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the six main influences on choice of supplier - Coggle Diagram
the six main influences on choice of supplier
cost
cheaper supplies means higher profit margins
the price charged will be a key factor in the relationship between a firm and its suppliers because it is an incentive to find a cheap supplier for any firm
large purchasers may also be able to dictate prices to their suppliers because the quantities they purchase may account for most of the suppliers output - therefore giving them lots of power
for small businesses with limited purchasing power the supplier may have the upper hand
the lower the purchasing cost of supplies for a business the lower the variable costs and therefore higher gross profit
quality
the supplier with the cheapest costs may have a poor reputation for the quality of its products
using a supplier with quality problems is likely to lead to operational problems as it could lead to machinery breakdowns and poor quality outputs
poor quality output can mean worsening customer complaints, guarantee claims and reputation
reliablility
price and quality of supplies will not matter if they arrive late
failure to deliver supplies on time can stop the manufacturing process or leave the shop shelves empty
a suppliers reliability will be easy to determine once a business has started working with them
a new business or new supplies will need to rely on reputation to inform choice
frequency
firms selling fresh produce will need suppliers that will deliver frequently - perhaps a new batch every day
a firm that uses just in time will need frequent deliveries to feed its production system without having to hold stock. for these firms it would make sense to use a local supplier.
flexibility
businesses selling products with erratic demand patterns e.g changes in weather or fashion will need to find suppliers that can meet their ever changing needs and cope with a widely varying orders.
a key to supplier flexibility is a short lead time
payment terms
most business transactions are on credit, not for cash
paying in credit gives time for the goods to be sold, providing the cash to make it easy to pay the bill
small start up businesses will struggle to get the same terms. the supplier will want to be paid in cash until the new business has shown that it can survive and pay its bills. the new firm has to pay upfront therefore meaning more strain on on its cash flow - this should not be a problem as long as it has been built into its start up cash flow forecast.