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How do I find suppliers for my new business?

Suppliers are essential to almost every business.

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Without raw materials to make what you sell or manufacturers to provide what you resell, you will have a tough time growing. There are also many supplies and services your business consumes as part of general overhead, from paper clips to Internet access.

Suppliers and vendors-the terms are used interchangeably here-can do much more than merely supply you with the materials and services you need to do business. They can also be important sources of information, helping you evaluate the potential of new products, track competitors’ actions and identify promising opportunities.

Vendors can turn into partners, helping you cut costs, improve product designs and even fund new marketing efforts. If you don’t make selecting good suppliers and vendors a part of your growth plan, you’re likely to regret it.

Evaluating your supplier

Suppliers can be divided into four general categories. They are:

  1. Manufacturers. Most retailers buy through company salespeople or independent representatives who handle the wares of several different companies. Prices from these sources are usually lowest unless the retailer’s location makes shipping freight costly.
  2. Distributors. Also known as wholesalers, brokers or jobbers, distributors buy in quantity from several manufacturers and warehouse the goods for sale to retailers. Although their prices are higher than a manufacturer’s, they can supply retailers with small orders from a variety of manufacturers. (Some manufacturers refuse to fill small orders.) A lower freight bill and quick delivery time from a nearby distributor often compensates for the higher per-item cost.
  3. Independent craftspeople. Exclusive distribution of unique creations is frequently offered by independent craftspeople who sell through reps or at trade shows.
  4. Import sources. Many retailers buy foreign goods from a domestic importer, who operates much like a domestic wholesaler. Or, depending on your familiarity with overseas sources, you may want to travel abroad to buy goods.

What Makes a Good Supplier?

A lot of growing companies focus on one trait of their suppliers: price. And price certainly is important when you are selecting suppliers to accompany you as you begin growing your business. But there’s more to a supplier than an invoice-and more to the cost of doing business with a supplier than the amount on a purchase order. Remember, too, that suppliers are in business to make money. If you go to the mat with them on every bill, ask them to shave prices on everything they sell to you, or fail to pay your bills promptly, don’t be surprised if they stop calling.

After price, reliability is probably the key factor to look for in suppliers. Good suppliers will ship the right number of items, as promised, on time so that they arrive in good shape. Sometimes you can get the best reliability from a large supplier.

These companies have the resources to devote to backup systems and sources so that, if something goes wrong, they can still live up to their responsibilities to you. However, don’t neglect small suppliers. If you’re a large customer of a small company, you’ll get more attention and possibly better service and reliability than if you are a small customer of a large supplier. You should also consider splitting your orders among two smaller firms. This can provide you with a backup as well as a high profile.

Stability is another key indicator. You’ll want to sign up with vendors who have been in business a long time and have done so without changing businesses every few years. A company that has long-tenured senior executives is another good sign, and a solid reputation with other customers is a promising indicator that a company is stable.

When it comes to your own experience, look for telltale signs of vendor trouble, such as shipments that arrive earlier than you requested them-this can be a sign of a supplier that is short on orders and needs to accelerate cash receipts.

Don’t forget location. Merchandise ordered from a distant supplier can take a long time to get to you and generate added freight charges quickly. Find out how long a shipment will take to arrive at your loading dock. If you are likely to need something fast, a distant supplier could present a real problem. Also, determine supplier freight policies before you order.

If you order a certain quantity, for instance, you may get free shipping. You may be able to combine two or more orders into one and save on freight. Even better, find a comparable supplier closer to home to preserve cost savings and ordering flexibility. Finally, there’s a grab bag of traits that could generally be termed competency.

You’ll want suppliers who can offer the latest, most advanced products and services. They’ll need to have well-trained employees to sell and service their goods. They should be able to offer you a variety of attractive financial terms on purchases. And they should have a realistic attitude toward you, their customer, so that they’re willing and eager to work with you to grow both your businesses.

Where to look

Alibaba.com is one of the most effective online sourcing platforms in the world. It brings together buyers and sellers of goods and services and has 95 million users operating from 240 countries.

