Buying Goods and Dealing with Suppliers

5.1 Finding Producers, Brokers, and Wholesale Sellers

Goods reach the market through many hands. The man offering merchandise may be the producer, owner of a harvest, manufacturer, wholesale merchant, broker, factor, agent, creditor, or warehouse holder.

Before negotiating, know who owns the goods and what authority the seller possesses.

Buying from the source: Young merchants often assume that buying directly from the producer must be cheaper. Sometimes it is. But the producer may not sort quality well, prepare suitable lots, provide export packing, extend credit, or arrange transport.

A wholesale merchant who gathers goods from many producers may add value by grading, storing, financing, packing, and delivering them. His margin is not necessarily wasted. Ask what service an intermediary performs before deciding that his profit should belong to us.

The reverse is also true. Do not use an intermediary merely because custom always placed one between us and the source. If our volume becomes large enough, direct purchasing may become sensible. The proper channel changes with scale.

Finding suppliers before they are needed: Do not begin searching after a customer has placed an urgent order. Urgency gives bargaining power to the seller.

Maintain knowledge of important producers and merchants: where they operate, what quantities they handle, what qualities they are known for, whom they supply, what terms they demand, whether they are financially sound, and who can introduce us.

A relationship begun during abundance is especially valuable during scarcity.

Correspondents: Ask trusted correspondents not merely what goods cost, but who has the best goods, who delivers reliably, who has improved or declined in quality, who is financially pressed, and who has been accused of mixing inferior goods into better lots.

A recommendation should distinguish personal experience from hearsay. “I have bought from him for five years” deserves more weight than “I hear he is excellent.”

Fairs and markets: Use fairs not only to transact but to compare. Examine samples, prices, terms, and the behavior of experienced buyers. Observe which sellers attract repeat business and which bargains other merchants avoid.

Do not mistake a crowd for proof of value. A busy market creates excitement, and excitement encourages bad purchasing.

Brokers: A broker (sensale) can save time, locate sellers, carry offers, and reveal recent transaction prices. A good broker often knows who needs to sell without advertising weakness.

Pay agreed commissions promptly. Do not use a broker to discover a seller and then secretly conclude the same transaction merely to avoid his fee.

But understand how the broker is paid. If he earns only when a transaction occurs, he naturally prefers agreement to refusal. His information may be valuable; the final judgment must remain ours.

Translator note: A sensale was a commercial broker or intermediary. In many Italian cities brokers operated within recognized municipal customs or regulations and were important sources of counterparties and market information.

Purchasing agents: In important producing regions, a factor or agent may be sent to buy near the source. This is especially useful where quality varies, many small producers must be gathered together, or the best goods are committed before reaching the open market.

Define his authority. State what qualities he may buy, maximum price, quantity, approved sellers, payment terms, and what requires further permission.

“Buy as much good silk as you think wise” is not an instruction suitable for a man whose judgment has not already been proven almost equal to a partner’s.

Advances to producers: Some suppliers require money before harvest or manufacture. An advance may secure supply, but it also makes us a financier.

Ask what happens if production fails, what secures the advance, whether goods can be sold to another buyer, who bears crop or production risk, and whether other creditors stand ahead of us.

A transaction that appears to be purchasing may actually be an unsecured loan dependent upon the same harvest we intend to buy.

Testing new suppliers: Make the first transaction small enough that failure teaches rather than injures. Inspect the goods, compare them with the sample, verify weight, observe delivery, and see how the supplier behaves when a dispute arises.

Character often becomes clearer when something goes wrong than when everything proceeds well.

Capacity: A man who supplied one hundred bales well may not be able to supply one thousand. Rapid growth may force him to subcontract, borrow, or accept lower-quality production.

If our own customer commitments depend upon him, his capacity becomes part of our risk.

Ownership: Be cautious when a seller cannot clearly explain why goods are in his possession. They may be pledged, disputed, already promised, seized, or partly owned by another man.

A very low price sometimes reflects uncertainty of title rather than inferior quality.

Goods that require silence: If a seller says, “Do not ask where these came from,” ask. Merchandise associated with theft, smuggling, prohibited trade, or political seizure may be cheap because legal risk has been transferred to the buyer.

A House with a valuable reputation should not purchase goods it would be embarrassed to explain before a magistrate.

Continuous search: Even when satisfied with present suppliers, continue learning about alternatives. Know who else could supply us, approximate market prices, new producing regions, and changes in competitors.

