Controlling Purchase Costs – Choose Your Vendors Wisely
Your vendors have as much interest in your company’s success as you do. When you make a lot of sales, they make a lot of sales; when you get paid, they get paid. Having reliable and trustworthy vendors can help your business succeed, just as dealing with unreliable or shady ﬁrms can cause major setbacks.
Start by asking around; other business owners in your area can be a great source of information. Once you’ve got a list of names, call your local Better Business Bureau to ﬁnd out whether any complaints have been ﬁled against any of the vendors on your list. You can visit vendor Web sites and even tour their physical locations. You can ask for customer testimonials and for product samples as well. The key is to get as much information as possible before you make a large monetary commitment to a vendor you don’t know.
As you begin to choose vendors, particularly those who will stock your inventory, try to think of them as business partners. You want to choose the ones with whom your company can develop a long-term, mutually proﬁt- able relationship, and that relationship starts with your ﬁrst request for a price quote. Don’t be afraid to ask vendors for quotes; they’re used to it and they probably expect it. After all, this is a major purchase, and it’s never wise to make a major purchase without shopping around—especially when you’re going to a vendor you’ve never dealt with before.
When you’re dealing with a new business and new vendors, make sure to get price quotes from at least two sources for any purchase over $150. If your order will be a lot more than that, consider getting at least three different quotes; more is even better.
If you’re having a hard time ﬁnding vendors, and an even harder time ﬁnding information about them, you can run your own test by placing a very small order, under $100 in total value. If that process goes well, take it up a notch and place a slightly larger order the next time. Once you feel comfortable with the vendor, you can place your full-blown orders without worry.
When you want to make a big purchase for your business, you need to know the total cost upfront. To get that information, you need to ask the people who sell whatever it is you want to buy. In order for that information to be ﬁxed (as opposed to changeable), it’s best to get it in writing. When your company is buying a product, that information will come in the form of a quote; when it’s services you’re after, the quote is usually referred to as an estimate.
The best way to get a quote is to talk with a salesperson; quote requests that come by mail are often ignored. Phone contact is ﬁne, especially after you’ve begun to build a relationship with that vendor or salesman. For your ﬁrst time out, though, a face-to-face meeting could prove more fruitful, especially if you’re spending a signiﬁcant sum. Even though salesmen themselves are seldom involved in setting company pricing policy, they often have some leeway when it comes to closing a deal. When you establish a personal connection with a salesman, he’ll work harder with you and for you; after all, making a sale to you is his bread and butter. Flexible areas often include lower unit pricing when you buy in bulk, and better credit terms.
Hitting it off with the salesman is a great start toward developing a good relationship with a vendor. However, don’t stop after getting a single quote just because you like the ﬁrst salesman you meet with. Another vendor may offer better pricing, better terms, better merchandise, and maybe a sales- man that you’ll like even better.
Avoid These Vendors
There are some vendors that you should avoid.
If you run across a vendor with one (or more) of the following characteristics, run in another direction:
- Accepts cash only
- Asks for checks made out to cash
- Won’t send a brochure or catalog
- Won’t give you a price quote or estimate in writing
- Dirty, disorganized stockroom
- No warehouse or storage facility
If one (or more) of these factors is the norm in your industry, and the vendor in question has gotten high marks from a reliable source, it’s probably safe to keep him on your list. However, if it’s the vendor telling you this is normal practice, and you can’t verify that with anyone else, look for a different vendor.