Question

you have a small hotel serving international customers from all over the world and you need to find a supplier that will provide you milk, cheese, and other dairy products. What will be the advantage and disadvantage of working with a small supplier who sells most of his products to you ? What will be the advantage and disadvantage of working with a very large supplier who sells only 1% of its products to you ? Discuss in ten or twelvesentences.

Answer 1

Suppliers or vendors are important for any business (big or small) that provide important raw materials to the business. Suppliers are companies that produce specific kinds of products or services that would be useful as a raw material in our products. There could be a single supplier or multiple suppliers depends on the material used in our products. But the organization needs to decide and select the best supplier for its raw material requirements. A supplier could be a small or big firm in terms of production, financial capabilities, brand value, and better supply chain connectivity. There are various advantages and disadvantages with both kind of suppliers that we will discuss in below points,

a. Price Consideration:

Price is an important factor that affects the decision at the time of the selection of a supplier for the business. Prices for the same product or raw materials vary if we order from a small supplier or a large supplier that depends on the supplier's capability in managing overheads and improving economies of scale. usually buying from the large supplier can provide us a better price for its products when compared with the small suppliers due to high sales volume that help in reducing overheads and other expenses in producing the final products.

But sometimes small suppliers also can have better price advantages over a large supplier due to anticipation of improving brand value and selling inventory faster to cover its overhead in the short period.

b. Credit Facilities:

When it compares between large and small vendors, large vendors would have the facility to provide credit facilities as it would have a better financial arrangement to cover its overheads until you pay them back for your orders. But getting credit facility is not as easy as it looks, a large firm would evaluate your business on various parameters before providing credit facilities for your orders such as financial documents, client lists, order volumes, etc. Usually, large vendors will charge high-interest rates for a credit facility and we will be paying the high penalty and legal consequences if we are not able to clear our due on or before time.

A small firm would not be able to provide a credit facility as it would have a cash crunch and would be dependent on further production and other activities on the payment of your order. Due to this, they would be having cash on delivery or upfront cash payment options when we want to give orders to small firms.

c. Customer Service:

Customer service is important for any business success. Small and large suppliers would have a different level of customer service to their customers. A small firm would have better customer service as we are the only or few customers who are buying products from them. A small firm does not want to lose its customers or clients at any cost and the small firm would give value to use to improve and grow mutually.

We will get fewer customer service facilities from the large vendors as we are one of the clients from a large list and the management of the large vendor would be busy in its core business or helping other clients as well and would have less time to consider our problems and issues.

d. Negotiation facility:

We can have better negotiation facilities with a small supplier as his business would be dependent on our orders and business. We can have better negotiations such as delivery terms, credit terms, payment terms, etc. We can negotiate on better prices if we have bulk orders that would be beneficial for the supplier as well.

But with a large supplier, we cannot have these discussions as we are not alone, a large firm would have many numbers of clients and they would follow similar terms for all the clients. Many times we would be paying higher prices if we are doing small transactions with them.

e. Product customization:

Small vendors or suppliers would be happy to provide customized products as per our business requirements. As they are small firms and want to grow and they would be happy in helping their client to fulfill any kind of requirements and would be faster in implementing technology and processes to build customized products for us. But they might charge some fees for changing the processes or technology for the customization.

It would be difficult for customization facilities with a large supplier as it has huge number of clients and customers and difficulty for them to change the technology for a single customer.