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Suppliers And Supplier Management

All businesses need suppliers to provide them with the things they need to run the business. It is difficult to run a business without suppliers because the business will be unable to generate everything it needs from scratch. Sometimes businesses will use suppliers because it is cheaper than producing the goods/service themselves.

Supplier Selection Diagram
This diagram shows the factors you may need to consider when choosing a supplier for your business

What Is A Supplier

A supplier is any entity that provides a business with the items they need to set up and manage their business. The items that a supplier provides depend on the business;

Why Do You Need to Select the Right Supplier?

It is important to select suppliers carefully as suppliers can affect the businesses they provide goods to. If a supplier provides a poor quality product to a firm, it may affect the firm's reputation as the firm will need to use the goods or sell them onto their customers. Similarly if a supplier provides a slow or poor service, this may slow down the service the business provides to its customers.

Choosing The Right Supplier

Firms should take the following into account when choosing a supplier:

Supplier Management

After agreeing a contract with a supplier it is important to monitor the supplier's performance to ensure that they are providing the service that was agreed with them. Some firms will agree targets known as Key Performance Indicators (KPIs) that suppliers will need to meet. Taking this a step further some contracts will include terms that impose penalties on the supplier if they do not meet their KPIs and rewards if they exceed them. Firms that monitor supplier performance will usually hold regular meetings with the supplier to discuss their performance and to agree appropriate actions. Meetings with suppliers also provide the opportunity to discuss service/contract amendments if the firm's requirements have changed.


Businesses are reliant on suppliers; suppliers provide the tools a business needs to operate. If a firm manages to negotiate a favourable contract with the right supplier they are likely to benefit. However the wrong supplier or unfavourable supplier contract is likely to have a detrimental effect. If things go wrong with a supplier it may take time to switch suppliers and even if you do manage to switch suppliers quickly it could take time to recover from the effects of a poor supplier.


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