Supplier & Vendor Basics
Buying well when you are small enough that suppliers do not chase you.
Notes from Randall Harper. Thirty years working alongside owner-operators, executives and boards — companies of all types and sizes — across entertainment & media, hospitality, service based business, lifestyle businesses, financial services, retail and not-for-profit, in Australia, Asia, the United Kingdom and the United States. What follows is the thinking I keep returning to.
Suppliers are partners, not vending machines
Small businesses often treat suppliers transactionally — cheapest quote wins, change supplier the moment something better appears. This is a mistake. A supplier who knows your business, prioritises your orders, extends you terms, and warns you about price changes early is worth several percentage points of margin a year. That relationship is built one good interaction at a time.
The fundamentals of choosing
- Reliability of supply — can they actually deliver when they say?
- Quality consistency — does what arrives match what you ordered?
- Terms — net 7, net 30, or cash on delivery, and what flexibility exists.
- Communication — who answers the phone when something goes wrong.
- Price — important, but rarely the most important variable.
Negotiating without being a nuisance
Small buyers have less leverage than large ones, but more than they think. Ask for volume discounts you might grow into, settlement discounts for paying on time, and price holds across the year on items you buy regularly. Most suppliers will say yes to something — if only because the smaller your order, the more they value loyalty.
Diversify, but not too much
A single supplier for any critical input is a single point of failure. Two is sensible. Three is usually overkill and dilutes your relationship with all of them. The right answer for most small businesses is a primary supplier you do most business with, and a backup you keep warm by sending occasional orders.
Pay them well, pay them on time
The simplest competitive advantage a small business can build with its suppliers is being the customer who pays on time, without chasing, every time. You will get phone calls answered faster, shortages allocated to you first, and prices held longer. The cost of this advantage is the discipline of pressing 'pay' on the due date. It is one of the cheapest moats available.
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The contents of this paper are the opinion of Clear Point Advisory only. Readers should rely on their own judgement and obtain professional advice appropriate to their circumstances.