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Many businesses rely on inventory—items purchased from a vendor for resale to their customers. Effectively managing relationships with vendors is critical to the long-term success of the business. And, the first step in this process is building the right vendor network. Selecting the best vendors for your business doesn’t start with researching potential suppliers. The first step needs to be developing an understanding of what your business is, whom it serves and what differentiates it from your competitors.
Before you start working with vendors, you must clearly determine the unique value that your business provides customers. Put another way, you need to be able to clearly answer the question, “So, why would someone come into your store, rather than the one across the street or down the road?”
This involves understanding your customer, your industry, your geographical area and your competitors. For example, you decide to open an auto parts store. As you think about your business plans, you may see yourself providing the very best, highest performance parts to the most demanding customers. On the other hand, you may feel that your community needs an auto parts store that serves the person who does their own work, can't afford premium products and will be a frequent customer. Take the time to firmly envision your customers: their needs, buying habits, price sensitivity. The customer profile will shape, and limit, vendor options.
Once you have your customer firmly in mind, define the characteristics of the ideal products for your customers. Do these products need to be unique and up-scale, or cute and value-priced. Go to various manufacturers’ websites and read their product descriptions. If what they say matches your ideal customer, then you will want to explore stocking their parts. Depending on your timeline and location, it is often valuable to visit trade shows for your industry to get a better idea of the range of products you may wish to stock.
Once you’ve considered your customers and determined the best products to offer, you need to determine your inventory needs. The frequency and quantity of your inventory needs may limit your options in selecting a vendor—and it will certainly impact the negotiation of contract terms.
To determine the demand for inventory requires sales forecasting. Sales forecasting is basically a matter of common sense. You must consider two basic factors:
In addition to using your common sense and personal knowledge of your type of business, talk with people you know in the field and with people who purchase the types of products you will be selling. From the other businesses, try and find out what items are selling well. (They might not give you an exact number, but you should be able to get a feel for the amount.) But, also ask about how it is to work with vendors. From the purchasers, find out how often they intend to replace/upgrade the items purchased. Are they likely to purchase similar items? And, make sure to ask how the like the items that they bought. Ask them what's "missing"?
Now only does this help with sales forecasting, it can provide you with insights into which vendors you want to contact, and which ones you may wish to avoid. Now that you have a clear idea of who your customer will be and have some information on the various manufacturers, you need to start evaluating the vendors.
Most products can be supplied by multiple vendors. In this case, you need to evaluate the quality, reliability and flexibility of each vendor before entering into negotiations and contracts. Here are some basic questions that apply to most businesses. Your “interviews” with other business owners and customers and well as your knowledge of the industry may suggest others that you will add your scorecard.
Selecting the best vendors for your business is an essential ingredient to long-term success. And, the process begins with knowing what you need and which vendors can meet those needs. Armed with that information, you will be able to build a strong, flexible network to support your business plans.