Managing supplier risk: Part 2

Yesterday, we saw the importance of doing research on and credit checking a potential supplier. Today, we look at four more questions you should ask yourself to ensure minimal risk when taking on a new supplier.

Does my supplier have insurance in place?

What if an earthquake or flood damaged goods the day before your supplier were due to ship them to you? This could be mitigated if your supplier had insurance in place, which would lower the financial impact to your business and you supplier's business. According to Twain Abbott, National Underwriting Manager of SME Business at CGU Insurance, you could also take matters into your own hands by applying for business interruption insurance, which covers the shortfall in profits caused by an interruption to your business such as natural disasters or a bankrupt supplier. This type of insurance covers interruption costs even if the damage is to another business you don't own such as a supplier.

Have you negotiated your agreement?

Before putting pen to paper and signing the contract, small business coach Debra Templar recommends understanding the terms of the agreement - and don't be afraid to negotiate better terms!

"Quality wholesale suppliers want great relationships, so if the one you're dealing with doesnt have time for your questions or concerns, you may need to keep shopping around," Ms Templar tells Startup Smart.

Consider the following:

  • What are the shipment terms?
  • Do you have to pay for shipping or do they?
  • What are the payment terms?
  • How much credit are they willing to extend?
  • How quickly can they ship the product?
  • Do they offer expedited shipping if you sell out of your products?
  • Is the supplier a good fit overall for my business?

Taking on a new supplier is the beginning of a long-term relationship, so it's important that you not only find the best price and products for your money's worth, but also get along with them and ensure they know your needs.

Small Business NSW states that suppliers are an important part of your business and that the supplier relationship must be nurtured.

"A collaborative relationship is often best where a business can discuss with its supplier its growth plans, challenges and issues and invite the supplier to provide solutions. Remember that you are just as important to the supplier, so working closely together can provide win-win outcomes and a collaborative partnership. This collaboration can lead to innovative solutions and growth."

It's also a good idea to talk to some of their staff to get a sense of their attitude and commitment to providing a good product/service to you - if they have a can-do, positive demeanour with good ethics and a clear-cut communication system in place, you'll have less to worry about.

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