Finding and working with suppliers

Finding the right suppliers and having good relationships with them can help you give customers quality products and services at competitive prices and without interruptions.

If your suppliers are unreliable, your business could be disrupted or unable to trade.

The right suppliers will decrease the risks associated with supply chain disruptions. Having relationships with alternative suppliers can also help to mitigate these risks.

Working with various suppliers involves management skills including:

• researching
• negotiation
• maintaining relationships
• managing disputes.

Researching and choosing suppliers

Before choosing suppliers for your business, you should conduct some research.

You can research suppliers online, but you can also join networks or search industry databases and association websites. Reach out to contacts, friends or family for recommendations.

There are many factors to consider when researching a potential supplier, including:

• location
• quality
• price
• alignment with your business values
• effect on the environment.

Some suppliers will provide additional support or service if you are starting up a new business—for example, they may offer flexible credit terms for the first few months or provide an extra discount on a trial basis.

Use this checklist to find the best suppliers for your business. It outlines key questions to ask and what to consider when researching suppliers.

Negotiating supplier contracts

Once you have chosen the suppliers for your business, you will need to negotiate supplier contracts. These contracts may have different names (e.g. supplier agreements, product supply agreements or supply and product contracts) but serve the same purpose.

A supplier contract is a written agreement that outlines the terms of trade between your business and the supplier. Negotiations and contracts are usually based around an ongoing relationship rather than a one-time purchase.

Sometimes a supplier will have their own written agreement that you can use as the basis for your contract; in other cases you will have to draft the contract. When drafting your own contract, you should refer to templated supplier contracts available on legal company websites or through industry associations.

Supplier contracts should include details on:

• products and services to be supplied
• placement of orders
• payment terms and conditions (e.g. deposit, discounts for early payments, price changes, payment options)
• delivery times and quality of the shipped product, including warranties and guarantees
• any exclusions (e.g. products are delivered but not installed)
• insurances
• indemnities—the legal obligation of the supplier to provide you with compensation if any losses occur due to their actions or the actions of associated parties
• intellectual property
• confidentiality
• grievance, disputes and termination.

How to negotiate supplier contracts

Negotiation is the process where 2 or more parties reach an agreement that each one finds acceptable.

Supplier contracts will often include a mix of negotiable and non-negotiable items. For example, if your business wins a government tender, some government terms regarding pricing, confidentiality and timeframes may be non-negotiable for the supplier.

When negotiating supplier contracts, you and the supplier will each need to review the proposed contract and discuss any changes that are required to make the contract acceptable before signing.

You might need to negotiate inclusions within the contract. To do this effectively:

• use effective and clear communication including active listening, summarising and questioning
• be calm and professional
• research cost prices of products and services so you know what a reasonable price range is
• get help from a professional (e.g. lawyer, mentor or business adviser)
• gather multiple quotes from different suppliers to help with price and quality comparison
• ask for references from other customers of the supplier
• look at developing a mutually beneficial relationship (e.g. highlight the fact that you will offer them repeat business if they agree to your negotiation terms).

Developing relationships with suppliers

Once you have a contract in place, you will need to develop and maintain a positive relationship with all your suppliers.

A good supplier relationship can help to minimise business risks and ensure that you have easy access to the products and services you need.

To establish and maintain good supplier relationships, you should:

• nominate 1 person within your business (yourself or another staff member) to be responsible for communicating regularly and directly with your account manager at the supplier
• keep communication open and honest
• behave ethically and be reasonable in any demands you make
• ensure that all product and service problems are identified and communicated promptly
• keep on track of all payment milestones, dates and conditions so you are prepared to make payments on time
• ensure that the supplier is informed of any internal business issues that could negatively affect the relationship (e.g. issues with paying your account on time)
• avoid discussing problems with outside parties other than trusted professional services, such as accountants, legal advisers and business mentors
• meet with your main suppliers formally every 6 or 12 months to review your relationship, discuss improvements and plans of both businesses.

Read about cash flow, invoices and payments to learn more about managing suppliers as creditors.

Also consider...

• Understand the basics of importing.
• Learn more about contracts from the Australian Competition and Consumer Commission.
• Review the Global Slavery Index.