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It’s amazing how many suppliers it can take to keep a business running smoothly. Whether you’re a retailer or a manufacturer, your supplier database could be enormous despite your best efforts to keep things compact.
Reviewing your suppliers, doing cost comparisons, and negotiating for better service or prices could be a mammoth task. As a result, it’s best to cherry-pick the most important ones instead of running through the whole list. Here’s how to go about it.
1. Look at the Amount You’re Spending
Although choosing the suppliers you spend the most money with for regular reviews seems obvious, there’s a less obvious angle too. If you’re a big spender with your supplier, you have more bargaining power, and that means that you stand a better chance of maintaining a relationship even if you’d like to see some changes.
For example, if you’re in Fort Lauderdale and your couriers are getting a lot of revenue from your business, it makes sense to shop around and see what other Fort Lauderdale couriers have to offer. If you think it’s a better deal, your current couriers will have to match it or else risk losing your support.
2. Consider How Important they Are
Money isn’t everything, and sometimes, it’s the goods and services you spend very moderate amounts on that sweeten bigger deals. Using our courier example, reliably delivering important documents in hard copy format could be an important part of your sales process.
You may not spend much on your courier service, or even use it all that frequently, but if it fails you, you could lose big contracts. In this instance, you’re looking at how fast and reliable the company’s service is, and if your supplier is dropping the ball, you should look for one who doesn’t.
Generate a ranked list and identify your big spends for review, but do look further down the list for suppliers that have strategic importance even though you don’t spend much on their products or services.
3. Identify Who Your Business Frequently Transacts With
The first two categories should identify your high-priority suppliers, but there’s one final thing to check before your prioritized list for review is finalized.
There could be suppliers that you frequently buy from but who don’t feature among your biggest expenditures or even the smaller ones that make it possible to do well. However, because of the regularity of interactions, their efficiency, or lack thereof, impacts on the efficiency of your business and its personnel.
It’s Not as Difficult as it Sounds
Going through your list of suppliers to identify review priorities and then conducting performance reviews to decide whether they – or you – could do better may sound like a huge task. However, it’s not as tough as it sounds.
In general, 20 percent of your suppliers will account for 80 percent of your purchasing bill. Now it’s just a matter of looking for the ones whose strategic importance or frequent use warrants bumping them up to priority status.
The supplier performance review itself is the next step. It’s time-consuming, but it helps you to decide whether your business is being served as well as it should be and at the right price. From there on, it’s up to you to decide whether you’re satisfied; whether you need to negotiate for better terms; or even cut the relationship and look for new suppliers.
By prioritizing, you’re eliminating the less important suppliers so that you and your team can avoid sweating over the small stuff. Zero in on areas where supplier performance matters most, and take it from there.