Purchasing, suppliers and supply chain
What you buy, and who you buy it from, affects your costs, quality, cash flow and reputation. And if you supply larger businesses, they increasingly want to know about your own suppliers. This guide covers choosing and managing suppliers, negotiating, stock control, supplier agreements, and the ESG and supply chain questions to be ready for.
In short
- Choose suppliers on total value - quality, reliability, terms and support - not just the lowest price.
- Put key supplier arrangements in writing, and know your protections against unfair contract terms.
- Keep enough stock to serve customers without tying up cash in slow-moving items.
- A simple supplier code of conduct sets out your expectations on ethics, safety, labour practices and the environment.
- Larger customers report on modern slavery and climate risks in their supply chains, so expect questionnaires and keep records ready.
Choosing suppliers
Price matters, but the cheapest supplier is rarely the best value. Compare:
| Factor | Questions to ask |
|---|---|
| Quality | Does it meet your standards and your customers’ expectations, every time? |
| Reliability | Do they deliver on time? What happens when they can’t? |
| Total cost | Price plus freight, minimum orders, packaging, returns and payment fees |
| Terms | Payment terms, returns, warranties, lead times |
| Support | Can you reach someone when things go wrong? |
| Stability | How long have they traded? Do they rely on a single source themselves? |
| Compliance | Do products meet Australian standards? Do they have the licences and certifications you need? |
Get two or three quotes for important purchases, check references from other customers, and start with a small trial order.
Product safety: if you sell goods to consumers, Australian product safety laws apply to you as well as the supplier. The ACCC’s guidance says businesses must comply with mandatory standards and not supply banned products. Ask suppliers for evidence of compliance. See Selling online.
Negotiating
- Know your numbers: what you buy now, what you’d buy over a year, and what else is on offer.
- Negotiate more than price: payment terms, delivery, minimum orders, returns, marketing support.
- Offer something in return: a longer commitment, larger orders, faster payment.
- Be a good customer: pay on time and give feedback. Suppliers prioritise customers they value.
- Put the outcome in writing.
Supplier agreements
For important suppliers, put the arrangement in writing: products or services, prices and how they change, delivery, quality standards, returns, payment terms, confidentiality, and how either side can end it. See Contracts and legal basics.
Unfair contract terms: if a larger supplier offers you a take-it-or-leave-it standard form contract, unfair terms are banned and penalties apply. The ACCC welcomed penalties for unfair terms in standard form contracts with consumers and small businesses. The protections cover small businesses with fewer than 100 employees or annual turnover under $10 million.
Managing stock
- Know your best-sellers and reorder before they run out.
- Set reorder points based on how fast items sell and how long delivery takes.
- Watch slow-moving stock: it ties up cash and space. Clear it with a plan.
- Count regularly, at least for high-value items.
- Have a backup supplier for anything critical.
Stock is cash sitting on a shelf. See Financial planning and cash flow.
Paying suppliers
- Pay on time. Reliable payment builds goodwill and can earn better terms.
- Check invoices against orders and deliveries before paying.
- Confirm any change of bank details by phone, using a number you already have. Fake supplier invoices and payment redirection scams are common. See Cyber security and backups.
When you’re the supplier to large businesses, the Payment Times Reporting Scheme lets you look up how quickly they pay small businesses. See Getting paid.
A simple supplier code of conduct
A supplier code of conduct is a short document that sets out what you expect from your suppliers. It helps you choose suppliers consistently, and gives you a ready answer when your own customers ask about your supply chain. A one-page code might cover:
- Legal compliance and ethics: honesty, no bribery or corruption, fair competition
- Labour practices: no forced or child labour, fair pay and conditions, freedom from harassment and discrimination
- Health and safety: safe workplaces for their workers
- Environment: reducing waste, energy and emissions; responsible packaging; honest environmental claims
- Product quality and safety: meeting Australian standards
- Confidentiality and data protection
- Their own suppliers: passing similar expectations down the chain
- Raising concerns: how suppliers can report problems, and what happens if expectations aren’t met
Share it with key suppliers, ask them to confirm they meet it, and review it once a year.
ESG and supply chain questions from your customers
Larger businesses are now looking closely at their supply chains, so even small suppliers get asked questions.
- Modern slavery: under the Modern Slavery Act, entities with annual consolidated revenue of at least $100 million must publish yearly statements on how they assess and address modern slavery risks in their operations and supply chains, according to the Attorney-General’s Department. Their suppliers are often asked about labour practices and where goods come from.
- Climate reporting: large companies are phasing in mandatory climate-related reporting, which covers emissions across their value chains, including suppliers. Expect questions about your energy use, fuel, waste and emissions.
- Tenders: government and corporate tenders increasingly score sustainability and ethical practices.
Be ready with:
- your supplier code of conduct and how you apply it
- a list of key suppliers and where your main products come from
- a year of energy, fuel and waste data
- your workplace health and safety approach
- any certifications you hold.
Only make environmental and ethical claims you can back up. Vague claims can mislead customers and breach the Australian Consumer Law. See ESG and sustainability for small business.
Common questions
How do I choose a good supplier?
Look at total value, not just price: quality, reliability and delivery times, minimum orders, payment terms, returns, support, and the supplier’s financial stability and reputation. Get two or three quotes, check references and start with a trial order.
What is a supplier code of conduct?
A short document setting out what you expect from suppliers on ethics, honesty, safety, fair labour practices, the environment and confidentiality. It helps you choose suppliers consistently and answer customers’ supply chain questions.
Does the Modern Slavery Act apply to small businesses?
The reporting requirement applies to entities with annual consolidated revenue of at least $100 million. But those large businesses must report on risks in their supply chains, so small suppliers are often asked questions about their own suppliers and labour practices.
Can a big supplier's standard contract include unfair terms?
Unfair terms in standard form contracts with small businesses are banned, and penalties apply. The protections cover small businesses with fewer than 100 employees or annual turnover under $10 million. Get advice before signing terms you’re unsure about.