The CFO needs to make sure the business owner is considering all factors when deciding on which supplier or vendor to purchase inventory. This is something that gets lost in the weeds, but can mean many dollars saved if all considerations are factored into the decision.

When considering what supplier to purchase inventory from the following is what needs to be considered:

• Price
• Price breaks
• Terms
• Freight costs
• Turnaround time
• Minimum quantities
• How the vendor stands by their product
• Restocking charges
• The efficiency of the product
• The amount of sales support from the vendor
• The flexibility of the vendor’s credit department 
• Products the competitors sell
• Whether or not orders be cancelled without penalty

Looking for the best price is obvious, but understanding where the quantity discounts or price breaks are compared to other suppliers is important. Some suppliers offer free freight, so if you are not getting anywhere negotiating prices with the vendor ask for free freight.

Also, understand the turnaround time and how quickly you can get products once ordered.  Business owners with cash flow problems need to time their inventory receipts more precisely so turnaround time plays a greater role. What are the minimum order quantities? Once again, this plays more of a role with business owners experiencing cash flow problems because sometimes you just need small quantities.

It is also important that a vendor stands by their product. If something is wrong with the product either quality wise or technically, the business owner must have assurances that the vendor will issue proper credit upon the product's return.

Additionally, efficiency in handling the product is important for the receiving department. Remember, anywhere you can save costs throughout the entire process must be considered in the decision.  This ranges from logistics to manufacturing to merchandising/packaging to how efficient the product is to use. One of my clients is in the insulation business and although pink panther insulation is more expensive, it is much easier to install, making up for any increase in the price of the inventory.

The type of support that you get from the vendor to help you sell the product is a big plus whether they are free displays, marketing materials, or co-op advertising programs. These programs tell you that the vendor is really interested in working with you. In the event of a cash crunch, it is always nice to know that the vendor supports the client.   

Another consideration is what the competitors sell. Sometimes you can work a better deal with a vendor who is not with a major competitor because that vendor does not have much market share in the market the client serves.

One last rule: Do not over buy inventory as it is one of the most common reasons why businesses get in trouble. This is especially true for retailers. The flexibility to cancel orders without penalty helps prevent you from overbuying.