Large or small supplier – which one is better?
When choosing suppliers, the types of suppliers are often defined in different ways. For example, for goods, they can be manufacturers, wholesale resellers, dealers, small resellers, etc. By location, they are divided into local, national, foreign. If we evaluate the volume of supplies, we distinguish large and small suppliers. Let us consider the latter in more detail in this article.
In terms of labour costs, interaction with a small supplier is almost no different from working with a large supplier. That is, you have to spend the same amount of time on them, but the output seems to be negligible. That's why every purchasing agent from time to time wants to get away from ‘small things’ and completely switch only to large partners.
But is everything so unambiguous? After all, each type of business has its pros and cons. A professional B2B and B2C procurement manager needs to know them to ensure efficient and sustainable supply. Especially in today's dynamic and unpredictable marketing environment. Let's explore the pros and cons of working with large and small suppliers in this article.
Pros and cons
Large suppliers
Pros
Reliability and stability of supply. They have large production capacities, sufficient stocks in warehouses and well-established logistics chains. This makes them less exposed to external risks.
Quality assurance. Certified according to international quality standards, often with their own laboratories and internal control systems. This reduces the risk of supplying substandard products such as locks and hinges.
Scalability. If the company plans to expand production or expects a seasonal increase in demand, they are able to quickly increase the volume of supplies, covering the needs of the buyer.
Wide range of products and complete solutions. Offer a wide range of products. Often provide additional services - from development of technical documentation to after-sales service and logistics services.
Cons
Rigid terms of co-operation. They set high minimum order volumes. Less flexible in discussing the terms of the contract and may impose strict payment requirements, which is not always convenient for small businesses.
Less flexibility and lack of individual approach. Due to their size, they are focused on standardisation of work processes. With suppliers, this implies strict regulations and norms from which it is impossible to deviate, both within their own company and in interaction with contractors. The client has to learn someone else's regulations and adjust to someone else's requirements. There may also be difficulties in fulfilling specific, unique or non-standard orders.
Risk of bureaucracy. Interaction with large structures is often accompanied by complex bureaucratic procedures. This slows down approval processes and makes it difficult to resolve even simple issues.
Recommendations for working with a large supplier
Contractual relationships with a large supplier can be recommended to businesses that need high volumes of consistent supply, high quality standards and scalability. They are also suitable for B2B and B2C customers who want to work on predictable, long-term contracts while agreeing to fulfil the supplier's strict terms and conditions.
They are not suitable for smaller businesses with small order volumes, or for companies with specific requirements and non-standard orders, or for customers who are looking for softer arrangements and do not accept supplier dictates.
Small suppliers
Pros
Lower minimum order levels. Willing to work with low volumes and willing to supply products on more affordable terms.
Speed of decision making. Less bureaucracy. Fewer regulated processes. Decisions are made faster, which speeds up collaboration processes and allows us to respond flexibly to urgent customer requests.
Flexibility and personalised approach. More flexible in discussing the terms of co-operation. They try to take into account the peculiarities of the client. Customer-oriented: ready to adjust to the client, not vice versa.
Cons
Limited production capacity. Less able to scale. Experiencing difficulties in increasing the output programme, especially in case of a sharp increase in customer needs.
Less assurance of stability and stocks. May not have stock available in sufficient quantities. More exposed to any external risks, sometimes leading to delays or disruptions in deliveries.
Products do not always meet high standards. Often cannot afford full quality control systems and international certifications. This can affect the stability of quality indicators of supplied components.
Less comfortable in business communication. As a rule, they are less accommodating, ask more questions on the subtleties of the contract, fight to the last for every day of delayed payment, react sharply and emotionally even to a small delay in payment. They call five times a day to find out whether the money has been transferred to them, demand copies of payment orders, etc. They are difficult to communicate with.
Recommendations for working with small suppliers
Suitable for companies when they need small volumes of components, urgent or temporary delivery, as well as specific and non-standard components.
It is also a good choice for companies that value flexibility and customisation, e.g. in case of frequent changes in their orders.
A small supplier is not suitable for companies that need stable, long-term contracts with a guarantee of high quality products delivered and the ability to scale up quickly.
Combine approach to deal with partners
General recommendations
In today's turbulent and uncertain environment, as professional marketers say, any B2B or B2C company needs a comprehensive approach to working with suppliers. For the purchasing department, this means working with large suppliers to guarantee stability of the main orders and obligatory involvement of small suppliers to solve unique or urgent tasks. Such a system of work allows to reduce risks and ensure the stability and efficiency of both the supply itself and the overall operation of the enterprise.
Author: Andrey Alekseev
See other publications on the topic:
How to choose a supplier in B2B: tips and methods. Part 1: Product Quality Assessment