A House should never discover during a crisis that the only supplier capable of serving it knows that he is the only one.

5.2 Comparing Price, Quality, Reliability, and Terms

A purchase should be judged through four principal questions: price, quality, reliability, and terms.

The inexperienced buyer concentrates on price because it is easiest to compare. The experienced buyer knows that the other three may be worth more.

Price: Before comparing offers, make them comparable. Determine whether each price refers to the same weight, measure, quality, quantity, currency, delivery point, packing, and payment date.

A seller asking 100 delivered to our Genoese warehouse on sixty days’ credit may be cheaper in reality than a seller asking 96 for cash at the place of production with transport and packing for our account.

Calculate the full cost of bringing both offers to the same point.

Total purchase cost: Include brokerage, packing, inland carriage, port charges, customs, freight, insurance, warehouse costs, normal loss, exchange expense, and the use of capital until the goods can be sold and collected.

A low purchase price can be consumed by expensive movement or long holding.

Quantity: Large orders may reduce price because the supplier saves selling effort and gains certainty. They may also cause us to hold unnecessary stock merely to obtain a discount.

A two-percent discount is not attractive if the extra merchandise remains six months in the warehouse and incurs storage, financing, damage, and price risk.

Volume discounts sometimes persuade merchants to carry the supplier’s inventory for him.

Quality: Quality has meaning only relative to intended use. The finest grade is not always the most profitable. If customers will not pay for superior quality, buying it is vanity rather than commerce.

Likewise, inferior goods are not bargains if customers reject them.

Know which characteristics determine value in each commodity. Wool may be judged by fineness, cleanliness, moisture, origin, and length. Silk by strength, evenness, color, and purity. Grain by dryness, foreign matter, insects, age, and weight. Cloth by fiber, weave, dimensions, finish, and consistency.

Pay for qualities the customer values. Do not pay for qualities he does not.

Consistency: A supplier delivering uniformly good merchandise may be more useful than one who occasionally delivers excellent goods and occasionally poor ones.

Consistency reduces inspection, disputes, and uncertainty. If a lot contains fine goods where inspection is easy and inferior goods underneath, treat this as evidence of method rather than accident.

Reliability: Ask whether the supplier delivers the agreed quantity, at the agreed time, at the agreed quality, with correct documents, and whether he reports difficulties early.

His conduct when the market moves against him is especially revealing. If prices rise sharply after a contract, does he still deliver? Or does he suddenly discover shortages, damage, or a new interpretation of the agreement?

A supplier’s word is tested when keeping it costs money.

Scarcity: A supplier who sells readily in abundance is merely a seller. One who allocates scarce goods fairly among established customers may be worth preserving even at a slightly higher ordinary price.

Terms: Payment terms alter the economics of price. Goods at 103 payable in six months may be preferable to goods at 100 payable now.

Compare deposit, timing of payments, credit period, currency, place of payment, discounts, security, inspection rights, and the consequences of failure to deliver.

Flexibility: The right to divide delivery, vary quantity within limits, reject inferior lots, redirect goods, or delay shipment may have substantial value in uncertain markets.

Do not surrender useful flexibility for a small reduction in nominal price.

Financial strength: A supplier’s solvency matters even though we are the buyer. If he must buy raw materials, hold goods for us, or has received an advance, his financial weakness may prevent performance.

A financially weak supplier may accept our order enthusiastically and fail precisely because he lacks the resources to complete it.

Supplier records: For important recurring suppliers, preserve experience: price, quality, shortages, delivery times, claims, terms, responsiveness, and conduct during difficult markets.

Memory favors the men we like. Records reveal the men who actually perform.

Total value: I would rather pay 102 to a man who delivers correct goods on time, grants useful terms, and warns us early of difficulty than 100 to a man whose transactions require continual inspection and dispute.

This is not generosity. It is purchasing certainty.

But loyalty must not become laziness. A reliable supplier should still be compared periodically with the market.

5.3 Inspection, Weights, Measures, Samples, and Grades

Much of commerce is an argument about what exactly has been bought. Therefore define and inspect.

A commodity name alone rarely determines value. “Wool,” “silk,” “grain,” and “cloth” each contain many qualities. Even the unit of measurement may differ from one city to another.

Inspection: Where goods are valuable or quality varies, inspect before final acceptance whenever possible. If the principal cannot do so, use a trusted factor, appraiser, broker, or experienced servant.

