In order to produce goods and services,businesses need to buy the required raw materials and equipment. Many firms need to order components or equipment to their own specifications which will later be used to produce a finished product. Firms need reliable suppliers who must be:
Stable. Firms that can not supply goods in time to the purchasing company may mean delays and holdups for customers. Thus the purchasing company.should check the financial background of its suppliers.
Able. The purchasing company must investigate whether potential suppliers are able to make the goods required. This may mean looking at the firm's equipment and staff expertise if a large or important order is being considered. Some purchasing departments may ask for evidence of the firm having done similar work for other organizations before placing an order. Trade directories and specialist magazines are useful starting points in this research.
Clear. What is required will usually be made clear in a specification. The specification or "spec" will give the exact technical details of what is needed in terms of size,shape,color an performance of the items to be purchased. The supplying firm must then meet this specification exactly.
An important problem all purchasing companies have to deal with is whether to use one or two or several suppliers. By using several suppliers it is argued that competition between them will force prices down. And delays or disruption at one supplier will not affect too much. Arguments against this are that researching various supp iers is time-consuming and expensive,and low prices might mean reduced quality. Using fewer supp iers for larger orders can mean that the purchaser receives greater attention and discount for bulk purchases. The suppliers will be more involved in the firm's business , too.
A "clear" supplying firm must initially give the purchaser its specifications clearly and in exact technical detail. ( )