In any business, suppliers play a critical role in ensuring the reliability of delivery. Finding a trustworthy supplier can help you make sure that your customers do not face delays in getting the products they paid for.
Here is a step by step guide to finding the right supplier for your business.
Pick a distribution model
The distribution model you pick depends on your business mechanics. If you offer highly unique or customized products, then the supplier would need to deal with a large volume of SKUs – the per-unit cost could be significantly higher in this case, and this affects the retail pricing of your product.
This is very commonly used in the apparel business where print on demand t-shirts are indeed a thing. The problem with this model is that it can take a really long time to get your product delivered. You must hence hire a supplier who can work on very short turnaround times.
On the other hand, if you offer a commodity product, then you have a wide number of suppliers to pick and choose from. Most business owners tend to shop for suppliers based on price in such cases. You may either choose to order wholesale suppliers and sell your products at a markup or choose to dropship. The advantage of dropshipping is that it allows you to outsource your logistics to your supplier so that you only have to worry about marketing. If you choose to dropship from a supplier located overseas, you may have to consider the potential shipping delays.
It is also important to consider scale-up infrastructure while picking a supplier – this ensures that you do not have to go scouting for a new supplier when you see a growth in the number of orders that you have to fulfill.
Reach out to multiple suppliers before settling on one
It is not uncommon for business owners to pick a supplier from a handful of quotes. This is especially true if you have a unique product to sell that not all suppliers can fulfill. This strategy can leave money on the table in the long run since there is always a supplier who can do it better.
Establish a process to constantly seek new quotations from various suppliers. Doing so is good for more than one reason. Firstly, you may find a supplier who can do a better job with quality or price. Secondly, having multiple options allows you to negotiate on price with your current supplier. Lastly, in the event that your business picks in a short time, you could source your products from a secondary supplier to make up for the deficit.
This is easier said than done. Unlike what is commonly assumed, it takes a lot of work to get suppliers to agree to build a custom product at scale. Your outreach strategy is vital. Experiment with all kinds of outreach – email, phone, marketplaces to see what works. Once you pick an outreach channel like email, experiment with various elements that contribute to higher response rate – like subject lines and messaging to see what gets you the best response rate and quotation from serious bidders.
Constantly Evaluate Your BOM and COGS
BOM (Bill of Materials) is the cost of every element of your product that is sourced from various suppliers before it is assembled into its final shape. COGS, on the other hand, is the total cost of the goods that are sold by your product. This is essentially the expense that eats into your profit (not accounting for other expenses like marketing, distribution, etc.).
It is important to acutely track your COGS and BOM since they can significantly impact your profitability and even the survival of your business. As a general rule of thumb, the COGS per unit in any fiscal quarter should be lower than what you achieved in the same quarter the previous year. This ensures that you continue to hunt for newer suppliers or have been able to negotiate better rates with your existing supplier – both these factors are important towards long-term profitability.
Your relationship with your supplier need not be monogamous. Nor does it have to be permanent. Success in business depends on how well you can continue to negotiate better deals with suppliers – this allows you to bring the cost of your goods down as you grow, and thereby price your products more competitively.
