Choosing a Supplier (SQA National 5 Business Management): Revision Note

Factors affecting the choice of supplier

• When choosing a supplier, a business must think carefully about several key factors

  • The right supplier can help reduce costs, improve quality and keep customers satisfied

Key factors influencing the choice of supplier

Price

• The price charged by a supplier affects how much it costs the business to make its products

  • If raw materials and components are expensive, the overall cost of production will rise

• Finding a cheaper supplier can help increase profit, but very low prices may also mean lower quality, which can affect the final product

Quality

• The quality of materials directly affects the quality of the final product

  • Poor-quality supplies can lead to faulty goods, customer complaints, and loss of reputation

• Many businesses are willing to pay slightly more for high-quality, reliable materials to keep customers happy

Lead time

• Lead time is how long it takes from placing an order to receiving it

  • Some businesses need fast delivery, especially if they use just-in-time stock control or sell perishable goods

• A supplier that delivers quickly helps the business keep production running smoothly

Location and transport costs

• A supplier that is close to the business helps reduce transport costs and delivery times

• Local suppliers are also useful when the products are fresh or perishable, such as food items

• However, some businesses import supplies from abroad if the prices or quality are better

Reliability

• Suppliers must deliver the right goods at the right time

  • If deliveries are late or incorrect, production can stop and customers may not get their orders

• Some suppliers have minimum or maximum order limits, which might not suit all businesses

  • Large firms often need suppliers who can handle bulk orders consistently.

• Reliable suppliers help businesses maintain a steady flow of stock and avoid delays

Trade credit

• Some suppliers offer trade credit, allowing a business to receive goods and pay later - for example, after 30 or 60 days

• This helps the business manage its cash flow more easily

• Businesses usually prefer suppliers that offer longer payment terms

Reputation

• A supplier with a good reputation is more likely to provide high-quality goods and deliver on time

  • Using unreliable or poorly rated suppliers could damage the business’s own reputation with customers

• Many businesses now look for suppliers that act ethically and protect the environment

  • This might include fair pay, safe working conditions and using sustainable materials

  • Choosing responsible suppliers can also improve the business’s brand image