Switching suppliers.


30th July, 2019

Six hidden costs of switching suppliers in small business

As a small business owner, the cost of switching suppliers can sometimes outweigh whatever you might save on the nominal price. Here are a few overlooked costs you might want to factor in before you take the plunge.

Suppliers can make or break business. It’s a mutually beneficial relationship; we need them, they need us.

There often good reasons why we decide to change our suppliers, but there’s also a tendency to just look at the dollars when making these decisions. If the new supplier provides a better deal – why not switch?

In some industries, such as banking, energy and telecommunications, there are rewards for switching suppliers, but there are also costs associated with changing suppliers that aren’t always obvious.

Let’s take a look at a few and if you’re thinking of switching suppliers, use this as a checklist to ensure you really are getting a better deal.

Time required to brief a new supplier

As we all know time is money and, depending on who’s time is involved in briefing the new supplier and how long it will take, this could be one substantial cost.

Briefing time will vary depending on the services and products your supplier provides, as well as the complexity of your business or the orders you place.

At the easy end, you may just need to send one detailed email or have a 15-minute meeting or phone call. For others it may be more complicated.

READ: Six ways to maintain great supplier relationships

Files may need to be transferred from one supplier to the next such as an accountant, or you may need to prepare a comprehensive document that outlines requirements or processes that are important for the supplier to know.

If appropriate for you, factor in site visits, product inspections and meetings with new personnel.

Accounting or admin costs

Setting up a new supplier on your books, while easy, still requires someone to do it.

You need to capture correct banking details, contacts and phone numbers. You may need to change some of the standard accounting reports so that the new supplier is recognised in the appropriate cost centre.

Time taken to learn a new system or process

There may be an online ordering system or app that you need to learn, paperwork to complete or just understanding their company terminology takes more effort than time.

The new supplier may have a different returns or complaints system. It could be as simple as you need to email an order rather than call up give the order of the phone.

As a business owner, all your resources are precious, so it’s worth taking your energy into consideration when deciding to switch suppliers.

Not being able to do a simple repeat order

Some of the costs may appear once you’ve already moved to the new supplier. Perhaps what was promised isn’t be delivered or you didn’t realise that your supplier added value in a certain way.

For example, printers may or may not be able to provide the final art in digital format, which is what will dictate the quality of the final product. You may only notice this as an additional cost with another printer, or you may just receive a bad print job and wonder why.

READ: Your essential guide to supplier management

In keeping with the printing theme, a printer may archive past client jobs, making it easy for the business to request a reprint of existing business cards or a brochure done a couple of years ago. If you switch, your new printer may not retain these files, and so you find new creative needs to be supplied every time.

Opportunity cost if they turn out to be poor quality

A great supplier provides a good response time, has an ability to problem solve and has good communication skills.

They may also offer after-hours support and come to you rather than you go to them. Their way of doing business may just be a better match for you.

READ: 5 simple steps to measuring and managing supplier performance

The worst-case scenario and probably the biggest hidden cost in changing suppliers occurs if the supplier you’ve switched to is no better, or is worse than your existing supplier.

You might’ve been promised the world, but they’re not delivering. You’ve already invested time and money, what will be the opportunity cost to you?

Loss of ‘Frequent Flyer Miles’

When you’ve been with a supplier for a while and you’re a good client, then you may receive loyalty bonuses. In some cases, you may not be aware of the benefits you’re receiving.

Things like generous or flexible payment terms, the ability to place a rushed order, or get after-hours support may all be offered to you as a VIP client.

But when you’re with a new supplier, you’re at the start of your loyalty journey, and so you’ll need to build up loyalty points all over again.

If you’re unhappy with your supplier, it can be a great thing to change to another. But before you do, it’s wise to factor in all the potential costs hidden and otherwise so you make an informed decision.