Considering Your Supplier Stability
When shopping for a new equipment supplier, buyers will often look at whether the supplier is able to offer good prices, good quality, and many other critical factors. However, it is equally, if not more important to be sure that the supplier is able to deliver on the commitments that they make to you and that they are financially stable.
If you choose the wrong supplier, it can lead to a number of different issues. This is not merely limited to an inability to get the promised solution and service, but having to replace a partner is not only cumbersome and time consuming, but it might cost you a great deal of money as well.
A warranty of five years is great, but what does it really matter if the supplier is out of business in six months? This is not just about losing a supplier; this is about no longer having the ability to receive technical support, perhaps even losing access to your warranty. These are situation that you want to avoid, if at all possible.
Why you cannot rely on basic information
The first thing that we have to do is realize the limitations of traditional historical financial data. Do not merely request your prospective supplier’s financial statement; ask for credit reports on a rolling basis (as frequently as the seller is able and willing to provide them).
Current financial information can be misleading however. Remember that it is often too late once the bad news creeps into a financial report. If you only look at periodic statements to determine your risk, you only receive a snapshot of the company’s health several months or quarters ago.
Try to determine whether this company is gaining or losing customers. Be aware of the conversation that surrounds specific suppliers. If you want to know what companies are saying about their vendors, check the social networks.
The important thing to remember here is that you cannot and should not base your opinions on your emotions. Do not rely on references either. There is real data available if you are willing to do your homework, make sure that you obtain that data. That will help you make a rational and logical decision about what supplier is best for your business.
Important factors to consider
Aside from the aforementioned resources, there are some other key factors that you should pay attention to when comparing your potential suppliers. While none of these are necessarily indicative of a failing or flourishing business, they will be able tell you a little more about the overall strength of the supplier:
- Years in business – Granted, a 10-year old company can go out of business just as quickly as one that has only been around for six months. Having said that, a more tenured business usually makes customers feel more comfortable, it means that the business has established itself and continues to operate. This means that it is doing something right.
- Authorized manufacturers – Depending on the “seal of approval” that the supplier has, this means something. It means that a manufacturer has actually agreed to allow the supplier to represent them. Most manufacturers would not make a poorly managed company an authorized manufacturer. If your supplier is an authorized supplier, it is a good sign.
- Number of employees – A supplier with 10 or more employees does not merely mean that it is an established business, it means that there is likely enough business to require multiple employees. Again, a one-person enterprise can work just fine, but if you are concerned about this supplier being here in the future, going with the more established option is a good choice.
- Number of locations – The same thing that goes for employees goes for locations as well. It might be straightforward to “pack up and leave” with a single location, but if there are multiple locations, chances are that this is an established supplier.
- Certifications – A certification, especially one that can take a while to obtain or costs money, means that the company is serious about establishing itself in the industry. Companies that have no certifications are not necessarily “bad”, but they have done nothing to establish themselves long term. Certifications also demonstrate that this supplier is competent in the equipment that you buy from them, they are able to train you in using it or service it accordingly.
- Trade association memberships – The same that we just said about certifications can be said about trade association memberships as well. It shows that the supplier is serious about its business and wants to establish itself and it has been validated. This not simply a “hobby,” this is a professional organization.
The importance of scalability
Chances are that you start with modest orders, but what happens if your business is in a rapid growth mode? What if you make the decision to expand your business? Is your supplier going to be able to deal with that, or are they barely able to meet your needs right now?
Granted, this might not always be important for your supplier. Perhaps you are perfectly happy with your current size and you do not envision ever expanding. At the same time, this IS an important factor for those with big dreams. It is going to be frustrating if you find that you have to find another supplier (or change suppliers altogether) if you grow larger.
Even if you are happy with the current structure of your business, you cannot predict the future. Perhaps you have amazing opportunities that present themselves at a later date, you want to be able to have the option to grow if that opportunity does come along.
Check different sources
If you are unsure about your potential supplier’s financial future, you can check their credit report as well. For a relatively modest fee, you can gain access to information from financial reporting resources such as D&B, Cortera, and Experian.
Remember that while you might just want to check out a single one, there are differences between the three options that make it worth looking into more than one. For example, Experian does not collect any self-reported information directly from debtor businesses while collecting all of its information through third party data vendors or providers and a network of Accounts Receivable contributors. This means that it is not possible for a company to influence its own credit rating. You have to look for yourself and see which best matches your needs.
Even though they are not always unbiased, it is also a good idea to check out information that you can find online. Are business sources suggesting that the supplier is having financial difficulty? Are people complaining about delayed payments on social media? It might take a while to find this information, but it is certainly worth doing your homework if it means that you avoid going with the wrong option.
Granted, this seems like a lot of work, especially if you would prefer to have your vendor selected yesterday. Remember that choosing a vendor that will be out of business or otherwise unavailable within a few short months has lasting consequences.
It might be frustrating to look at the all the information listed here and compile the different factoids about possible suppliers. However, if you compare that to having your equipment break down only to find out that you no longer have a dealer that can support it, it sounds like an easy choice.