Easy to use

It’s a very user-friendly website. In order to buy or sell through Alibaba, a business must register. Registration is free and the process is simple; all you have to do is follow the instructions that appear on your screen.

Building relationships with your suppliers

You can usually get discounts, obtain improved service and receive other features you need by making a request of your current suppliers-although it may not be as simple as merely asking. Here are some of the options and negotiating strategies for turning mediocre suppliers into top-shelf ones.

  1. Getting discounts. If you walk into a department store and purchase a pair of shoes, you’ll pay the same price any other shopper would. But business-to-business commerce is more complicated. Businesses that sell to other businesses commonly have a whole range of quoted charges, offering discounts of 50 percent or more depending on the quantity purchased the terms, the length of the relationship, and other considerations. You may be able to comfortably conform to some of these requirements, qualifying you for a lower price. To find out, ask about discounts and what is necessary to earn them. You may be able to get anything from an interest-free loan in the form of trade credit to a substantial discount for paying early.
  2. Improving service. It is the rare businessperson who knows exactly what is happening in all parts of his company at all times or what is going on with all his customers. You probably don’t, and you shouldn’t assume your suppliers do, either. If you have a service-related problem with a supplier, bring it to someone’s attention. If you don’t get satisfaction, move up the chain of command until you get what you want or are as high in management as you can get. Odds are, someone will be concerned and possess enough authority to remedy the situation. Only if you ask for better service and don’t get it should you sever the relationship.
  3. A better relationship. Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren’t offering to work closely with you to improve quality, reduce defects and cut costs doesn’t necessarily mean they don’t want to. They may be under the impression that you are the reluctant one. So if you want a tighter working relationship with suppliers, let them know. You may also drop a hint that those who don’t want to work with you may see some of their orders being diverted to those who are more agreeable. Either way, you’ll know whether it’s your supplier’s reluctance, or their perception of your reluctance, that’s getting in the way.

Making a Change?

Having fewer suppliers is usually better than having many vendors. Reducing the number of suppliers you deal with cuts the administrative costs of working with many. Closer relationships with fewer suppliers allow you to work together to control costs. Getting rid of troublesome vendors can quickly increase the efficiency of your purchasing and administrative staffs. So how do you decide when to change vendors? Here are keys areas to consider:

  1. Unreliability. When a vendor’s shipments start arriving consistently late, incomplete, damaged or otherwise incorrectly, it’s time to consider looking for a new one. Every company has problems from time to time, however, so check into the matter before dumping your vendor. Vendors can experience temporary difficulties as a result of implementing a new product line, shipping procedure or training program. If you stick with a vendor through a rugged interval, you may be glad you did. They might be more willing to see you through a future cash flow crunch.
  2. Lack of cost competitiveness. Sometimes vendors fail to change with their industries. When your vendor’s rivals start coming in with bids for comparable goods that are lower than your existing supplier’s, you need to investigate. Point out the issue to your existing supplier and ask for an explanation. If you don’t like what you hear, it may be time to consider taking some of those offers from competing suppliers.
  3. Insularity. Some suppliers will let you visit their plants, talk to their workers, quiz their managers, obtain and interview references, and even examine their financial statements. These are the kinds of suppliers you should seek out. The more you know about your suppliers, the better you can evaluate whether you should continue to do business with them. If they shut you out, perhaps you should cut them off.
  4. Extra-sale costs. The number at the bottom of the invoice is only the beginning of the cost of dealing with suppliers. You have to lay out money beforehand to draw up specifications, issue request for proposals, evaluate them, check references, and otherwise qualify your suppliers. You have to place the order, negotiate the terms, inspect the goods when they arrive, and deal with any shortages, damage or other errors. Finally, you may have to train workers to use the newly arrived goods or purchase more equipment and material to make use of them. While some of these costs are inevitable, some are traceable to individual suppliers. If too many costs are being tacked onto the sale prices, check out some other suppliers.

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Starting a Business

What Steps Must I Take To Create a Winning Tender?

A how-to guide to get you through the tender process successfully.

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What is a Tender?