Inspection should be stricter with unfamiliar suppliers, unusual transactions, goods easily adulterated, or commodities whose defects become hard to prove after shipment.

Samples: A sample (campione) may represent the lot, or merely what the seller wishes us to see.

Take samples from several places where practical. Open different bales. Draw grain from different sacks. Do not allow the seller to always select the unit examined.

If goods are sold according to sample, preserve an agreed specimen where possible so later deliveries can be compared against it.

Translator note: Campione means sample or specimen. In trades where verbal descriptions could not fully specify quality, an agreed sample could function as a physical standard against which delivered goods were judged.

Grades: Use recognized grades where they exist. Where they do not, define the characteristics that matter.

“Good quality” is a weak language. A useful agreement may specify origin, color, dimensions, moisture, cleanliness, strength, purity, or other measurable characteristics.

Weights and measures: Never assume that a unit bearing the same name has the same value in every city. A libbra, cantaro, braccio, or other measure may differ substantially from one market to another.

Maintain conversion tables for the cities in which we trade and state which local standard governs the transaction.

Translator note: Early modern Europe had no universal system of weights and measures. Units bearing identical names could represent different quantities in Genoa, Florence, Milan, Venice, or foreign ports. Merchant houses therefore relied heavily on conversion tables and local knowledge.

Scales: Know the instruments used. A balance (bilancia) or steelyard (stadera) can be accurate or false. Where value justifies it, use recognized weighers or check against standards of our own.

A merchant who bargains aggressively over one percent and then accepts an inaccurate scale has merely surrendered his profit in another place.

Gross, tare, and net: Packaging has weight. The deduction for containers is the tare (tara). Agree how it is calculated.

Across many barrels or sacks, a small difference in tare becomes a large sum.

Natural loss: Some goods lose quantity through drying, evaporation, ordinary leakage, or handling. Such diminution may be described as calo.

Know what loss is normal for each commodity and route. The existence of normal shrinkage does not justify every shortage.

Translator note: Calo refers to natural diminution or shrinkage in weight or quantity through drying, evaporation, handling, and similar causes. Distinguishing normal calo from theft, leakage, or false measurement was a routine commercial problem.

Moisture and adulteration: Water can be sold at the price of wool or grain if the buyer is careless. Oil can be mixed. Spices can contain foreign matter. Metals can be impure.

The strongest defense is commodity knowledge. If nobody in the House can judge the goods, employ someone who can.

Assay: For precious metals and other goods where purity determines value, use appropriate testing or assay (saggio).

Translator note: Saggio could refer to testing or assay, especially where the fineness of coin, bullion, or precious metal had to be established. Nominal weight alone did not determine value.

Packing and containers: Inspect barrels, sacks, crates, seals, and other packaging where transport is difficult. Poor packing creates losses later blamed upon the carrier.

Marks: Number and mark packages so that shortages and damage can be traced. Fifty anonymous bales create unnecessary confusion.

Inspection on receipt: When goods arrive, compare quantity ordered, quantity shipped, quantity received, agreed quality, condition, marks, and seals.

If there is damage or shortage, establish it before the goods are mixed, processed, or resold. Obtain witnesses or written acknowledgment where necessary.

Commercial disputes are often won by the merchant with better records because memory becomes unreliable by the time magistrates hear the matter.

Proportionate control: Do not inspect every low-value item as though theft were certain. Increase inspection where value, uncertainty, supplier history, or difficulty of later proof makes control worthwhile.

Trust may reduce the cost of checking. It should not abolish checking entirely.

5.4 Negotiating Purchase Contracts and Payment Terms

Negotiation begins before the buyer speaks.

Before making an offer, know the desired quantity, acceptable quality, market price, maximum justified cost, latest useful delivery date, acceptable payment terms, and alternatives available.

A merchant who does not know his own limits negotiates against himself.

The seller’s position: Learn what matters to him. Does he need immediate cash? Must he clear warehouse space? Is a new harvest approaching? Does he value certainty more than the highest possible price?

Sometimes offering earlier payment obtains a better bargain than demanding another reduction in price. Negotiate the whole arrangement, not merely one number.

Do not reveal necessity: If the House urgently requires goods, the seller need not know how urgent the need is. Discretion protects bargaining power.

Do not lie foolishly. Experienced merchants usually know the market. Conceal weakness; do not manufacture absurd stories.

