Purchasing

2.1 Suppliers should be easy to find, through:

• Existing suppliers or competitors' suppliers.
• Trade journals, trade associations and Chambers of Commerce.
• Business Link (0845 600 9 006).
• Directories - in the library or on the Internet, such as www.yell.com.
• Business directory websites, such as www.thelocalweb.net or www.scoot.co.uk. The Used Equipment Network has used machinery, from aircraft to X-ray scanners.
• Suggestions from friends and employees.

2.2 Make up a shortlist and write to each supplier, explaining your exact requirements.

• Ask suppliers to send you product details, price lists and other relevant information.
• You can often obtain better terms by letting suppliers know that they are competing for your order.

2.3 Pick out suppliers you believe can offer the quality of product and service you need. Compare them in terms of:

• Product suitability and reliability.
• Reputation, based on references.
• Quality and flexibility of service.
• Location and ease of communication.
• Speed and frequency of delivery.
• Price range and order size.

2.4 For long-term supply contracts, make the effort to visit those suppliers that seem to meet your quality standards. To assess how they are likely to perform, ask yourself:

• Are they professional, or sloppy?
• Do they have too much work, or not enough?
• How eager are they for your business?
• Do they have the necessary equipment and space to cope with your order?
• Do they appear to be financially stable?

2.5 Get quotes, including details like discounts and payment terms, to use in negotiations.

• Ask how often prices will rise, what influences will cause them to rise, and how you will be notified.

2.6 Once you have narrowed the choice down to two or three suppliers, negotiate prices, discounts and levels of service.

• For a healthy long-term relationship, do not negotiate too hard a price at the expense of quality.

3.1 Put most of your effort into:

• Supplies you will spend the most on - five or ten items may account for 90 per cent of the money you spend.
• Supplies crucial to your production.

3.2 Avoid over-dependency on one supplier.

• What happens if the supplier goes bust?
• Alternative suppliers provide competition.

3.3 Give most of your orders to just a few suppliers.

• If appropriate, ask for bulk or cumulative discounts (eg if you order 5,000 units in the next year, you get a five per cent discount on all orders during that period).

3.4 Treat suppliers well and they will treat you well.

• Keep them up to date with your needs.
• Build a relationship of trust.
• Ask for their views and ideas.
• Consider establishing long-term partnerships with key suppliers. Co-operate to improve the goods and services supplied and relevant procedures and systems.

3.5 Agree in advance what will happen if the supplier's goods are faulty.

• Will the supplier replace the one faulty item or the whole batch?
• Will replacement supplies be delivered immediately, or will you get a credit note?
• Will replacement goods be free? Who will pay for delivery?

3.6 Ensure that the supplier fits in with your ordering systems.

• Will the supplier agree always to quote your order reference?
• How will you be able to avoid paying for all the goods when part of a delivery is incorrect?

3.7 Agree on payment terms.

• Payments in advance should generally be avoided, especially if you are unsure about the supplier's creditworthiness.
• Ask for a discount for early payment.

4.1 How much stock do you need to hold?

Holding stock ties up money and increases warehousing costs. Aim to minimise your stock levels and make delivery of supplies the supplier's responsibility.

• How reliable are the supplier's deliveries?
• How long does delivery take once an order has been placed?
• What will happen if you run out of stock?
• How much storage space do you have?

4.2 How will you decide to order?

• For many small companies, a weekly stock check and ordering routine is sufficient.

4.3 How can you avoid late deliveries?

• Make delivery terms clear, in writing, when you place your contract.
• Ensure your supplier is familiar with the time constraints that affect your business.
• Keep track of what deliveries are arriving when. Chase them up immediately if they are late, contacting the supplier's managing director if necessary.
• Always check what has actually been delivered before signing the delivery note.
• Agree delivery performance standards as a condition of the contract.

5.1 Outright purchase of a new lathe.

• Can this new business afford to tie up its cash in capital equipment?

5.2 Purchase of a secondhand lathe.

• Will the machine be reliable?
• Is there a guarantee?
• Can the seller prove ownership?

5.3 Hire purchase of a lathe.

• Hire purchase is a way of buying without having to pay for your purchase in one go.
• Compare the cost of hire purchase with that of other finance, such as a bank loan.

5.4 Lease of a lathe.

• A lease allows you to pay for the use of something without buying it.
• Check the lease's small print.

5.5 Subcontracting out the lathe work to an outside supplier.

• Will the supplier work to the required standards and timescales?
• Can a subcontractor supply the quality that is needed at the right price and still make a profit?

5.6 Buying in ready-made round table legs.

• Do these meet the quality requirements?
• How do the costs compare?

6.1 If you do buy or lease equipment, think through your requirements. For example:

• Technical specifications - output per hour, accuracy, wastage, controls, safety, reliability, and the machine's life expectancy.
• Compatibility - with other equipment, available power supplies and your premises (especially if the building is old).
• Guarantees - will the seller still be around to honour the promises made now?
• Technical support - assume everything will go wrong.
• Technical skills or training required - will you need to hire specialist staff?
• Options for expansion and upgrading - or will the equipment soon be obsolete?

6.2 What are the true costs?

• Purchase price.
• Delivery and installation costs.
• Maintenance costs - service and repairs, including parts.
• Running costs - power, lubrication, cooling and consumables.

7.1 Purchasing office supplies is often regarded as unimportant. As a result, many start up businesses end up paying far too much.

• Make the initial choices yourself. Then give one person responsibility for reordering.
• Do not overstock. Almost all suppliers will offer you next-day delivery.
• Office supplies specialists (eg Office World, 0800 138 1310) will usually beat the prices on offer at your local suppliers.

7.2 Contracting out office services can be more cost-effective than using permanent staff.

• Examples include cleaning, maintenance, security and computer services.
• Potential benefits include lower costs, more flexibility and access to continually updated technical expertise.