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  • Writer's pictureAlexander Suma

Your First Supplier or Your First and Worst Headache (2/2)

Based on my own experiences as serial founder of hardware companies: What costly problems you can run into selecting your first supplier, and how you can prevent them?


Some of these issues like the IP, quality, warrantees, and price agreements sound like they can be simply foreseen in a well-prepared legal agreement. Yet, why do these issues still happen so often? Reason number one is probably because the startup team does not have the purchasing experience and is too eager to reach their goals, believe the supplier on his word, and want to save the cost of legal assistance or hiring an experienced purchaser. The cost of such legal or consultancy help are peanuts compared to the cost of when the issues have occurred.



Some of the things the startup can do by themselves to prevent these issues are the following:

  • Make sure you have a complete quote request package including all your plans, CAD’s bill of materials, and estimated cost by a 3rd party ready.

  • Never ask a supplier to do engineering or thinking for you. This puts you in a lock-in dependency and you lose all competition benefit and a lot more.

  • Request quotations to at least 10 suppliers and be transparent that you are asking the competition as well. Request the quotations to all suppliers at the same time (or test one first) and demand to receive the quotations within a certain deadline. Some may drop out, but that means they are not eager enough to win your order.

  • Don’t choose the lowest price party but look for the best match, quality, reliability, team and commitment.

  • Select on the match with the decision maker, not the project manager or the kind and helpful engineer. The latter two might really like you and want the best, but the boss will decide how they will deal with you as the employees have to follow orders to keep their job.

  • As you are a small company, it is often a better match to choose a small to medium size supplier. Don’t go for the big brand as they have bigger projects on their priority list than your risky, small project.

  • Many swear by having local suppliers at the earlier stage, and it does somewhat reduce the risk that things will go South as they might have a local image to protect, and you can quickly drop by to have a personal meeting or check on the goods. Having a local supply partner is however not a guarantee that they will not trick you or have questionable business ethics.

  • Don’t put a pleasing personality person of your team in charge of managing the supplier relationship. I can’t press this enough, but pleasers are never good purchasers, and the issues will come back to you very quickly, including for you to be solved. A tough “don’t screw me attitude” does go a long way in dealing with suppliers.

  • Ask references on their experience of working with this party. Make sure the references are similar in size or also have an innovative product.

  • When you enter your manufacturing phase (prototype, pilot or mass production) hire a professional purchaser to do this work for you. Having good and well negotiated terms and prices are going to save you a lot of money, and it is definitely worth the investment.

 

These are just a few tips that you can use as a handbook. Every innovation, product or part is different, but some rules and guidelines count for every purchase and supplier relationship.

 

Somehow, especially in hardtech, I keep hearing the similar issues and problems which can all be prevented. I don’t understand the suppliers as it always leads to breaking the contract and relationship with the supplier as nobody wants to keep working with a party that screwed them. The trust is gone and the brand image of the supplier as well.

Nevertheless, there are also a lot of great and trustable suppliers out there, so making a good search and selection is probably the best tip I can give you with an outlook of building a great success together with your partners. The tips in this article will help you get there and additionally prevents deviating during that relationship.


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