A tender is an offer to do work or supply goods at a fixed price. Tenders usually apply to bigger jobs and public sector work in particular – ranging from the local council to government departments.

Related: How To Make A Success of Tendering

The format of a tender proposal varies widely by industry, but all have the same basic requirements. The most important part of any tender response is the deadlines.

When submitting a tender it’s important to remember that it’s a highly competitive process, so it’s imperative that you provide your best quote.

Many organisations including government agencies do not negotiate prices once the tender has closed. Firstly, the tender process is an understandably competitive one. Everyone wants the same piece of the same pie so you can be sure that your tender is up against the toughest of your eligible competitors.

And although cost is an important factor in deciding which tender is awarded the contract, it’s not always the only criterion. Obviously, it goes without saying that you have to be deemed capable of delivering the goods or services required.

Before tendering

  • Get hold of the bid documents and analyse them.
  • Make sure you can match the technical, skill and experience requirements.
  • How much will it cost to prepare your bid?
  • Would the work fit in with your strategy and positioning of your business?
  • Estimate the costs of fulfilling the contract and whether or not you’d make enough money to justify it.
  • Assess how the contract would affect your other work, staffing and ability to take on other new business.

Familiarise yourself with the ins and outs of the tender process – because it’s never as easy as it sounds.

Simply put, a tender is an offer to do a particular job or supply particular goods at a particular price. Also referred to as a bid, it is a process whereby businesses have the opportunity to put forward their goods or services at their price to the organisation that has put out the tender.

Because government is spending public money on contracts, and is committed to transparency in how this is carried out, it adopts a tender process as a way of limiting the chances that contracts are awarded on the basis of favouritism, racism, nepotism or any other unfair process.

The same applies in the private sector

A similar principle applies to companies in the private sector which need to remain transparent about their procurement process.

Once you submit a tender, it will be reviewed according to a number of criteria along with all the other tenders for the same contract, after which government or the organisation will accept the tender and award the contract to its chosen service provider.

Legally binding

This contract is legally binding – it requires the service provider to deliver the goods or services at the tendered price and within a particular time framework, and it requires the other party to pay for the goods or services at the price tendered and on time. Great – so where do the snags come in?

Tenders are awarded points

All government tenders are awarded points and the bidder that obtains the highest number is awarded the contract. But in line with its procurement policy, government gives preferential points to contactors that are owned and operated by previously disadvantaged individuals (PDIs).

For example, the Small Enterprise Development Agency (Seda) points out that government adjudicates 80% of tender on price and 20% on the PDI status or gender of the business owner, for tenders under R500 000.

Companies in the private sector often have a similar policy of favouring suppliers with PDI status.

Find the information

But first you have to find out what contracts have been put to tender. National and provincial government departments; municipalities; parastatals and big companies in the private sector all issue tenders.

Related: Where could I find information on government tenders?

The system is designed to make information on tenders freely available but that doesn’t mean you won’t have to go looking for it. Proactivity is the name of the game.

Establish your eligibility

Your next step is to determine whether you are eligible to tender for the contract. Seda advises that businesses that meet the following requirements are ready to tender. The business should:

  • Be a registered business or be licensed with the relevant local authority;
  • Have a good banking record, credit history and relationship with its suppliers and clients;
  • Be able to deliver on time, on budget and according to specifications and to deliver consistent quality;
  • Be registered with the South African Revenue Services;
  • Have an up to date tax clearance certificate;
  • Pay its bills on time;
  • Have the cash flow and other resources necessary to complete the contract;
  • Have qualified employees who are registered with the Department of Labour (UIF, Skills Development Levy, Workmen’s Compensation);
  • Have, or can acquire, the right equipment and accessories to complete the tender; and
  • Have products that comply with SABS or other relevant standard authorities;
  • Be proactive

Partnerships

You may choose to tender with another business in a joint venture but remember to choose this partner very carefully.

Related: 5 Things to Do Before Saying ‘I Do’ to a Business Partner

Make sure you have all the contract documentation in place detailing how profits will be split and what each party is required to deliver.

Seda also suggests that you join with two or more other small businesses rather than one partner that’s considerably bigger than you are – it’s good advice.

