1. Operations Management Working with Suppliers
“Let us ask our suppliers to come and help us to solve our problems.”
W. Edwards Deming
2.11 Working with Suppliers

2. Working with Suppliers In this topic you will learn about:
Choosing Effective Suppliers
The role that suppliers play in improving operational performance
2.11 Working with Suppliers

3. How many other suppliers are you likely to also deal with?
What are suppliers?
Suppliers are those people responsible for providing goods or services to businesses
Farmer supplying wheat to Kellogg's or beef to Asda
Component manufacturer supplying bolts to a furniture manufacturer
Electricity company providing power to a theatre
Fashion designer providing their summer range to a boutique
Regardless of the nature of a business they will have goods and services provided to them from another business (B2B)
Most businesses will work with many suppliers
Assume you run an internet shop selling just 1 specialist product, a cycle helmet, which you buy in from a supplier.
How many other suppliers are you likely to also deal with?
Now imagine the scale of this if you were running a cycle shop in a city centre.
2.11 Working with Suppliers

4. Choosing effective suppliers
Before choosing suppliers businesses should set criteria for the selection process, identifying what are the most important factors for them
Price
Payment Terms
Quality
Capacity
Reliability
Flexibility
You will need access to the internet to watch this video clip
Small businesses wishing to supply to larger ones
will often have to work hard to get their products
or services accepted.
What are the advantages to supermarkets of working
with local suppliers?
What are the risks to supermarkets of working
Why might small local suppliers want to supply to
large supermarkets?
2.11 Working with Suppliers

5. Choosing effective suppliers - Price
Price is often a key consideration in choosing a supplier
Keeps unit costs low
Can either
pass on savings to consumer in the form of lower prices or
enjoy higher profit margins
Businesses must however be careful that lower prices do not mean sub standard quality
Value for money is important
Larger businesses are often able to exert pressure
on smaller suppliers to secure low prices
You will need access to the internet to watch these video clips
2.11 Working with Suppliers

6. Choosing effective suppliers – Payment Terms
It is common place for suppliers to offer credit to its customers i.e. the option to receive the goods or service now but pay at an agreed point in the future.
Payment terms will vary depending upon the relative sizes of the firms and also nature of the product or service.
Payment terms can be
In advance
Upon delivery
Pre agreed credit terms e.g. 30 days
Payment Plan i.e. payment in stages
A business may wish to choose a supplier with generous payment terms in order to help their own cash flow.
If a large customer was to buy a new, bespoke
IT system, the payment plan might be
10% up front
30% at testing stage
50% upon completion
20% after 2 years successful implementation
Why might this plan help a supplier win
the contract?
2.11 Working with Suppliers

7. Choosing effective suppliers – Quality
When choosing a supplier for a component, quality will have a direct effect on the quality of the finished product
One poor quality component will affect the whole product
A top chef working with a poor quality steak will not be able to achieve the quality of meal he/she could with a quality steak
A pair of jeans with a poor quality zip will devalue the quality of the jeans
The quality may also impact upon the operational efficiency
Need to rework manufactured goods
Cause breakages to machinery
Take longer to handle
In retail the quality of the stock will directly influence the reputation and image of the store
A poor quality product can damage the image of the retailer more than the actual manufacturer.
Why is this?
2.11 Working with Suppliers

8. Choosing effective suppliers – Capacity and Reliability
Is the supplier able to produce enough to meet your demand
Consistent quality?
Correct quantity?
On time?
Can you trust the supplier to deliver your order
Accurately?
If not then how will this influence operations
Stoppages in production?
Empty shelves?
Letting down your customers?
Why might a business choose to
buy stock of one item from more than one supplier?
You will need access to the internet to watch this video clip
Reliability can also mean trust, can businesses
trust their suppliers to adopt fair practices?
2.11 Working with Suppliers

9. Choosing effective suppliers – Flexibility
Flexibility is the ability to respond to change
To meet a sudden increase or decrease in demand
Change an aspect of the product to meet changing consumer tastes
Respond to erratic demand
Seasonality
Fashion
A business may consider the capacity utilisation of its suppliers
Flexibility can be particularly difficult in certain industries including
Agricultural and Pharmaceutical.
Why do you think this is?
2.11 Working with Suppliers

10. The role that suppliers play in improving operational performance
Unit Cost
Price of components, stock or service
Payment terms, avoiding bank charges
Frequency and reliability of deliveries, minimising stock holding costs
Quality
Charge higher price
Meet quality standards
Meet customer expectations
Capacity Utilisation
Achieve output targets
Respond to changes in demand
Can you explain how
all of these aspects
of working with
suppliers and
operational
performance are
interlinked?
2.11 Working with Suppliers

11. Activity –Your reputation in your suppliers hands?
You are the buyer for a high street retailer.
Your average customer is aged 14-21, males and females, looking
for high fashion clothing.
What would be your top 4 criteria for choosing a supplier?
Justify your answer.
Do retailers have a responsibility for ensuring the
ethical behaviour of their suppliers?
In the light of these videos would you alter your
selection criteria? Justify your decision.
You will need access to the internet to watch these video clips
2.11 Working with Suppliers