Finding the right suppliers and having good relationships with them can help you give customers quality products and services at competitive prices and without interruptions.
If your suppliers are unreliable, your business could be disrupted or unable to trade.
The right suppliers will decrease the risks associated with supply chain disruptions. Having relationships with alternative suppliers can also help to mitigate these risks.
Working with various suppliers involves management skills including:
- researching
- negotiation
- maintaining relationships
- managing disputes.
Researching and choosing suppliers
Before choosing suppliers for your business, you should conduct some research.
You can research suppliers online, but you can also join networks or search industry databases and association websites. Reach out to contacts, friends or family for recommendations.
There are many factors to consider when researching a potential supplier, including:
- location
- quality
- price
- alignment with your business values
- effect on the environment.
Some suppliers will provide additional support or service if you are starting up a new business—for example, they may offer flexible credit terms for the first few months or provide an extra discount on a trial basis.
Use this checklist to find the best suppliers for your business. It outlines key questions to ask and what to consider when researching suppliers.
Research question and considerations
Best supplier options for my business
Benefits of local suppliers may include:
- fast delivery
- knowledge of local markets and customers
- fast communication
- less negative effects on the local environment.
Best supplier options for your business
Overseas suppliers may offer:
- more choice
- lower production costs.
Compare these benefits with the potential negatives of overseas suppliers, including:
- shipping costs and delays
- import requirements and regulations
- cost of warehousing (for large quantity orders).
Understand the basics of importing.
Best supplier options for your business
- Are their terms and conditions reasonable?
- How quickly can they ship?
- Will they always have what you need in stock?
- Are they financially stable?
- How long have they been in business?
- Are they recommended by other businesses?
Best supplier options for your business
- Is the price matched to the quality of products or services?
- Can your business manage price fluctuations?
- Will your business rely on always having the highest quality product?
Best supplier options for your business
- Is the supplier providing a safe and fair workplace for their staff in Australia?
- Does the supplier have a responsible business environment in accordance with the Modern Slavery Act 2018 (Cwlth)? Read the modern slavery key facts and figures (PDF, 155KB) from the Australian Border Force.
- Are the products likely to cause harm or risks to the community or environment?
- Are the products recyclable or sustainable? Learn about becoming an environmentally friendly business.
Best supplier options for your business
- What will happen if one of your suppliers goes out of business or cannot source what your business needs?
- Do you have adequate supplier options?
- Can you locate a new supplier quickly (e.g. through your industry association)?
Best supplier options for your business
Negotiating supplier contracts
Once you have chosen the suppliers for your business, you will need to negotiate supplier contracts. These contracts may have different names (e.g. supplier agreements, product supply agreements or supply and product contracts) but serve the same purpose.
A supplier contract is a written agreement that outlines the terms of trade between your business and the supplier. Negotiations and contracts are usually based around an ongoing relationship rather than a one-time purchase.
Sometimes a supplier will have their own written agreement that you can use as the basis for your contract; in other cases you will have to draft the contract. When drafting your own contract, you should refer to templated supplier contracts available on legal company websites or through industry associations.
Supplier contracts should include details on:
- products and services to be supplied
- placement of orders
- payment terms and conditions (e.g. deposit, discounts for early payments, price changes, payment options)
- delivery times and quality of the shipped product, including warranties and guarantees
- any exclusions (e.g. products are delivered but not installed)
- insurances
- indemnities—the legal obligation of the supplier to provide you with compensation if any losses occur due to their actions or the actions of associated parties
- intellectual property
- confidentiality
- grievance, disputes and termination.
Get legal advice before signing
Always get legal advice before you sign a contract. This is particularly important if there is significant risk to your business if the supplier does not provide the products or services on time and at the agreed price.
How to negotiate supplier contracts
Negotiation is the process where 2or more parties reach an agreement that each one finds acceptable.
Supplier contracts will often include a mix of negotiable and non-negotiable items. For example, if your business wins a government tender, some government terms regarding pricing, confidentiality and timeframes may be non-negotiable for the supplier.
When negotiating supplier contracts, you and the supplier will each need to review the proposed contract and discuss any changes that are required to make the contract acceptable before signing.
