How to get more Value out of your Suppliers & Reduce Costs

March 2023

More so now than ever, maximising value from suppliers is crucial for the success and sustainability of small businesses. By implementing cost-saving strategies and fostering positive relationships, small businesses can become more competitive and gain greater financial security.

There are great opportunities in working closely with your suppliers and exploring new and innovative ways to drive value for both your business and theirs. By focusing on the bigger picture and finding creative solutions together, you can build a stronger and more mutually beneficial partnership that can lead to increased success for both parties.

Consider employing these additional tactics to foster better supplier relationships.

Be risk conscious

Map your current supply chain to identify, evaluate and monitor risks. Consider these points to determine if you need to replace unreliable suppliers or partner with new ones:

  • Source references, expertise areas, years in business, examples of their previous work and crisis management strategy from would-be suppliers
  • Assess their prices against the competition
  • Check they’re capable of meeting your orders
  • Ask for details about their guarantees such as for on-time delivery or your money back

Business Queensland has a useful list of questions for your search.

As part of your due diligence, dig deeper into financial stability. Find out if the suppliers’ goods are being held as security for an obligation, such as a debt. Visit the Federal Government’s Personal Property Securities Register for more information.

Offer larger deposits

Offering larger deposits to suppliers can have several benefits for small businesses:

  1. Improved negotiation position – Offering a larger deposit may elicit good will and lead to better pricing or other concessions.
  2. Reduced payment risk – A larger deposit reduces the risk for the supplier, which may be especially important in the current environment.
  3. Faster delivery – Suppliers may prioritise orders from customers who offer larger deposits, leading to faster delivery times.
  4. Improved cash flow – By offering a larger deposit, you may be able to spread out your payments over a longer period, improving overall cash flow.

However, it’s important to weigh the benefits against the costs and to make informed decisions based on the needs of your business.

Treat suppliers like partners

A solid working relationship with suppliers means your business has the goods, materials and services it needs to thrive.

Reframe your thinking from just purchasing to ‘supplier relationship management’. Management guru Peter Kraljic in the Harvard Business Review, shows how to make this transition. Key actions include:

  • Verify how the supplier has and will avoid possible bottlenecks and interruptions to supply
  • Determine how much risk your business will accept
  • Categorise your material purchases as 1. critical, 2. bottlenecks (if you don’t get enough stock in time, for example), 3. leverage or 4. non-critical
  • Work out what’s more cost-effective to make than buying ready-made
  • Consider if you can cooperate with suppliers or competitors to share resources and foster long-term supply deals

You might also think about partnering with other small businesses as a group when negotiating with your suppliers or customers. The Australian Competition & Consumer Commission has a handy guide called Small business collective bargaining.

Your region, state or territory may have resources about supplier relationship management such as ‘buy.nsw’.

Once you’ve partnered with a supplier, work towards building trust and loyalty through transparency about your processes, new products, and promotions. Address any concerns they might have about the relationship with your business. Don’t forget to pay their invoices on time.

Understand your suppliers

Taking time to know your supplier’s business – their mission and drivers – helps nurture a solid long-term relationship. Learn and respect their preferences for what time of the month to place your order, the specific quantities and advance orders.

Ask your supplier about their suppliers’ issues for information about possible delays or issues. This intelligence will allow you to manage your operations with more agility.

How we can help

The Australian Small Business and Family Enterprise Ombudsman has recently reviewed supply chain financing’s impact on the sector. It’s lobbying big businesses to pledge to pay small businesses within 30 days. But that’s not the norm yet.

Depending on your business circumstances, you may want more flexibility with finance. If you want to explore business finance options for investing in bulk early payments or new technology systems, we can help.

The information in this post is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Geared Finance, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.