Information about suppliers may be obtained in several ways:
1. An interview with the seller. It is usually possible to obtain the
information you need about a supplier from the sales representative who calls on you. You
can ask questions concerning the quality of the product, price, service and delivery, and
obtain references you can check to verify the information you receive.
2. Visiting the supplier. A visit with a supplier of important components or
materials is sometimes desirable when you should know how well equipped the supplier is to
meet your needs. Such a visit can give you firsthand insight into the adequacy of the
supplier's manufacturing facilities and knowledge of technology as well as labor relations
and quality and production control procedures. The supplier's financial standing and
managerial capabilities can also be reviewed. During such a visit you can look at the
supplier's basis for quoting prices, discounts, terms and delivery. Such visits should be
made only after the choice of vendors has been narrowed down to just a few potential
suppliers.
3. From a cost breakdown or cost analysis. Since costs are of major importance
in the determination of price in many negotiated purchases, it is useful for buyers to
obtain a good understanding of product costs. Most suppliers calculate their overhead and
general administrative expenses as a proportion of direct labor and/or direct material.
Smart buyers, therefore, look to help suppliers achieve reductions in the supplier's
direct costs (possibly through joint value analysis), since these are likely to have a
greater impact on price than other cost savings or a reduction in the supplier's
percentage of profit.
Cost analysis is not needed in all purchasing situations. It obviously will be worth
the investment in time and effort only if the quantity is large.
In analyzing costs, it is also important to remember that many factors affect the costs
of individual firms and even the costs of individual products. Thus, a specific firm may
be a high cost producer for one item and a low cost producer for another.
In situations where only one supplier is available or preferred for various reasons not
related to price, cost analysis may be the only way for determining whether prices are
fair and reasonable. In such a situation, the price is usually negotiated. At the start of
such a negotiated purchase, it is desirable to request a cost breakdown from the supplier.
Such a cost analysis might include cost information on:
- material and purchased parts
- scrap and salvage value (if any)
- direct labor
- overhead calculation
- engineering and development expenses, where applicable
- general and administrative expense calculation
- depreciation of special equipment
4. References from others who use the supplier. Business contacts and references
provided by the vendor can often provide information about the quality of products and
services of a supplier. This is also one way to find out how well the written and verbal
word of the supplier corresponds with actual performance.
5. Trial business with the supplier. When purchasing from a new supplier, it is
often desirable to make a few small purchases to see how well the supplier fulfills
agreed-upon obligations. When conducting trial business with a supplier, it can be
beneficial to maintain large safety stocks of the material being purchased, as insurance.
6. Supplier catalogs. Catalogs are a frequently used source of information about
those suppliers who provide them. Such catalogs are useful not only to determine potential
sources of supply but also, on occasion, to obtain published prices.
7. Sales people. Most supplier sales representatives can provide information
about possible sources of supply of non-competing products or services. Since they call on
many different companies, salespeople can bring much information about the quality of
suppliers and, when they do not know themselves, can get answers to your questions from
some of their customers. All this information is available to the alert, open-minded
buyer. However, salespeople can take up a great deal of your time. So as not to be
bothered by salespeople at inopportune moments, you may wish to inform salespeople over
the telephone or through signs, that there are specified times set aside during which your
firm will be willing to see sales representatives.
Many small firms do not have so many salespeople call that specified times are
necessary. When salespeople call, it is therefore better to limit the amount of time you
spend with them, rather than to shut them out altogether.
8. Trade magazines. General and specialized trade journals often contain
advertisements placed by suppliers as well as economic information of value for purchasing
decisions.
9. Purchasing files. If you keep detailed files of brochures offering products
and services, reviewing these when an occasion arises can provide you with valuable
information for selecting a supplier.
10. Trade registers and directories. Thomas' Register of American Manufacturers
is one of several widely known trade registers which contains information on the
addresses, branches, affiliations, and often financial standing, of all leading
manufacturers.
11. Trade exhibits. Exhibits provide an excellent opportunity for you to see a
variety of suppliers and their services or products. They represent an opportunity to
compare similar products of different manufacturers.
12. Yellow pages. The yellow pages within a phone directory contain an accurate
listing of local suppliers.