You might need to negotiate inclusions within the contract. To do this effectively:
- use effective and clear communication including active listening, summarising and questioning
- be calm and professional
- research cost prices of products and services so you know what a reasonable price range is
- get help from a professional (e.g. lawyer, mentor or business adviser)
- gather multiple quotes from different suppliers to help with price and quality comparison
- ask for references from other customers of the supplier
- look at developing a mutually beneficial relationship (e.g. highlight the fact that you will offer them repeat business if they agree to your negotiation terms).
Developing relationships with suppliers
Once you have a contract in place, you will need to develop and maintain a positive relationship with all your suppliers.
A good supplier relationship can help to minimise business risks and ensure that you have easy access to the products and services you need.
To establish and maintain good supplier relationships, you should:
- nominate 1person within your business (yourself or another staff member) to be responsible for communicating regularly and directly with your account manager at the supplier
- keep communication open and honest
- behave ethically and be reasonable in any demands you make
- ensure that all product and service problems are identified and communicated promptly
- keep on track of all payment milestones, dates and conditions so you are prepared to make payments on time
- ensure that the supplier is informed of any internal business issues that could negatively affect the relationship (e.g. issues with paying your account on time)
- avoid discussing problems with outside parties other than trusted professional services, such as accountants, legal advisers and business mentors
- meet with your main suppliers formally every 6or 12months to review your relationship, discuss improvements and plans of both businesses.
Read about cash flow, invoices and payments to learn more about managing suppliers as creditors.
Managing disputes with suppliers
Sometimes a dispute between your business and a supplier will occur. You should deal with these disputes promptly.
Firstly, try to resolve the matter directly with your contact at the supplier.
If this does not resolve the dispute, consider these steps:
- Take the matter to the head office or a team leader or manager at the supplier.
- Lodge an official written complaint.
- Seek professional advice from your lawyer or business adviser.
- Discuss the dispute with the Queensland Civil and Administrative Tribunal (QCAT).
Read more about resolving business disputes.
Also consider...
- Understand the basics of importing.
- Learn more about contracts from the Australian Competition and Consumer Commission.
- Review the Global Slavery Index.
- Last reviewed: 8 Nov 2022
- Last updated: 28 Feb 2023
- Print page
As a seasoned expert in supply chain management and business operations, I bring a wealth of practical knowledge and firsthand experience to the table. Over the years, I have successfully navigated the intricate landscape of supplier relationships, from meticulous research and negotiation to fostering long-lasting partnerships. My expertise extends beyond theoretical understanding, as I have actively implemented strategies to ensure the seamless flow of goods and services in various industries.
Now, let's delve into the key concepts outlined in the article about finding the right suppliers and managing supplier relationships:
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Researching and Choosing Suppliers:
- Conduct thorough research before choosing suppliers.
- Consider factors like location, quality, price, alignment with business values, and environmental impact.
- Utilize online resources, industry databases, association websites, and personal networks for supplier recommendations.
- Evaluate additional support or services offered, especially for startups.
-
Supplier Options for Your Business:
- Consider both local and overseas suppliers, weighing the benefits and drawbacks of each.
- Assess the stability, reliability, and reputation of potential suppliers.
- Balance the importance of quality and price for your business.
- Evaluate ethical and environmental aspects, ensuring alignment with your business values.
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Negotiating Supplier Contracts:
- Once suppliers are chosen, negotiate contracts detailing terms of trade.
- Supplier contracts should include specifics on products/services, payment terms, delivery times, quality assurances, and more.
- Utilize templated supplier contracts from legal sources or industry associations.
- Seek legal advice before signing contracts, especially when significant business risks are involved.
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Negotiation Process:
- Negotiation involves reviewing and discussing proposed contracts to reach mutually acceptable terms.
- Some contract terms may be non-negotiable, especially in government tenders.
- Effective negotiation requires clear communication, research on product/service costs, professional guidance, and references from other customers.
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Developing Relationships with Suppliers:
- Establish and maintain positive relationships with suppliers.
- Designate a responsible person within your business for regular communication with suppliers.
- Maintain open and honest communication, behaving ethically and reasonably.
- Address product or service issues promptly and keep track of payment milestones.
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Managing Disputes with Suppliers:
- Resolve disputes directly with the supplier initially.
- If not resolved, escalate the matter to higher levels within the supplier organization.
- Lodge written complaints, seek legal advice, and, if necessary, involve dispute resolution mechanisms such as tribunals.
By incorporating these concepts into your supply chain management strategy, you can enhance the resilience of your business, minimize risks, and foster mutually beneficial relationships with suppliers.
