Suppliers are those who provide input to the company. In a broader definition, a supplier can include providers of raw materials, semi-finished goods, capital goods, financial capital (such as banks), and even labor.
Whereas, in a narrower definition, it only covers those who provide goods and materials used in the production process. Suppliers may be individuals or companies. They can come from local, national, or foreign.
Influence of the supplier on business
Suppliers are essential for business competitiveness and success. A company has an interest and exposure to them in terms of:
- The quality of the inputs. It will affect the quality of the firm’s output.
- Input price. Lower prices mean higher profit margins.
- Reputation, including in terms of timeliness, quantity, and shipping specifications. Inaccurate delivery and specifications can interfere with the production process.
- Credit facilities they offer. More relaxed credit eases the cash flow cycle. Companies, for the time being, can use the money for other purposes without bearing fines.
Those four factors are the primary consideration in choosing a supplier. Supplier selection affects the company’s competitive advantage because it impacts cost structure, output quality, production processes, and company profits.
On the other hand, for suppliers, companies are their customers. If they win a repeat order, that means they are securing business in the future. They also have an interest in fast payments. Therefore, the company’s success will benefit suppliers through regular orders.