Don’t Make These Mistakes When Onboarding a New Supplier
You must have heard of the ‘butterfly effect’ – events happening in one part of the world can have strange effects on seemingly unconnected things in a remote corner of the globe. The recent rise in political tensions and tariff wars has had a similar butterfly effect on the day-to-day lives of ordinary people. Because all these tensions have had a huge impact on one crucial commercial lifeline – the global supply chain. Canadian small businesses have also been affected by the supply chain disruptions, leading to increased costs, low productivity, and mounting losses.
Struggling to fulfill orders and professional commitments, many small businesses have changed track and brought on new local suppliers to reduce costs and turnaround time. Sounds like a simple solution, right?
Not unless you are careful about choosing the right supplier. If your business is looking for new supply partnerships, this article is for you.
Things to Look for Before Onboarding a New Supplier
Whether you are a new business looking for a supplier for the first time or an experienced business seeking better or more suppliers, you must consider the following before signing any contracts or partnerships.
Why Do You Want a New Supplier?
The first step is to acknowledge why you need a new supplier in the first place. Is your current supplier failing to fulfill their commitment? Or are you looking for someone with a bigger network, who can better support your growing business? Having a clear idea of why you want to work with a new supplier is important for two reasons.
Firstly, building a good, reliable supplier relationship takes years. The longer you have worked with someone, the stronger the bond and the higher the chances of them helping you when you are in a tight spot. Building such a bond with a new supplier could be a slower process than you think. Secondly, a new supplier comes with risks and challenges. With global tariff structures changing almost every week, a new supplier could end up costing you way more than your current supplier charges you.
There is no saying how long these conditions could prevail. Even if you can bear higher costs now, will you be able to in the long term? Can the business pass on these higher costs in product prices? Answering these questions truthfully is essential to your small business’s interests.
Evaluate Existing Supply Contracts
A buyer-supplier relationship is contractual. Before onboarding a new supplier, review your current supplier contracts for any exclusivity clauses. Breach of contract could land your business in a legal soup. Also, evaluate your existing contracts for the costs and consequences of breaking them. See if any current suppliers offer customized equipment, technological solutions, or systems that could make it difficult to switch to a new supplier. Tying up any loose ends with your existing suppliers before signing on new suppliers is both financially and ethically wiser.
Evaluate the Risk of Switching or Adding a Supplier
Onboarding a new supplier exposes your business to your supplier’s business health. To protect your business from the supplier’s reputation or lean phases, consider evaluating the supplier’s market reputation, sourcing channel credibility, credit ratings, audit reports, and compliance records before entering into a contract with them. Also, ensure your potential supplier’s cybersecurity systems are top-notch and regularly updated, as they will be linked to your business system. Any cybersecurity negligence could make your business data and sensitive information vulnerable to hackers and scammers. Not only could this lead to major data breaches or financial fraud, but it could also hamper production and delivery times, leading to delays and losses.
Reliability and Goodwill
Goodwill is built over the years, and it is this goodwill that makes age-old suppliers go above and beyond their usual capacity to help your business in times of crisis. But a new supplier means building a new relationship from scratch. You can mix large and small suppliers. Large suppliers with varied channels for sourcing materials are an asset if something goes wrong with one channel, whereas small suppliers are more willing to offer customized services and go that extra mile to safeguard your relationship with them. A smart mix of the two mitigates your risk, ensuring you are not left high and dry under any circumstances.
Investigate the Quality of the Supply
With your existing suppliers, you have assurance of the quality of the products or services. However, with a potential supplier, request samples and probably conduct a trial run before signing the contract to ensure the quality meets your expectations. Consider doing a preliminary background check of the supplier, using client testimonials, news reports, and feedback from their business partners. For instance, you know that a potential supplier sources his materials from China. Knowing the current tariff and quality issues with Chinese products, you might want to rethink or revise your deal with him, as problems at his end will ultimately percolate down into your business, compromising the quality of your product.
Study the Supplier’s Operational Capability
Even after passing your quality and goodwill checks, one more thing must be ascertained: does the supplier have the operational capacity to deliver the promised goods within the stipulated time? Furthermore, ensure that they are flexible and adaptable to ramp up production as your business grows. Not being on the same page in delivery times, technological infrastructure, logistics, and scalability can pose a threat to your business, financial health, and reputation.
Monitor and Review Supplier’s Performance
Having satisfied yourself with the reliability of the new supplier, your work is done, isn’t it? Not at all. Remember, a supplier is always on the lookout for a buyer to grow their business as well. Therefore, they showcase their best products and services to potential business clients like you during the initial stages of the budding business relationship. It is your duty to ensure the supplier maintains the same quality and reliability after onboarding them and throughout your working relationship. You can do so by conducting an audit of the goods received, identifying and reporting any quality or compliance issues, and monitoring your new supplier’s overall performance.
You will have to make certain changes or tweaks to your systems to accommodate any requests from the supplier. This give-and-take relationship is what will cement your business relationship and keep it going for the long term.
Contact Edelkoort Smethurst CPAs LLP in Burlington for all of Your Business Consulting Needs
A professional business consultant and accountant can help you negotiate better deals and perform due diligence and audits of new suppliers. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best accounting and business consulting expertise, contact us online or by telephone at 905-517-2297.
