Depending on the type of business, your suppliers may also form an integral part of your supply chain. The profitability of your business can be affected positively or negatively by their performance.
While it may be in the best interest of your business to have a broad spread of customers, it may be more cost effective to have a smaller spread of suppliers. The cost of raising purchase orders and maintaining a large supplier database must be evaluated against many factors, including product costs, quality issues and delivery lead times. Another important dynamic to consider, is the possibility of ‘overcharging’ resulting from a friendship or favouritism towards a specific supplier. I have seen how operational management can ignore a central procurement system to obtain items, arguing that the central system was inefficient. It may have been, but further investigation revealed that the operational management were being ‘rewarded’ by suppliers to procure goods from them. I encourage business owners to work hard to gain the loyalty of their customers, and at the same time, I remind them that they should extend the same courtesy to their suppliers. You, as a customer, need to monitor all aspects of supply transactions, just as your customers will monitor supply transactions between their business and yours to justify that loyalty value.
You may want to consider adding various other metrics to evaluate the performance of your suppliers. For example, you may want to measure how consistently your suppliers achieve their actual supply date times as compared to required dates. This measurement may also consider quantity and quality issues.
Once again it may be prudent for you to consult and obtain advice from a commercial lawyer on these issues.
Quentin G McCullough