Size is perhaps the most important feature to consider when selecting a supplier. While large programs and product launches require larger suppliers for their capacity, additional in-house services, and ability to meet program constraints, most low- to mid-volume programs have the opportunity for, and may even require, working with smaller suppliers. These suppliers prove to be especially valuable when looking for unique materials, tooling, machining, or additional sourcing specifications.
This doesn’t mean there aren’t drawbacks, however, when considering a smaller firm for a potential partnership, which is why we recommend using the six tips below when sourcing small suppliers.
6 Tips for Sourcing Small Suppliers
1. Develop Strong Connections
Due to the staffing structures of smaller companies, sourcing requests aren’t exclusively handled by sales teams. Serious inquiries often involve someone at the director or executive level. Take advantage of the opportunity to form relationships with these high-level employees from the beginning. Having a good relationship with them ensures programs and parts will receive high priority.
Readily-available access to decision makers not only improves the likelihood for success of the current program, but it also proves to be extremely valuable as the supplier grows and gains influence. Forming these relationships sooner rather than later is important because these employees’ time becomes less available as they grow and being to take on more customers.
2. Honestly Evaluate Capacity
The largest pitfall of working with a small supplier is capacity, so take the time to do capacity calculations with them. Ask them about the current projects they’re working on and the machines they’d use for your program. It’s not uncommon for an ambitious supplier to be too optimistic about their capacity.
If the supplier can’t support your needs, explore growth opportunities with them. For example, purchasing a new machine or developing a plant expansion plan with them is a great way to add capacity in a collaborative manner.
3. Have a Strong Back-up Supplier
Identifying a back-up supplier is the easiest way to mitigate risk in your supply chain. Not only are smaller suppliers at greater risk for things like economic slowdown, capacity overload, staffing issues and facility problems, but they take much longer to recover from these events than larger suppliers.
Sometimes if a large supplier faces an issue like the above, they’ll recover quickly and cause minimal disruption to your supply chain. Smaller suppliers who run into these issues may shut down your supply chain for weeks. This causes significant strain in your program if a secondary supplier isn’t readily available.
4. Negotiate Contract Terms
Smaller suppliers are typically more willing to negotiate on the various terms of an agreement, as they have fewer company standards and requirements. This leaves the door open for mitigating risks by looking at items like payment terms and reducing the amount of upfront payment.
Ensuring that quality expectations are communicated clearly and agreed upon in writing from all discussions with the supplier is another great way to reduce your supply chain risk. Be aware of any exclusivity clauses within your agreement though, because it’s extremely risky to limit part sourcing to a single supplier.
5. Facilitate Outside Partnerships
Working with smaller suppliers, especially manufacturing facilities, means that it’s unlikely you’ll receive additional services that may come from larger suppliers, such as logistics, packaging, and/or design and engineering. If the supplier doesn’t already have preferred partners for these services, it’d beneficial for both the supplier and customer to create partnerships. Facilitating partnerships with trusted firms allows for greater control over the supply chain and sets up the supplier for future success.
6. Ask for Financial Statements
Financial information provides valuable insights into the economic risk of partnering with a given supplier. If something on the balance sheet doesn’t look right, discussing it professionally with the supplier helps eliminate uncertainty, even if doing so feels uncomfortable.
Understanding the financial health of the supplier is key to making sure they’ll be able to consistently provide the goods and services you purchased. Furthermore, a supplier’s willingness to provide this information displays a high level of trust and transparency, which will decrease your sourcing risk.
Partnering with smaller suppliers has many benefits, but sometimes might prove to be challenging. By implementing these six tips when working with smaller suppliers, your organization can uncover, if not eliminate, many of the associated risk variables, ensuring the probability of mutual success for both parties from the potential partnership.