📖Reading: A Small Business Guide to Buying Wholesale

📖 Reading: How Small Businesses Can Benefit from Buying Wholesale

This step is all about getting smart and sophisticated with your buying. When first starting out, most entrepreneurs do not have experience with procurement for a business. They know how they personally buy things, but purchasing for a business is an entirely different ballgame. We discussed some of the basics of initially identifying sources of supply and setting up your approach to inventory management in STEP 52. Now you are ready to get more professional (and efficient) in how you buy things.

Once you are up and running, it is important to move to a strategic approach to purchasing. This means developing a purchasing (or procurement) strategy, which many entrepreneurs fail to do early on. As opposed to simply buying what you need when you need it, successful entrepreneurs have a procurement or purchasing strategy. They attempt to anticipate their purchasing needs over the next six to twelve months. They buy in larger quantities from dependable suppliers (vendors), with whom they develop relationships. These suppliers are selected based on detailed research and an assessment of their ability to perform on a set of criteria. The entrepreneur negotiates with these suppliers. The entrepreneur also has clear priorities set in terms of the relative importance of quality, price, when payment is due, delivery times, returns policies, and other indicators of supplier performance.

Keep in mind that buying strategically is directly tied to managing your inventories intelligently. You might find it helpful to go back and review our discussion of the ABC inventory analysis discussion in STEP 52. As you identify the items that fall into the “A” category, or that are more tied to higher sales and margins, these are the items you will be purchasing more often and/or spending more money on. They are the items that you want to be more careful about when selecting suppliers, and on which you will want to spend more effort when it comes to negotiating.

In addition, the entrepreneur should develop a protocol or standard approach when interacting with a given supplier. This is a set of professional practices that you rely upon each time you buy from that particular supplier. It starts by knowing exactly what your needs are from the supplier, including the number of units (and not buying more than you require, or things you do not need), and when you need them. This could also involve having a policy for how far in advance of your needs to purchase from that supplier. It includes having a budget for what you are able to spend (and not exceeding that budget). Additional issues include having a negotiation strategy in mind before you approach the supplier (the terms you plan to negotiate, such as price or time of payment, and using what tactics). When suppliers make verbal promises, you might try to get them in writing.

Another key part of your protocol should involve keeping good records on each supplier you deal with and everything you purchase. Examples include records on exactly what items and in what quantities you bought from that supplier, how you paid (cash, check, credit card, electronic payment), any discounts the supplier gave you, how much time the supplier gave you to pay (e.g., 30 days), whether the supplier delivered the items or you picked them up, how long it took to get delivery, and any items that you had to return. The protocol might also include how you handle things when you have a complaint or there is some problem with supplier performance. Finally, the same standards you used to select the supplier should be used to regularly evaluate their performance.