4 Red Flags That a New Supplier Is Not a Fit for Your Business

As if global supply chains weren't already on shaky ground as a result of the pandemic, the invasion of Ukraine has created an even more precarious situation. Following Apple's decision to halt product sales in Russia, there has been a mass exodus of Western companies that are no longer doing business with the country. While this is largely in protest of the war, supply disruptions further affecting industries across the board are accelerating the shift from global to local sourcing.

As more companies look to be less dependent on Russia for transportation and raw materials, and on China for manufacturing, the benefits of working with domestic suppliers are clear. But tread carefully and watch out for these signs that a new vendor is probably not a fit for your business.

1. They have a lack of experience within your product category.

In some business sectors, such as sales and marketing, a vendor working with other brands in your category can be a conflict of interest, but you want your supply chain partners to have experience producing items in your category. The less they have to learn, the easier it is for them to execute their role. What you don't want to happen is for a manufacturer to confirm it can make your product based on tangential experience, and then suddenly not be able to deliver on an essential component.

4 Red Flags That a New Supplier Is Not a Fit for Your Business

Now, if a supplier seems to be a great fit for your business financially, culturally, and in other ways that matter, their lack of experience in your specific category doesn't have to be a deal-breaker. No one wants to be the proverbial guinea pig, but every business has to start somewhere. The best course of action may be to implement a short, limited production run to test the line, work out any kinks, and ultimately assure that it's successful.

2. They have an inability to scale.

As we've seen more dramatically over the past two years, sales volumes can sharply rise and fall depending on various external factors. To accommodate these swings, it's important to determine a supplier's flexibility to accommodate both small quantity and high-volume orders.

By working with a supplier that focuses only on smaller quantities, which may be your immediate need, you run the risk of outgrowing them. On the flip side of the coin, if your current order volume leads you to select a supplier whose minimum order quantity (MOQ) is quite high and your volume drops significantly, you don't want to end up paying for too large a surplus of unneeded product.

It's not uncommon for a manufacturer to require a commitment to purchase hundreds or even thousands of units for your first order, which isn't ideal if you're still on the fence about getting into business with them. The good news is that MOQs are often negotiable.

3. They're eager to work without a contract.

They say desperate times lead to desperate measures--unfortunately, they also lead to hasty decisions. If a supplier, manufacturer or distributor is willing to take on your business without a signed contract, that's a red flag.

It can be tempting if time isn't on your side or you feel like you're short on options, but without a contract, you have no leg to stand on in the event things go south. There is no plausible reason you shouldn't insist on documenting the terms of any professional partnership. If there is any hesitancy on the other side of the table, move on.

4. They have too many (or too few) clients.

Having a very specific focus can be an attractive selling point, but if a manufacturer's client roster is so small that your business' projected income is a considerable percentage of their total revenue, that's a little scary. With so few support beams, there's too significant a chance that the house will come crashing down. On the other end of the spectrum, if your business is just a blip on the radar, your product--and you--may not receive the level of attention you expect or require.

The ripple effect felt throughout supply chains stems from a series of events that continue to impact the global economy and international relations: the pandemic, the China-U.S. trade war, and climate-based issues. The urgency of national self-sufficiency is ubiquitous, and there are many ways reorganizing supply chains can improve efficiencies. Take the time you need to make sure you're choosing partners that understand your business and can grow with you.