Choosing the right suppliers for your small business can prove to be a matter of success or failure. More than 20% of U.S. businesses crash and burn in year one. And even after wrapping up the first year of operations, companies are not out of the woods. It’s a constant grind.
If you’re a retailer, a manufacturer, or a service provider, your suppliers are the backbone of your small business. That means the quality of your products, prices, and customer satisfaction rates is directly proportional to the quality of your suppliers.
Despite the importance of selecting the right suppliers, small business owners often overlook supplier evaluation. That tends to learn to poor decisions due to rushing the evaluation process or focusing on inappropriate criteria.
Keep reading to learn about five of the most common mistakes that small business owners often make while choosing their suppliers and how you can avoid these missteps altogether.
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Focusing Only on Price
As a small business, you might be operating on thin margins, which can make it tempting to choose a supplier with a lower bid. However, going that route can be costly for your small business.
For instance, if you operate out of an industrial facility and require zero-leakage valves, it’s a mistake to prioritize vendors based solely on price points. Sure, you should factor cost into the equation, but you also need to consider quality and durability for severe-service applications.
Choosing a supplier with a lower bid may require you to compromise on the quality of the goods and services you purchase. That’s a bad strategic move that may cost you in the end.
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Failing to Vet Supplier Reliability
Another mistake many small business owners make is to assume that they don’t have to perform proper vetting to ensure suppliers can deliver on their guarantees. Some suppliers emphasize they can deliver large quantities quickly — even if that’s not really the case.
As a small business, you should ask the following questions:
- What is the capacity of the supplier?
- How does the supplier perform during periods of high demand?
- Does the supplier have a contingency plan in case something goes wrong?
- Can you get references from other customers?
Asking for samples, trial orders, and references will give you insight into a supplier’s reliability and commitment to transparency. You should also carefully evaluate a supplier’s financial position, especially if you’re signing a long-term contract.
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Overlooking Communication and Customer Service
Communication is another area often overlooked when selecting the appropriate supplier. Even if you find the most competitive supplier on price and quality, you may still run into trouble if communication leaves a lot to be desired.
As a small business owner, you need clear communication to ensure orders are correct and to get answers to your questions or concerns.
If the supplier is hard to communicate with during the initial stages, you may get into an even worse situation when you sign the contract.
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Ignoring Contract Details and Terms
Small business owners are mostly concerned about the price and specifications of goods, but don’t often scrutinize the details of the contract. This has often led many into trouble.
Some of the areas that you need to look at include payment terms and penalties, minimum order requirements, returns and refunds, warranties, and termination clauses.
While it may take some time to go through the contract, the end result is well worth the effort.
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Relying on a Single Supplier
While it’s important to build a strong relationship with your main supplier, it‘s not advisable to rely entirely on a single one.
International supply chain issues have underscored the importance of diversifying on this front. It can be the difference between maximum uptime and unplanned downtime.
While it would be ideal to have a single supplier, it’s always advisable to have alternatives available. That’ll give you leverage in cases where things don’t go as planned.
Choosing the right suppliers to work with is one of the most important decisions you’ll ever make as a small business owner. It may appear to be an ordinary business decision, but the consequences of the decision are far-reaching and touch almost every aspect of the company.
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