Managing your suppliers

Many small firms fail to recognise the benefits of cultivating good relationships with their suppliers. If handled effectively, you can reduce your costs and delivery times as well as improving the quality of service you receive

"It pays to spend time building good working relationships with your suppliers - it will help you get the best deals," argues Chartered Institute of Purchasing and Supply (CIPS) senior procurement specialist René de Sousa. "Alternatively, you might get better payment terms or bulk discounts.

"Be clear about what you expect from your suppliers and ensure you review their performance on an ongoing basis," she recommends.

You should underpin all key supply relationships with contracts, and use them regularly to assess how suppliers are performing. Service level agreements (SLAs) help to define your relationship with your suppliers. You can agree targets and specify performance standards. SLAs function as guidelines, enabling suppliers to know exactly what you expect from them.

Review performance

List your suppliers and detail how much you spend with each of them. Identify areas where you could or should be getting better value. Try to negotiate improved terms for items you buy regularly or in greater volume.

"Build in a timetable of quarterly reviews with your suppliers," advises de Sousa. "You need to assess whether you're getting the best price, whether you're satisfied with the quality of your supplies, whether your deliveries are punctual and whether your suppliers respond quickly to orders you place. If they don't meet your objectives, speak to them to find out why."

As well as quarterly checks, conduct an annual review of your purchasing. Compare costs and assess product quality and service performance of all suppliers.

Ending contracts

"Be prepared to end the contract, if suppliers consistently fail to meet your requirements," advises de Sousa. "Know what your contract terms are and check you can terminate the relationship legally."

Check contracts to see if there are penalties for terminating the deal early. (Ideally, when drawing up the contract, you will have agreed an exit clause that minimises what you have to pay.) Otherwise the penalties may be such that you are effectively locked-in with that supplier.