Contacting and Evaluating the Sources of supply

Contacting a source of supply may be as simple as having a representative visit the office and meet with the buyer and showcase a collection of the merchandise. This is often termed as a vendor initiated contact. The other method of contacting sources of supply is termed as retailer initiated contacts. This may be as simple as the buyer visiting the central market place. Central marketplaces may be different for different products and would vary from city to city. They typically are characterized by a collection of a large number of suppliers selling similar or the same product. Competitive prices are therefore, a critical part of this market. Examples of central markets include Manish Market and Crawford Market in Mumbai and Khan Market in New Delhi.

A decision now needs to be taken on the potential vendors. The following criteria need to be kept in mind:

1. The target for whom the merchandise is being purchased.
2. The image of the retail organization and the fit between the product and the image of the retail organization.
3. The merchandise and prices offered.
4. Terms and services offered by the vendor
5. The vendor’s reputation and reliability.

The prime factor which affects these decisions is whether the merchandise offered by a vendor is compatible with the needs and wants of the customers. If the merchandise is not right, the vendor should not be considered. Vendors also vary in dependability with respect to the way that they conduct their business. Factors like ability to meet delivery schedules, adherence to quality procedures and the terms offered, play an integral role in vendor selection.

Services provided by the vendor may be a deciding factor. These services could include cooperative advertising, return or exchange privileges, participation in store promotions and the willingness to use technology.

Once the sources of supply are identified the need to be evaluated. The evaluation criteria would vary from retailer to retailer. Key factors which need to be kept in mind are:

1) The merchandise itself – The vendor has to be evaluated in terms of the suitability of the merchandise for the retailer. The quality of the merchandiser is almost as important as the price that is going to be charged for the merchandise.
2) The price that the merchandise is going to be available to the retail chain needs to be taken into consideration.
3) The adaptability of the supplier to the requirement of the retailer, in term of delivery schedules and adjusting production accordingly, needs to be taken into consideration. Services that might be provided by the supplier in terms of spacing of deliveries quantity discounts, recycling and repacking of products, participating in schemes promotions and advertising are also important. All these factors need to be taken into consideration while selecting.
4) Delivery is an important actor in retail. The supplier’s ability to meet the delivery requirements of the retailer’s in terms of supplying to the warehouse or distribution centers or the stores directly needs to be looked into.

Negotiating with vendors:

The retail buyer then needs to negotiate the price the delivery dates, the discounts the shipping terms and possibilities of returns While negotiating with vendors it is necessary to keep in mind the vendor’s history, his goals and constraints. At the same time, the buyer needs to be aware of real deadlines and be able to work towards fulfilling them. The following are types of discounts that could be available to the buyer

Trade discounts:

These are reductions in the manufacturer; suggested retail price, granted to wholesalers or retailers. They may be offered as single trade discount or as a chain trade discount. Sometimes referred to as volume discounts, these are reductions or a series of reductions from the total value of the purchase order.

Chain discounts:

This is the traditional manner of discounting where a number of different discounts are taken sequentially from the suggested retail price (50 – 10 – 5).

Quantity Discounts:

These can be cumulative and non-cumulative; retailers earn quantity discounts by purchasing certain quantities over a specified period of time.

Seasonal Discounts:

This additional discount offered as an incentive to retailers to order merchandise in advance of the normal

Cash discount:

It is the reduction in the invoice cost, for paying the invoice prior to the end of the discount period.

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