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Operations: Purchasing From Suppliers
There are several things to consider when looking for suppliers for the materials, supplies, and resale items you will need for your business. Here are a few tips to keep in mind:
- Subscribe to Trade Magazines. They are full of information about companies and products you might never know about otherwise. Many of these magazines also publish an annual Buyer's Guide with listings for products, companies, and services common to the engraving industry.
- Go to Trade Shows. You can find more sources for products and new ideas in a day at a trade show than you can in a whole year making inquiries from your desk. Be prepared by bringing lots of business cards and a large tote bag for carrying all of the catalogs and brochures the exhibitors will have for you. You should also be prepared to place orders at the show, since many exhibitors run show specials, including price discounts, free freight, and other incentives. Have purchase order numbers with you if required by your company.
- Search the Internet. The most valuable source of information available today.
- Use the Thomas Register. These books are published annually and are encyclopedias for finding companies, products, and services nationwide. A set can be a pricey investment for a small company, but you should be able to find them in the reference section of your local library. They are cross-referenced so that you can look up a particular item from an alphabetical list, by the company that makes it (if known), or by state (if you need a source close to your location). You may also find the Thomas Register listing on the World Wide Web.
- Check your local Yellow Pages. Many will have listings with toll free numbers for the larger manufacturers of equipment and supplies, even if they're not in your state.
- Join a local industry organization. Some areas have state or local associations for people who are in trophy, awards, and engraving related businesses. Although the other members can be your competitors for some products or services, they can also be a great source of information and an alternative to turning away an order for a product you don't normally handle yourself. On occasion, you may even get a potential customer referred to you by another member. Many chapters will combine purchase orders to take advantage of the manufacturers deeper discounts.
STOCK OR SPECIAL ORDER?
Decide which products and items you want to offer as "in stock" and which you will provide as "special order." As you gain experience with your product line, you may add items that sell well to your "in stock" category, or reclassify other items that are less in demand as "special order." Some consideration should be given to your supplier's lead-time for a particular item and how long it takes for the freight to arrive at your door. Plan to stock items that are quick movers or have a long lead-time, and special order items that you can receive in a few days.
When adding new offerings to your product line, order a few to see how your customers will receive them before placing a large order to add to your "in stock" inventory. The idea is to turn over your inventory an average of four times per year. You do not want cash tied up in slow-moving inventory items that you will have trouble selling.
Remember to display the items that you have in stock but also let your customers know that you may be able to accommodate special requests for unique items if time permits.
HOW TO SELECT A SUPPLIER
Unit price is not the only thing to look for when choosing a supplier. You will also need to consider the following:
- Lead-Time. There will be times when you will need to pay a little more in unit cost to get a faster delivery. It doesn't matter if your usual supplier has a better price if they can't deliver in time for you to meet your customer's deadline.
- Freight Charges. It is wise to find suppliers that are close to your business. The farther away the supplier is, the higher the freight charges generally will be. Your orders will also arrive sooner if they are shipped from a source closer to you. Ask your supplier what their policies are regarding freight charges. Try to find suppliers that charge only the actual freight charges billed by the carrier, instead of those that add extra "handling" charges. Some suppliers will include freight at no extra charge if you prepay for the order by check or credit card. This can save several dollars per shipment.
- Expedited Freight. Try to order inventory items and supplies far enough ahead to allow shipments to be sent by ground freight instead of using overnight, two-day, or three-day expedited services. Sure, there will be emergencies or special customer orders that will require the occasional expedited shipment, but using standard ground freight most of the time will save you a lot of additional expense. If your customer requests expedited shipment on a special order, include the added freight charges in your quotation, and let them decide how fast it really needs to be shipped to you. It's amazing how the customer's deadline becomes more flexible when they find out how much next-day freight will cost them.
- Freight Insurance. Most suppliers will automatically add on extra freight insurance based on the invoice total of your shipment.
- Packaging Charges. If your large order is shipped as individual boxes instead of on a skid or pallet, you may need to pay for the extra protective packaging required to prevent the contents from being damaged in transit. Generally, stacking the boxes on a skid can prevent the boxes from being damaged without the need for extra packing materials or handling. As a general rule, it also costs less for freight charges if a large order is sent on a skid and charged based on the total weight, instead of being charged for each box individually.
- Minimum Orders. Most companies have an established minimum quantity or dollar amount that you must meet to place an order. When possible, avoid surcharges for ordering less than minimum quantities. These charges can eat into your profit margins very quickly if you're not careful. Sometimes the charges can cost more than the item you're ordering.
- Local Suppliers. If there is a local supplier in your area for engraving plastics and supplies, it will save shipping time and freight charges if you can pick up your orders yourself. It will also make it easier for you to offer quick turnaround to your customers. One word of caution - Don't drop everything to run down the street to pick up something without a call first to check availability. Your time and gasoline will be wasted if your supplier is temporarily out of stock on the one item you need. Also, keep the number of trips to a minimum, except for those real emergencies. Otherwise, you can spend all of your time running around and your production time will be reduced.
- COD Charges. Every time you have a shipment delivered COD (Cash On Delivery), the freight company charges a fee to collect your payment and send it to your supplier. In the case of multiple-carton shipments, some companies divide the total invoice price equally among all of the packages, which results in a COD fee for each package. At a cost of approximately $9 per box depending on the carrier, these charges can add up very quickly. To avoid COD fees, take the time to ask for and send in credit applications to establish open accounts with your suppliers, or ask them to bill your credit card. As long as you pay off the balance on your credit card every month to avoid finance charges, you can save a significant amount of money.
- Samples. Go ahead and ask. Many vendors are happy to provide small quantities of samples for free or at a reasonable discount. However, don't spoil a good thing by abusing this. Offer to purchase the item if it is expensive or if the vendor has gone out of their way to accommodate you.
GENERAL ADVICE
When placing orders, it is good to get into the habit of faxing or emailing a written confirmation of the order to your supplier, and ask them to do the same. Confirm the order in writing, even if you've spoken to your supplier previously. Mark the order as "Confirming - Do Not Duplicate" to prevent the supplier from sending two shipments. This can alert you to any discrepancies in pricing, quantities, date of shipment, method of shipment, or other details, which could interfere with the commitments you've made to your customers.
Do not switch vendors at the drop of a hat. Loyalty can bring rewards. Your ability to negotiate special considerations in difficult times is much greater if you develop a strong relationship with the vendor. Vendors are happy to work with and support customers that are consistent and do not make unreasonable demands on them.
Keep good purchasing records. If you keep a manual system, save invoice copies and purchase orders. Both records will come in handy during disputes as well as for issuing future orders. If your system is computerized, keep prior year or history information available for reference. You will be able to detect price increase trends and make retail adjustments to compensate.
Take advantage of volume discounts. Find out if your suppliers offer price breaks at certain quantities, or if freight charges are free for orders over a particular dollar amount. When possible, try to plan your orders around these discounts.
Check for payment discounts. Some companies offer a 2% or more discount if you pay their invoices in 10 days instead of 30. This may not save many dollars for one small invoice, but if you can pay early, the savings at the end of a year can be significant.
The Engravers' Bible © 1999 by Rich Zydonik/National Business Media, Inc. Printed and Bound in the United States of America. All rights reserved. No part of this self-study manual may be reproduced in any form without permission in writing from the author/publisher. Additional legal, financial and professional management advice and/or assistance are encouraged.