Factors affecting choice of suppliers
Most businesses do not produce a product completely. Instead, they have suppliers that supply some of their raw materials or componentA part that when put together makes a product.. Finding suppliers that can meet all of a business’ needs is essential for a business to remain competitive and successful.
There are three key factors a business needs to consider when selecting a supplier:
- Cost is a vital consideration. If a business can get supplies cheaply, this keeps its variable costsVariable costs are expenses a business has to pay which change directly with output, eg raw materials. low, allowing it to maintain higher profit marginThe difference between sales revenue and total costs expressed as a percentage.. Often, the more products businesses buy from suppliers, the more power they have to negotiate discounts.
- Quality is essential, even when a product is marketed as a ‘budget’ or a low-cost option. For example, whether a business is making a gourmetRefined and elaborately prepared food. or supermarket own brandA product that is packaged and marketed under the brand name of the supermarket. bar of chocolate, the quality of the raw products must be considered. Businesses need to make good-quality products that customers want to buy, but at different price points.
- Reliability is extremely important when selecting a supplier, this may cover areas such as delivery, availability and capacity A businesses ability to supply or store a certain amount of stock. . A business needs to be able to trust that their products will be delivered on time, and that suppliers are consistently going to have enough stock available to meet the demands of their customers. For manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock. A business would also need to rely on their supplier for any sudden increases in demand, for example with ice creams during a heatwave.
