Why a Supplier Might Refuse Your Business?
Importers are often careful about which suppliers they trust with order fulfillment. But many neglect to consider why a potential supplier might refuse their business. Fortunately, if you’re aware of the kinds of factors that tend to give suppliers “cold feet”, you’re in a better position to avoid that resistance and get to working together.
Here are three reasons a supplier might refuse your business:
1. Small order quantities
If someone asked you to choose between working an hour for $100 or an hour for $15, which would you choose? Most people would prefer the first option. And although this is a highly simplified example, factory owners and trading companies tend to have a similar mindset. A supplier might refuse your business if the order quantity is insignificant.
Any order that a supplier accepts comes at an opportunity cost. The factory producing the goods will have to allocate various resources for:
Creating, and typically revising, product samples;
Working with any sub-suppliers to acquire necessary raw materials, parts and packaging for production;
Preparing and calibrating any equipment needed for production;
Mass production of the goods;
Any product rework or repairs requested by the importer; and
Working with a shipping company to safely load the finished goods
A trading company or vendor has to factor in these plus their own resources needed to coordinate everything and any QC staff they might hire to inspect the products before shipping.
Understandably, most suppliers would prefer to go through this process once on a larger scale than to take on many smaller orders. You can try to assure a potential supplier that you intend to increase volume in the future and work with them long-term. But it can be difficult to persuade a supplier that has plenty of better offers elsewhere.
Consider working with a smaller supplier
A larger supplier might reject an order if they find the quantity too insignificant. But you might find success working with a small to medium-sized supplier that isn’t yet well-established or equipped to handle larger orders.
A smaller factory typically has less developed quality management systems. But managers of smaller factories are more likely to want to work with customers long-term. They’re also known to be more cooperative in meeting product requirements and deadlines because their success depends more upon retaining existing customers than looking for larger ones.
You may want to seek out a smaller supplier if you find larger suppliers are refusing your business because of low quantities.
2. High costs & low margins
High costs can deter potential suppliers just as much as small order quantities. The difference here usually involves the cost of materials or components needed to manufacture the goods an importer orders.
A factory that manufactures low-margin items usually relies on production of a large enough scale in order to bring costs down and turn a profit. A supplier might refuse your business if high costs can’t be justified by high margins or large order quantities.
For example, imagine the following scenario:
You approach a bag manufacturer about an order of 1,200 leather bags.
You’re very particular about using a high quality, expensive leather hide for your product.
The supplier will need to order a quantity of leather much greater than that needed in order to get a reasonable price.
And since this supplier normally manufactures bag with other materials, they’re not likely to use the excess material on production for other customers.
In short, the high cost of materials and waste created are going to push the factory’s margin very low. And believe it or not, refusing this order is actually in both parties’ best interests. Less ethical suppliers are likely to accept the order and agree to your expectations only to disappoint when you receive finished goods made with low quality materials.
Be reasonable in negotiations with a supplier
It’s worth stressing here that many importers make mistakes when negotiating with suppliers. They’ll often push too hard on lowering the price. And the supplier is forced to compensate for the price cut by—you guessed it—cutting costs elsewhere, often by using lower quality materials or parts.
Consider the cost of raw materials and parts in your dealings with prospective suppliers. It’s often helpful to ask multiple suppliers for price quotes for an order or request a sample bill of materials (BOM) to get an idea of the supplier’s costs. Just remember the old proverb, “you get what you pay for”. It’s as true here as it is anywhere else
3. Insufficient production capability or capacity
You can’t expect a factory that specializes in wall-mounted LED signs to also be capable of manufacturing the larger signs installed in a professional sports stadium. Nor could you expect a small, 20-worker facility to be able to supply hamburger patties for all the McDonald’s stores in California.
Some suppliers simply aren’t able to fulfill orders of certain products or quantities.
Investing in new technology or equipment
A supplier might refuse your business if it means needing to seriously upgrade their facility orequipment. Giant companies like Adidas are moving ahead with plans to make “speed factories” capable of producing shoes with lightning-fast speed and remarkable efficiency. But you shouldn’t expect that your new supplier is ready and willing to do the same.
Upgrades to a factory can come at a major expense. A supplier may need to purchase a lot of new machinery, invest in new training or even outsource major processes of production. In their eyes, such a major investment isn’t worth making if it doesn’t lead to more business. And those suppliers who are short-sighted will see even less sense in upgrading their facility.
Of course, there are some suppliers that will claim they can do everything for you, even when they can’t. What often results is heavy use of sub-contractors, problems, production and other undesirable outcomes.
So what’s the best way to know if you’re supplier is telling the truth about their capabilities?
Verify a potential supplier with an audit
The best way to be sure about a potential supplier’s production capability and capacity is to visit the factory. Few methods offer more insight than taking a walk through a facility to see production and other areas first hand.
You can avoid the confusion that many importers experience when trying to communicate by back and forth emails and phone calls alone. Visiting the factory also gives you the opportunity to clarify your product specifications and requirements face-to-face. Instant feedback from the factory manager or representative will give you a better indication of whether or not they can meet your needs.
Lastly, if you’re unable to personally travel to the supplier’s facility, you may find it helpful to hire a third-party to conduct an audit for you. Such an audit typically looks at most areas of a factory and issues a rating based on compliance with the internationally accepted ISO 9001 standard.
An audit doesn’t just help you decide if a supplier might refuse your business. It can also help you determine if a supplier is right for you. It’s recommended that you avoid any supplier that refuses to allow access to you or a professional third-party auditor.
Suppliers are aplenty. And just because one supplier might refuse your business, doesn’t mean others will refuse it as well.
But always consider their perspective with regard to order size and price. And remember that an honest supplier will not agree to undertake fulfillment of an order with requirements they cannot meet. It rarely hurts to do some digging and verify whether a potential supplier really can deliver on their promises.
And when you do find a supplier that meets your expectations, you’re much more likely to experienced long-term success and growth.