Small businesses always seek ways to reduce their costs without compromising their offers. As such, they tend to select the vendors with the lowest wholesale prices. And understandably so; the lower the bulk prices, the more products a small business can order. In turn, the business can offer their finished products for the cheapest price possible.
However, going for the cheapest vendor doesn’t always result in peak sales. While a price tag doesn’t automatically equate to quality, the opposite can be true up to a certain degree. For example, a vendor offering their items for a price way lower than the industry standard could be up to sketchy things, such as unethical labor practices, risky procedures, or unreliable suppliers, for example. If you select this vendor, you may risk hurting the reputation of your business if your customers find out from whom are you getting your products.
That said, let’s delve into the basics of vendor selection, then find out why you shouldn’t settle for the cheapest one.
Vendor Selection Process
Below is the step-by-step process on how businesses choose their vendors or suppliers:
Setting Your Criteria
Generally speaking, your criteria should include lead time, dropshipping capabilities, quality assurance process, payment terms, and conditions, return policy, and communication standards. The vendors with the most ideal or flexible criteria should be put into your top considerations.
Browsing Your Options
Once you’ve made a list of potential vendors, it’s time to check their reputation, business type, and security. Regarding the last, a good vendor must offer insurance and fraud protection.
Calling for Bids
After finalizing your shortlist of legitimate vendors, you’d call out for bids. For this process, you may need to fill out a Request for Proposal (RFP) form or a Request for Quotation (RFQ) form. You can also communicate with your shortlisted vendors about their practices and policies during this process. This is your chance to find out how they acquire and where they source their raw materials. If a vendor seems to use sketchy methods, cross them out of your list. This will allow you to ensure that you won’t be working with a vendor with an unreliable supply chain that may affect your products’ quantity and quality.
Evaluating Bid Submissions
This is where you’d start considering each bidder’s offer. Compare each vendor and see which ones fit your budget needs and quality standards the best. Avoid choosing the cheapest one but has poor quality products, as well as the priciest one that can cut down your profit margin. Instead, go for the vendor with the most reasonable price for their high-quality goods.
Monitoring the Vendor’s Performance
This step begins when you’ve finally chosen a vendor. Once your contract takes effect, monitor their performance closely. Your vendor should act according to their commitments. If they frequently ship your orders late, send incomplete orders or poor quality items, address the issue, and agree with them on a way to improve their services. If they fail yet again to meet your standard, you may use that as grounds for terminating your contract.
Why You Shouldn’t Settle for the Cheapest Vendor
As you’ve seen above, cheap vendors may have unethical business practices and unsatisfactory performance. But one of the worst things they can give you is poor quality products. For example, if you have a graphic tee business, the quality of your clothing prints is highly crucial. If it looks messed up, someone is bound to notice it, and call out your business. If your vendor doesn’t improve their work, their performance would eventually reflect on your poor sales and reputation.
Furthermore, overly cheap vendors may not really value quality at all. They only want your money, assuring you that they can give you the highest number of products. If they insist that you should pay your deposit using a credit card, money order, or cash instead of a company check, start reconsidering. That’s usually the first sign that they’re not just cheap, but also illegitimate. Registered and reputable vendors must have a company checking account as well. If they refuse to accept other forms of payment but cash or card, they could be hiding what they do with your money.
Plus, cheap and sketchy vendors may have unclear budget expectations or false claims. Going back to the example about graphic tees, the vendor may claim that they have a skilled in-house designer, but the tees arrive in your warehouse with paint splotches, smudges, and inaccurate renderings of the designs you submitted. In that case, you’re better off with your own custom heat transfer than their so-called designer.
Overall, if a vendor’s offer is too good to be true, such as an extremely short lead time for a very low price, move on and find another vendor. Any deal that’s too good to be true is always a scam. So keep your guard up and train your focus on quality.