How can Supplier Management impact your business?

How do suppliers influence the business?

Interaction with suppliers is the basis of the company's successful work. The right choice of supplier and effective cooperation with them to ensure the development of production and minimize possible risks for the business.

Suppliers play a crucial role in different types of businesses, as they provide the necessary products or services for them to operate effectively and successfully. Here are some examples of how suppliers can influence different businesses:

  • In manufacturing, suppliers provide the raw materials and components that are used to create the final product. If the suppliers are unable to provide these materials on time or of good quality, it can cause delays, lost revenue and damage to the business's reputation, as well as client dissatisfaction.
  • Retail businesses rely on suppliers to provide them with the products they sell. A supplier's ability to provide a wide variety of products, competitive prices, and timely delivery can greatly impact the success of the retail business.
  • Service-based businesses such as restaurants and hotels need suppliers to provide them with food and other essentials. If suppliers fail to deliver on time or if the quality is poor, it can negatively affect the business's ability to provide good service to customers.
  • High-tech businesses such as software development companies are dependent on suppliers for specialized components and details of equipment.

In all these situations, suppliers can have a major impact on a business's performance and revenue. By having a proper supplier management system integrated into the company’s strategy, businesses can reduce the risks of supplier failure and ensure they have a steady flow of high-quality products and services at a reasonable cost.

The influence of suppliers on an enterprise's activity is that they create a certain resource dependence, the strength of which depends on the state of a particular resource market. For example, monopolistic enterprises setting unreasonably high prices for their goods may put the enterprise at risk of bankruptcy. Under such conditions, the enterprise should direct its efforts to minimize resource dependence.

Regardless of what products the supplier provides the enterprise with, the effectiveness of the enterprise's relations with them depends on a number of parameters: the level of supplier specialization, the cost of switching from one supplier to another, the availability of alternative suppliers of similar resources, etc.

Many businesses seek to limit the circle of their suppliers and focus their efforts not on finding price benefits, but on building strong mutually beneficial relationships with those that remain. Many businesses have realized that by working closely together, they can achieve significant savings, improve the quality of goods and services, and accelerate the time to market for new products. Penenza is a service that can help companies achieve the above goals on the B2B market. We provide our clients with a competitive advantage and continuous customer loyalty growth. These factors consequently result in bigger deals and higher sales, increasing the popularity of client’s services or products.

Suppliers have an opportunity to directly influence the efficiency of functioning of their buyers and customers. Strong suppliers are able to raise or lower the prices of their goods, as well as raise or lower the quality of the goods and services offered by the company to its clients.

Competitive influence on the part of suppliers is greatly reduced if the goods they supply are standard commodities supplied to the open market by a large number of firms that fully meet the demand. In that scenario it becomes easy to select a few producers from the list of suppliers and place orders with them, thus generating competition between them.

In this situation, suppliers can influence the market when the supply of their products is limited and consumers are in such dire need of them that they are willing to agree to terms that are more preferable and favorable to suppliers. A supplier's competitive power is reduced if there are large quantities of substitutes on the market and switching to them is not costly. If this case is familiar to your business, you can invite your supplier to join the Penenza platform and buy from them in regular installments.

What is supplier management?

Supplier management is the process of making sure a company gets the goods and services it needs from outside vendors. It includes finding and choosing vendors, making agreements with them, checking how well they do, and keeping a good relationship with them throughout the process.

The main goal of supplier management is to get good quality goods and services at a fair price, while also avoiding risks and keeping good relationships with vendors.

These goals are accomplished through a variety of activities such as:

  • Identifying and evaluating potential suppliers using a systematic approach, such as the Analytical Hierarchy Process (AHP) or the Total Cost of Ownership (TCO) model.
  • Negotiating contracts and agreements with suppliers that include terms such as pricing, delivery schedules, and payment terms. This step involves making compromises to achieve the desired terms.
  • Monitoring supplier performance using metrics such as supplier on-time delivery rate, supplier quality rate, and supplier responsiveness rate. These can be used to decide if it is reasonable to cooperate with a certain supplier, or there is a need to change.
  • Building and maintaining positive relationships with suppliers using the concept of supplier engagement, which is a two-way process of collaboration and communication.

Effective supplier management can lead to company cost savings, improved quality, increased operational efficiencies, and in turn, greater organizational competitiveness and profitability compared to other organizations on the market.

Additionally, supplier management also encompasses compliance with relevant laws, regulations and company policies, such as those related to sustainability, labor practices, and data security.

Organizing work with suppliers begins with finding them. In order to choose a supplier the company can:

  • Announce a competition;
  • Study advertising materials, professional periodicals, catalogs;
  • Visit industry fairs or exhibitions to establish contact with possible suppliers or their representatives.

What is the power of suppliers in business?

The competitive power of suppliers is reduced when large quantities of substitute goods appear on the market, and switching to them does not seem difficult or costly. That is relevant on a B2B market, as good terms may offer a long term partnership. On the other hand, if switching to a competitor is easy, it might be the case which a supplier would not want to happen.

The competitive power of suppliers increases if they can provide component parts at lower prices than if they produce them themselves. The influence of suppliers is great as long as the number of components does not increase enough to create backward integration.

When evaluating a supplier's bargaining power, there are four main criteria to consider.

