Small Business: Building sound ties with suppliers

Good supplier relationships are critical for any small business. The wrong supplier can hurt your ability to do business and properly service customers.

"If there is a supply disruption, it could potentially shut down all of your revenue, particularly if it's a critical supplier," explains Robert Handfield, a professor of supply chain management at North Carolina State University and co-author of "Introduction to Supply Chain Management" (Prentice Hall; $103).

Make sure your supplier relationships are sound from the beginning.

Establish requirements: To start, it's important to understand and fully define what you're looking for in a particular category of purchase, says Handfield.

Identify key criteria (i.e., price, quality, delivery, service, etc.) and then develop a scorecard and evaluate your suppliers based on those requirements, he suggests.

Experience with small business: Try to identify suppliers that "have a strategy of working with smaller businesses and supporting them," says Handfield.

One of the biggest problems for small businesses is working with a supplier that doesn't value their business because of their size, he explains.

Talk to previous customers: Look at the supplier's policy and ask for references from customers, advises Handfield.

"Try to talk to at least two customers," says Bill Wahlig, executive director of the Long Island Forum for Technology (LIFT) in Bethpage, which assists suppliers in developing internal processes to secure contracts and also helps companies identify local suppliers.

Keep an eye on the long term: Evaluate them as you would any other critical partner, with the idea that you're in it together for the long run, he says. "The supplier you choose will hopefully become a long-term partner."

That's been the case for Mike Matula, president of Micro Contract Manufacturing in Ronkonkoma, which assembles electronic components and parts.

The company has suppliers it has done business with for 20 years, he says, noting good relationships are essential.

"They're critical," says Matula. "Without the parts, we can't build."

Proof of origin of parts: Being able to trace the origin of the parts they receive is important to make sure they're not "phony or counterfeit," he notes.

Suppliers should be able to prove where their products came from, says Bob Zounek, deputy executive director of LIFT. This includes traceability for where the parts are made all the way down to where the raw materials are mined, he notes. "The red flag is if there's bad traceability," says Zounek.

Quality management: Also, make sure the supplier has a certified quality management system in place, such as through the International Organization for Standardization, he recommends. LIFT has helped dozens of companies over the years become ISO certified, including Micro Contract Manufacturing.

Once you identify potential suppliers, Handfield suggests asking these questions:

What is your quality and performance record? What's the evidence to support it?

What percentage of orders are on time and in full?

Will I have a dedicated account rep?

What's the percentage of defects on your production line?

What kind of errors occur in your invoicing?

The supplier should be able to support its claims. "The good ones all have paperwork," notes Zounek.

Don't be afraid to ask the hard questions, he says. For major suppliers, it pays to do a site visit.

And don't base your decision on price alone.

"Quality's got to be up there," says Wahlig. "When you have a quality system, the rest seems to fall into place."

FAST FACT
On average, supplier costs account for 50 percent to 60 percent of a company’s total cost of goods sold.
Source: Robert Handfield, North Carolina State University