smallbusiness.co.uk: Helping your business think big

Strong relationships with your suppliers are essential. Without them you simply cannot operate, yet by keeping suppliers on side you can improve your margins and delivery times – thereby giving your business a major boost.

"It's worth sitting down and working out what your ideal supplier would be like," advises Rob Maguire, head of business consultancy Performance Consulting. "So if you're going to need access to them 24 hours a day and at weekends, for example, it would probably be best to choose someone local. You should draw up a job specification and then only speak to those who match the profile."

Moreover, if your business depends on supplies of a certain raw material or other specialised product, then your costs would be lessened if your business is near your source of supply, such as where it is produced or near its main distributor.

Shop around for quotes

But don't limit your options too much. Make sure you shop around for quotes from a number of people. This number may vary depending on your type of business, but as a general rule, says Maguire, "three is too few and ten is too many".

Another important point to consider is how your suppliers make their profits – this could help you negotiate better prices.

"Remember that the lowest price someone quotes you is the highest price they think they can get away with,” points out Maguire.

If your suppliers won't reduce their prices, don’t be afraid to ask them for a reason, as they may include extras they think you need, such as warranties. Taking these out can help cut the price dramatically.

Be prepared to negotiate

Even once you have lined up your suppliers it is essential to keep on negotiating. Try to invite rival quotes from time to time to give you room to negotiate, but, advises Maguire, don't keep getting them from the same people.

“Good customer-supplier relationships are about loyalty, but you also need to keep adding pressure – their prices will never change otherwise."

But don’t treat all suppliers the same – consider which ones you use the most. Many advisers cite the importance of the 80:20 rule, which states that 20% of your suppliers are likely to account for 80% of your materials and costs, therefore they should receive most of your attention.

(17/7/2003)

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