  • Number of suppliers compared to buyers
  • How dependent the buyer is on the supplier's sales
  • The switching costs of suppliers
  • Availability of suppliers for immediate purchase

Here is a list of factors that suggest a strong supplier power in business:

  • The cost of switching for buyers is high
  • There are fewer suppliers than buyers
  • Low dependence of supplier sales on buyers
  • Supplier switching cost is low
  • Substitutes are not available
  • Buyers rely heavily on sales from suppliers

And this factors would hint that the power of a supplier is rather weak:

  • The cost of switching for customers is low
  • Suppliers are larger compared to buyers
  • High dependence of supplier sales on buyers
  • Supplier switching costs are high
  • Substitutes are available
  • Buyers are not highly dependent on supplier sales

In B2B relationships, the power dynamics between suppliers and buyers can greatly impact the success and profitability of the buying firm. Suppliers with a strong bargaining position hold a significant amount of influence over the prices, quality, and delivery of the goods or services they provide for their customers. This power dynamic can be shaped by a complex interplay of variables, such as:

  1. Control over key inputs or resources: If a supplier controls a critical resource or input that is essential for the production process of the buying firm, it can give them greater bargaining power.
  2. Lack of substitute products: When there are limited alternatives for a particular product or service, the supplier has a stronger bargaining position.
  3. Large supplier size and market concentration: A supplier with a dominant market share can exert more power in negotiations due to their size and bargaining leverage.
  4. Strong brand reputation: A supplier with a well-established brand and reputation can leverage this to increase their bargaining power.
  5. Dependence of buyers on the supplier: If the buying firm is heavily dependent on the supplier for its operations, the supplier can use this to negotiate better terms.

When suppliers hold too much power in a B2B relationship, it can result in higher costs for the buying firm and reduced negotiating leverage. On the other hand, a well-negotiated relationship with a supplier can bring stability, better pricing, and improved product offerings to the B2B partnership. It’s important for buying firms to carefully evaluate and manage their relationships with suppliers to ensure that they are operating in a balanced and mutually beneficial partnership. By doing so, they can improve their bargaining position, secure better terms, and achieve long-term success and growth in their B2B collaborations.

What is the positive impact of suppliers?

In the B2B setting, suppliers can bring significant advantages to the table and enhance a company's performance that would propel it towards prosperity. Here are several ways in which suppliers can have a positive impact on a business:

  1. Quality Assurance: Collaborating with trustworthy suppliers that prioritize quality and consistency can bring a heightened level of dependability to a business's offerings. This can result in elevated customer satisfaction, improved brand recognition, and decreased warranty costs.
  2. Economical Benefits: By forging partnerships with suppliers that offer advantageous pricing, a business can reduce its expenses, freeing up resources to be allocated towards other areas of the company.
  3. Progressive Thinking: Suppliers can act as a valuable source of cutting-edge ideas, novel products, and state-of-the-art technologies. They can help a business remain ahead of the curve and preserve its relevance in the industry.
  4. Streamlined Operations: Efficient suppliers can optimize the supply chain and hasten delivery times, leading to improved productivity and reduced waste of valuable resources.
  5. On-time Delivery: Working with dependable suppliers can guarantee that deliveries are executed promptly and with precision, enabling a business to reach its customers more swiftly and generate revenue faster.
  6. Strong relationships: Building strong relationships with suppliers can lead to better communication and problem-solving.
  7. Minimized Risk: By diversifying its supplier base, a business can reduce its risk exposure, safeguarding itself from supplier disruptions or failures. This can foster stability and help it attain long-term success and growth, which is crucial on a B2B scale.

What profits supplier management can give your business?

In general, a supplier's capabilities are evaluated by summing up the indicators of quality, price, timeliness of delivery and service.

The following method is based on the study of the characteristics that reflect the benefits of supplier management.

A sample list of characteristics includes the following:

  • Organization: expansion of product markets; building a circle of loyal customers; ensuring environmental safety; resource conservation in production and disposal; protection of intellectual property and business security; compliance with contracts, agreements, just-in-time delivery schedules.
  • Partnership: corporate supply chains; openness to the society; activation of external relations; support of social programs; active participation in associations, holdings, councils; cooperation with other suppliers.
  • Prospects: leading role in the industry; mastering of new technologies; introduction of information technologies; use of modern methods of marketing, financial management; delivery of new products to the market; preparation of elements of the logistics system of commodity circulation; improvement of the organizational structure of the enterprise.

  1. Understanding by the supplier of the role of product quality assurance and its link in the supply chain and assuming responsibility;
  2. The supplier takes effective corrective action as requested by the customer with respect to its management system or product quality;
  3. Receiving consistent feedback from the customer's management system from the supplier.

Why do you need to use BNPL-format supplier work?

The BNPL method of dealing with suppliers in B2B scenarios brings many perks to companies who choose to implement it into their strategic work processes.

  1. Cash Conservation: By allowing companies to delay payment until a later date, BNPL conserves cash flow and frees up resources to be allocated to other important business operations.
  2. Elevated Purchasing Potential: With the BNPL option, companies can purchase more goods and services without the immediate need for full payment, thus increasing their purchasing power.
  3. Strengthened Supplier Partnerships: BNPL establishes trust and good faith in payment practices, leading to stronger relationships with suppliers. These are essential for long term success.
  4. Adaptable Budgeting: BNPL aligns expenses with cash flow and provides businesses with more control over their budgets, fostering greater financial flexibility.
  5. Business Expansion Opportunities: BNPL enables businesses to take advantage of new prospects and ventures, such as product launches, marketing campaigns or special promotions, that may require substantial upfront investment.
  6. Efficient Record Keeping: BNPL simplifies the tracking of payments and expenses, making the record keeping process a more organized and accurate activity.
  7. Reduced Financial Risk: By spreading payments over time, BNPL reduces financial risk for B2B companies, particularly those with limited cash reserves.

In conclusion, the BNPL approach is a highly valuable tool for businesses seeking to optimize their supplier management systems. With its numerous benefits BNPL has the potential to revolutionize the way companies approach supplier management in the B2B market. Platforms like Penenza provide an easy-to-use way to explore BNPL for B2B-oriented customers and help to elevate companies' payment processes through comfortable terms.