The vast majority of businesses have suppliers - other businesses that supply them with goods and services.

In some cases, those goods or services, while important, do not have a particularly high value. Stationery - paper, printer cartridges, etc - is an example.

A number of firms, however, rely on others to supply them with items or goods or services that are essential to their own business. It is vital to choose such suppliers with great care, not least because the decision will have a direct impact on the ability of a business to serve its own customers to the standards expected of it.

The most effective policy is to ensure that any essential supplier matches the long-term as well as the short-term needs of the business.

Not just price

For this reason, suppliers should be judged on criteria that include price but are not limited to it. Other factors to consider are: the speed with which supplies are delivered; the reliability of the supply; the quality of the goods or services provided; the balance between price, quality and reliability; the financial stability of the supplier; and the willingness of the supplier to treat its customers as business partners rather than just as names in an order book.

Supplier relations

It often makes sense to have a small, select group of suppliers rather than a large number or just one. This means that a business will be in a position to form good working relationships with its suppliers. It will also mean that a firm's custom becomes more important to its suppliers, helping it to negotiate special deals and possible discounts. By not limiting itself to just one source of goods or items, however, a firm will be able to protect itself should a sole supplier fail or suffer financial problems.

When it comes to putting together a list of potential suppliers, a business should be prepared to devote some time to examining their suitability. Upfront offers of discounts may be tempting but do not guarantee quality, consistency and, in the final analysis, value for money.

Make checks

Instead, a business should find out whether the supplier can provide exactly the goods or services required and at the required quality; whether the supplier enjoys recommendations from other firms; whether the supplier features on approved lists drawn up by trade associations or business groups; how long the supplier has been in business; and how secure the supplier's financial position is (a credit check will help to establish if there are any possible cashflow problems that may compromise their ability to honour delivery promises).

When a business is satisfied on all these counts, it is sensible further to set out the terms of an agreement on service levels. This should make clear precisely what a business expects of its chosen supplier(s) as far as price, quality, consistency and reliability are concerned.