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Influences on the choice of suppliers - Coggle Diagram
Influences on the choice of suppliers
Cost
Cheaper supplies - Higher profit margins
The price charged will be a key factor in the relationship between a firm and its suppliers
Large purchasers may be able to dictate prices to their suppliers . This is because they hold lots of power as they may make up most of the suppliers output
For a small business with limited purchasing power the supplier may have the upper hand
The lower the purchase price , the lower the buyers variable costs - higher gross profits
Quality
There is likely to be a trade off between the price charged by suppliers and the quality of their offerings
Choosing a supplier with quality problems is likely to lead to operational problems
Poor quality supplies can lead to machinery breakdowns , along with poor quality output
This can lead to worsening customer complaints , guarantee claims or reputation
Reliability
Supplies at the right price and of a high quality may be little use if they arrive late
Failure to deliver on time can stop a manufacturing process or leave shop shelves empty
Suppliers reliability is easy to assess once a business has started working with them
However a new business or a business sourcing new supplies may need to rely on word of mouth reputation to inform its choice
Frequency
Depending on the type of business and the production system it uses , frequent deliveries may be needed from suppliers
Eg firms selling fresh produce
Or a firm that uses a just in time production system will need very frequent deliveries to feed its production system without it having to hold stock
For firms such as these it makes sense to look for a local supplier : they are far more likely to be willing to deliver with a greater level of frequency
Flexibility
Many firms will need to find a supplier with the capacity to cope with widely varying orders
Businesses selling products with erratic demand patterns , caused by changes in the weather or fashion , will need to find suppliers that can meet their ever changing needs
Probably the most common scenario is to ensure that suppliers have the spare capacity available to cope with sudden rush orders
A key to supplier flexibility is a short time lead time
Payment terms
Most business transactions are on credit not for cash
Credit gives time for the goods to be sold , providing the cash to make it easier to pay the bill
Small business start ups will struggle to get good credit terms - The supplier will want to be paid in cash until the new business has shown that it can survive and pay its bills
Therefore a new small firm has to pay up front , placing extra strain on its cash flow . This should not be a problem as long as it has been built into its start up cash flow ( forecast )