Do the paperwork

Once you have identified a tender that you’d like to pitch for, you need to access and complete the tender documents. On this point, filling them out correctly plays a vital part in the potential success of your bid. How hard can that be, you might ask.

It’s not so much that it’s difficult, but more that it requires you to be highly specific and pay close attention to detail. Especially for government tenders. Forget to include your price and you’ll be disqualified. Deliver your tender one minute after the deadline and it won’t even be considered.

If your product or service does not comply with the specifications of the tender, your bid will be removed from the list and you’ll have wasted your time.

Related: How ISO Certification Can Help You Access Market Tenders

For national and provincial government tenders you will need to fill out standard forms. Give yourself plenty of time to complete and post, courier or hand-deliver the documents by the deadline.

Help with completing tender documents

It’s advisable to contact a Tender Advice Centre (TAC) who will help you get hold of and complete the tender documents correctly.

Get the price right

Price is a big factor in awarding tenders so you want to ensure that your price is competitive but having said this, you also need to make a profit.

Those in the know generally advise that you work on a cost plus 7.5% basis. Working out how much the contract will cost requires you to pay close attention to the specifications in the tender.

Labour, materials, equipment, insurance, the length of the contract and how assets like vehicles will depreciate during this time all need to be considered.

Related: Are Tenders Timewaster or a Great Business Generator?

The length of the contract and whether you will be paid in instalments will also determine if you are going to need bridging finance. Take all these things into consideration when working out your price.

Don’t give up

If you don’t succeed at your first tender attempt, put the process down to experience and remain tenacious. Once you have delivered successfully on one tender, you have a foot in the door and more success will follow.

In the meantime, keep focussing on delivery and service excellence – whether you are awarded tenders or not, these attributes make for a winning business formula.


Related: To Tender or Not to Tender?

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Starting a Business

What Is A Private Company And What Are The Steps Involved In Registering A PTY Ltd?

Getting to know the Pty Ltd.

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What is a private company?

A privately held company a business owned by non-governmental organisations or by a relatively small number of shareholders which does not offer or trade its company stock (shares) to the general public on the stock market.

A private company is ideal for smaller businesses that don’t have large capital requirements and want to avoid regulations with regard to disclosure that applies to public companies. A private company may be incorporated with only one member and may not have more than fifty members.

After a number of years, if a company has grown significantly and is profitable, or has promising prospects, there is often an initial public offering.

Related: The Basics Of Registering A New Company

This converts the private company into a public company or an acquisition of a private company by a public company.

Typical characteristics

  • There are between one and 50 shareholders
  • The directors’ approval may be required before the shares are sold
  • Shares cannot be offered for sale to the general public
  • It is common that the income support recipient and their partner are the only shareholders and directors of the company

Preparation

  • Founding statement – which sets out the structure of the corporation must be prepared.
  • Association agreement – that spells out the relationship between the company and the members must be prepared and agreed to.

How to register a (PTY) Ltd

A Private Company is registered at the Companies and Intellectual Property Registration Office (Cipro).

Related: Tax Basics For Business Owners

All the documentation need to form a public company are available from Cipro and must be lodged them. These are the necessary documents

  • CM5: Application for Reservation of Name or Translated Form or Shortened Form or Defensive Name with R50 deposited into the client’s customer code
  • CM22: Notice of Registered Office and Postal Address of Company (in duplicate)
  • Power of Attorney: Notification to act on behalf of promoters
  • CM29: Contents of Register of Directors, Auditors and Officers
  • CM31: Notice of, consent to change of name, or resignation by auditor or removal of auditor
  • CM46: Application for certificate to commence business and R60 deposited into the client’s customer code
  • CM47: Statement by directors regarding adequacy or inadequacy of share capital (by each director), memorandum and articles of association

Registration of a Private Company is required by law. Because the (PTY) Ltd structure is generally more complex to maintain, the help of an attorney is strongly advised.

Turnover time

It is difficult to pinpoint the exact amount of time it will take to register a company. It helps if you make sure that when you apply, you submit all the documentation that’s required. If the name of the company has already been registered, it will make the application go faster.

