaining power to get lower price) – Ensuring suppliers compete against each other for regular orders
  10. 10. Strategic versus Commodity Suppliers• Some suppliers are strategically crucial to a business• Strategic = the business cannot succeed without maintaining an effective supplier relationship. These goods and services are crucial to business success• 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.
  11. 11. Example – Strategic v CommodityExample Business Strategic Suppliers Commodity SuppliersCar manufacturer Car components Office stationery Energy Magazines (advertising)National chain of fast Local fresh produce Shop cleaningfood sandwiches Product distribution Refuse collectionUK-wide car hire Vehicle suppliers Office water coolerscompany IT systems Head office photocopiers
  12. 12. Choosing a Supplier – Sources of InfoSource WhyWord 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” listExhibitions Traditionally popular way of meeting several potential suppliers at the same time in the same placeTrade press + trade Websites, newspapers and magazines dedicated to a particularwebsites market or industryDirectories E.g. Yellow Pages. A good source of suggestions for “commodity suppliers” but not particularly reliable for “strategic suppliers”Direct marketing + Introductions from the promotional marketing activities of suppliers.advertising Often aimed at generating an introduction from a sales representative
  13. 13. Contracting with a Supplier• Relationships with strategic suppliers are often formalised in terms of a supply contract• Contract sets out how a business and its supplier will work together• Key contents of a Service Agreement: – What is to be provided (the product or service) – precise description required, including quality standards to be met – When – delivery timetable (including milestones where appropriate) – How much – pricing & payment terms – Source of supply – any restrictions on materials to be used (e.g. ethically sourced) – Disputes – procedure for disputes and how they will be resolved – Termination – how & when a supply contract will be terminated
  14. 14. Suppliers & Better Business Performance Lower purchase Better prices from a supplier lower the costs costs of a business Better quality Crucial for a business to satisfy customers Improved E.g. fewer late deliveries customer service Increased E.g. fewer production delays, less productivity wastage (lean production) More flexible E.g. ability of a business to work with capacity suppliers to meet sudden increase in demand
  15. 15. Suppliers and Cash Flow• Managing suppliers is linked to managing cash flow• Trade credit = where a business buys goods and servicers from a supplier and pays for them later (e.g. 60 days)• Extending trade creditor terms is a way of improving cash flow (delays cash outflows)• However, extending trade credit too far risks damaging supplier relationships
  16. 16. Test Your Understandinghttp://www.tutor2u.net/business/quiz/workingwithsuppliers/quiz.html
  17. 17. Working with Suppliers