What we're talking about
Whether you're a product or service business, you'll very likely be relying on suppliers in some form. That could be through infrastructure (eg, utility providers or web hosting services); subcontractors that do specific tasks for you; or, if you're selling physical items, manufacturers, distributors and importers. For these physical items, a supplier provides the raw materials or the complete products at a wholesale price. You can then sell them, with a markup, directly to your customers. Some businesses will just have one supplier; others will have many.
Why it's important
Your suppliers form the backbone of your business, so you want to identify providers you can have long-term, mutually beneficial relationships with. And, though small businesses don't always have a huge amount of bargaining power when looking for and setting up contracts with suppliers, that doesn't mean it's not possible to find the right partners with a considered approach. The benefits include excellent value for money, informed input on product development and general reliability that you'll get what you need, when you need it. According to professional services company Deloitte, 79% of companies with efficient supply chains see above-average revenue growth.
If you find the right suppliers, you'll be free to focus on the selling side of things. If you don't, you'll find yourself fielding mistakes, delays, bad-quality products, unaffordable prices and, at worst, a total breakdown in your ability to get your customers what they want.
Things to note
Know your manufacturers from your distributors. Not all suppliers do the same thing, so be clear on the specific service you're looking for. The most notable distinction for physical product businesses is between manufacturers and distributors. A manufacturer custom makes something for you; a distributor brings together a bunch of already manufactured products and sells them on. If you've designed a prototype and need someone to build it, you're after a manufacturer. If you're in the market for a product that's already sold elsewhere, or raw materials, look for a distributor.
Domestic and overseas suppliers have different pros and cons. The choice between a supplier in your own country or abroad involves many factors including cost, time, quality, feasibility and industry norms. Broadly speaking, domestic suppliers should get products to you quicker, and there's typically the added benefit of easier communication with no time zones to negotiate. You'll also need to think about the environmental impact of shipping products hundreds, if not thousands, of miles. However, widening the net obviously has its own benefits – more options, and likely lower prices.
Transparency and resilience are key. The pandemic revealed what happens when vulnerabilities in supply chains are exposed; 60% of big business execs surveyed by professional services company EY, for example, said Covid-19 increased the strategic importance of their supply chains. As a small business, you can't afford to ignore the related concepts of transparency and resilience. Supply-chain transparency hinges on knowing what's happening, and that certain standards (working hours, pay, bans on child labor and modern slavery) are being met, at all points of your supply chain. Resilience is about ensuring that your suppliers can respond to changes and get what you need on time, and that you have a backup plan if something extraordinary occurs.
Get your house in order. Without the finances of a big corporation, understand that suppliers will be sussing you out, too. That means making sure your house is in order before you start requesting quotes or negotiating. You need to give the impression that you're serious about building a long-term relationship.
Watch out for scammers. Unfortunately, scams do happen, so you need to know how to weed out the frauds. A good way to start is by using a trusted supplier directory, like this one from sourcing tool Sourcify, asking for references and samples and making on-site visits. In general, trust your gut if something seems off with their online presence or customer service. Look out for vagueness on details and lack of transparency. If it feels too good to be true, it might be. There are some more detailed tips from the University of California San Diego here.
How to find a supplier for your product business
1. Be clear on what you're after. Have a detailed understanding of the item you want before you start your search; for example, is it raw materials or rather a prototype that you're looking for a manufacturer to help develop? Be as clear as you can on size, material and functionality options. In both cases, determine the kinds of quantities you'll be ordering, as well as a price-per-unit limit.
2. Identify the kind of supplier that will fulfill this need. You'll have some non-negotiables (eg, distributor vs manufacturer, order quantity) and some expectations that are a little more flexible (eg, shipping time or factory location). Now that you have a decent idea of what and who you're looking for, you can start a targeted search.
3. Ask for recommendations. A reliable place to start is with those you already know. Ask around in your network and get in touch with similar businesses. Seeking referrals can be tough when you're speaking to direct competitors, but suppliers themselves encourage and reward lead generation from their customers.
4. Scour trade resources. Now see what your wider industry can offer. Look at trade journals, trade shows (this global calendar from the Tradeshow Network Marketing Group might help) and other relevant resources. You might also join an industry association (here's a list from the Directory of Associations), which will showcase supplier options and offer advice.
5. Use the internet. Search engines, supplier directories and marketplaces will throw up plenty of results. Depending on where you are, you might find the Alliance for American Manufacturing, eSources, The Manufacturer Directory, ThomasNet, or EuroPages helpful. Then, there's Alibaba – an enormous B2B marketplace, which primarily lists suppliers in China. It's definitely worth a look, after you've consulted its how-to guide.
6. Check legitimacy. You should have a shortlist at this stage of around five to 10 options. Put the basic information into a spreadsheet and, using some of the tips mentioned above, check that none of the options are fraudulent.
7. Discern pros and cons. Though you won't have all the info you need prior to reaching out, you should be able to find out enough to narrow down your options. You might compare, for example, how positive or negative online reviews are, what ex-customers say about the supplier's strengths and weaknesses, speed of delivery to where you are, minimum order quantity (MOQ), customer service and terms and price of shipping.
8. Make an approach. Get in contact with your preferred three suppliers. In your initial outreach, be professional, friendly and concise. You're aiming to get 1) a quote, 2) some samples and 3) a reference or two from each supplier. You should also ask about things like hidden fees, working conditions, payment policy, guarantees and quality. You can find a comprehensive list of questions in the Tool section below.
9. Negotiate. It's always worth seeing if there's room to maneuver on price. Obviously, this will depend on the situation, but you might emphasize the pros of doing business with your organization, or offer to pay up front. Prices at this business-to-business level aren't set in stone, and the supplier will be open to finding a deal that's reasonable for both sides.
10. Place your order. Now that you've thoroughly explored your three options, pick one to pursue. Get the necessary legal agreements in place (typically through something called a service-level agreement and embark on your new relationship.
• With a supplier, you're not simply purchasing a service, you're entering into a partnership. Each party should assess whether the other is a legitimate business and a good fit. The strength of your business' foundations depends on it.
• Once you're clear on the kind of supplier you need, consider what your parameters are on subjects like price, location, MOQs and so on.
• There are a number of lists and directories to help you out, online and via trade bodies. Sometimes they're vetted beforehand, but you should still do your own background research.
Perspective. Here's a seriously in-depth guide to finding suppliers from serial entrepreneur, Steve Chou.
Example. One business details how it launched and shipped a new product (that is carbon-neutral and almost entirely plastic-free).
Tool. This checklist from wholesaler directory SaleHoo features 35 questions to ask suppliers before getting down to business.