What are the Pros and Cons of a Private Company?

Pros:

  • Protecting your personal assets through Limited Liability
  • Deducting certain expenses as business expenses
  • Reducing tax and Audit risk
  • Improving your chances of securing funding through a bank
  • Gaining credibility with your customers, suppliers and financial institutions
  • Need not file their financial statements with the registrar

 Cons:

  • The (Pty) Ltd structure is generally more complex to maintain
  • Expenses involved in registering a company

Related: Watch List: 50 Top SA Small Businesses To Watch

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Starting a Business

What are the do’s and don’ts of securing an online domain name?

We asked Domains.co.za founder, Wayne Diamond, what the do’s and don’ts are when it comes to entrepreneurs registering domain names for their start-ups…

Wayne Diamond

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There’s that L-word again:

“Location, location, location”. It’s the make or break decision. Every estate agent and business owner cannot overemphasise the importance of this Critical Business Decision Number 2 (Number 1, of course, has to do with what you’re going to sell!).

Related: As a start-up, what are the most important areas I should be looking at?

 

Whatever business you’re in, being close to customers and convenient to business partners and suppliers is essential. That bricks-and-mortar wisdom is equally true in the world of online commerce. Having the right domain name and the right support for your online presence has emerged as a real driver of success.

Some figures put the scale of the opportunity into perspective: US e-commerce is predicted to reach $440 billion by 2017, showing a compound annual growth of 13.8%[1]. While the Internet economy is in its infancy in South Africa and Africa, it is growing strongly: research by World Wide Worx showed that consumers, small and medium businesses and government were already purchasing products and services worth R59 billion on the web three years ago.[2]

So how to secure the best and most profitable Internet real estate to make sure your business can ride the e-commerce wave?

It’s all in the name:

The first decision is what domain to use. One of the exciting developments is the launch of new Internet domain names, so it’s definitely no longer a choice of .com or .co.za. The proposed dotAfrica (.africa) geoTLD (geographic Top Level Domain) is one option that’s set to come online around the first quarter of next year, but what about the ZAdotCities domains of .joburg, .capetown or .durban? Domain names within these additional geoTLDs will be able to be snapped up by the public around November this year.

While .com remains a good choice for truly international businesses, choosing a domain name with some local flavour is probably going to work well for many companies.

The greater range of domain names also makes it more possible that you will be able to choose the right name for your business. When it comes to the more established domains, like .com or .co.za, chances are higher that the name you want has already been taken.

When it comes to that all-important name, received wisdom used to be that short was best, but the trend nowadays seems to have reversed—even phrases are now used. The key is to choose a name that is easily recognisable, that will stick in peoples’ minds and that describes the business well.

Perhaps a good example is the domain used by the writer of this article: www.domains.co.za is both a brand name and a name that perfectly describes the nature of the business. At just seven characters in length, “domains” is also an easy to spell, easy to remember word – keeping names under ten characters is guaranteed to help audience recall.

Something people will remember easily is absolutely vital.

Some companies use specific names for individual campaigns, but always make sure the business as a whole has its own web address.

Experience has shown that it’s probably worthwhile to register similar domain names to the one you choose, just to keep competitors from taking them in an effort to sow confusion.

My final advice: it’s always a good idea to use an ISPA (Internet Service Providers’ Association of SA) member to help you register the chosen address of your start-up. That way you’ll be sure that all the formalities are correct, and that the company you’re dealing with abides by ISPA’s code of conduct.

Finally, as there are already almost 950 000 .co.za domains registered, it’s a good idea to surf to www.domains.co.za and perform searches to see if the domain you would like is indeed available.

Related: Does the South African government award grants to franchisees?


[1] Chuck Jones, “Ecommerce is growing nicely while mcommerce is on a tear”, Forbes, 2 October 2013, available at http://mashable.com/2013/02/05/ecommerce-sales-top-1-trillion-worldwide/.

[2] “Internet 2% of SA economy”, 29 May 2012, available at http://www.worldwideworx.com/internet-2-of-sa-economy/.

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