Supplier Management
Managing the relationship with suppliers: selection, evaluation, negotiation, execution, and building long-term partnerships. A reliable supplier is a business backbone. An unreliable one means stockouts, poor quality, and crises.
In practice
Supplier management is the 'quiet management' that determines business outcomes. 80% of store owners don't manage suppliers — they react to them. A supplier's mistake means a stockout. A late supplier means a disappointed customer. An uninsured supplier means disruption. Proactive management means security.
Common misconception
'One supplier is enough.' Single-sourcing is a single point of failure. A supplier running into trouble means your stockout. Best practice: a primary supplier plus a backup supplier for every critical product. Even a backup supplier handling 10% of volume provides security.
How to fix it
Unreliable supplier? (1) Build a scorecard: delivery time, quality rate, communication, MOQ, (2) Hold a quarterly review with every critical supplier, (3) Build a backup supplier for every top-selling product, (4) Set an SLA with a penalty for non-compliance.
Example
Apparel store: a single supplier in China. COVID = zero shipments for 4 months. $61,000 in lost revenue. Afterward: a primary supplier (60%) + a backup supplier in Turkey (40%). A second COVID wave: the backup covered it. Zero stockouts.
Priority
Run a quarterly supplier audit: a scorecard for every critical supplier. A backup supplier for every top-20% product. A supplier agreement with an SLA — don't operate on a handshake alone.
Related terms
Keep learning. Metrics that touch the same area:
- Lead TimeOperationsThe time from ordering with a supplier to receiving inventory. Critical for calculating the reorder point.
- Demand PlanningOperationsA managed process for forecasting future demand and planning purchases accordingly. Differs from demand forecasting by also including: planned promotions, seasonality, new launches, and promotional events.
- SKU – Stock Keeping UnitOperationsA unique identifier for each product variation. The basis for precise inventory management.
- Inventory ManagementOperationsTracking, ordering, and maintaining inventory. Too much means cash tied up. Too little means stockouts.
- StockoutOperationsA product unavailable for shipping. Immediate lost sales plus damaged trust.
- DropshippingOperationsSelling without holding inventory — a supplier ships directly to the customer. Low margin (5-20%), no quality control.
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