Price: State whether price is fixed, linked to a market quotation, or subject to quality adjustment. Specify currency and unit.

A phrase such as “at the market price” is dangerous unless the market, date, quality, and payment basis are known.

Quantity: State the amount and any permitted variation. Do not allow abundance to give the supplier a right to force his surplus upon us.

Quality: Refer to grade, sample, origin, or physical characteristics. Where third-party inspection determines conformity, identify the method.

Delivery: State where and when delivery occurs. At the supplier’s warehouse? At the port? Aboard the vessel? At our Genoese warehouse?

Each place allocates cost and risk differently. Likewise, “in September” may mean the first day to the buyer and the last to the seller. Where timing matters, be precise.

Risk: Determine when the goods pass to our account and risk. If they are damaged while waiting at the quay, whose loss is it? Discuss this before the damage occurs.

Packing: If packing matters, state whether barrels, crates, sacks, seals, ropes, or other materials are included and what standard is required.

Payment: Payment may occur in cash, by advance, at delivery, after inspection, at a future date, through a bill of exchange, or in another city.

Each arrangement changes risk and financing.

Cash may obtain the lowest price but removes leverage quickly. An advance may secure supply but exposes us if the supplier cannot perform.

Earnest money: A deposit or earnest payment (caparra) may demonstrate commitment and bind the bargain. Keep it proportionate and understand what happens if the supplier fails.

Translator note: Caparra refers to earnest money or a deposit connected with an agreement. Its precise legal effect depended on local law and contractual wording, but commercially it served as evidence of commitment and could support performance.

Supplier credit: Long payment terms are useful, but they remain debt. Purchasing clerks should not negotiate generous credit independently until the House discovers that enormous obligations mature at the same time.

Discounts: If early payment earns a discount, compare the savings with the value of retaining cash. Paying early may be attractive when funds are abundant; preserving liquidity may be better when uncertainty is high.

Place of payment: Payment in Genoa, Lyon, Florence, or at a fair can have different value because of exchange. The nominal amount may be unchanged while the economic cost differs.

Bills of exchange: When payment uses bills, know who draws, who accepts, where payment occurs, at what maturity, and what happens upon protest.

Contingencies: Important agreements should consider obvious risks such as export prohibition, failure of a named vessel, war, or insufficient production. Not every possibility can be written, but important foreseeable problems should not be left deliberately vague.

Form of agreement: Routine purchases may rest upon letters, invoices, broker’s notes, or private writings. Larger or unusual transactions may justify a notarial instrument.

Translator note: The notary (notaio) was central to Genoese commercial life. Important partnerships, powers of attorney, loans, settlements, and other agreements might be formalized before a notary, while much ordinary trade relied on correspondence, accounts, invoices, and private instruments.

Changes: Put later modifications in writing. If delivery is extended, quality altered, quantity changed, or price adjusted, confirm the change.

Many disputes arise from changes made after the original agreement rather than from the original agreement itself.

Know when to stop bargaining: Do not exhaust a valuable supplier over a trivial concession merely to demonstrate strength. Fight hardest over quality, material price differences, credit, risk, and obligations capable of harming the House.

Honor unfavorable bargains: If we agree at 100 and the market later falls to 90, do not invent defects merely to escape. We expected the seller to honor the agreement if the price rose to 110.

Commercial reputation is built when keeping one’s word becomes expensive.

5.5 Maintaining Good Suppliers Without Becoming Dependent on Them

A good supplier is an asset. A supplier without whom the House cannot function is a risk.

The object is to build relationships strong enough that good suppliers prefer us, while preserving enough alternatives that we remain free.

Be a good customer: Order clearly, receive goods when promised, raise claims promptly, pay when due, communicate difficulties early, and provide repeat business where performance deserves it.

Suppliers also choose their customers. During scarcity, years of good conduct influence who receives limited goods.

Pay on the agreed day: If we promised sixty days, pay in sixty. Deliberately paying at ninety because the supplier is unlikely to protest is borrowing without consent.

If we need more time, ask before maturity.

Make claims fairly: Do not accept defective goods merely to seem agreeable. But state the defect, quantity affected, evidence, and reasonable remedy. A House known for exaggerated claims eventually pays for them through higher prices.

Share useful expectations: Where relationships are continuing, approximate forecasts of future requirements can help suppliers plan labor and materials. But distinguish estimates from binding commitments.

Help valuable suppliers improve: We may provide samples, teach required grades, suggest better packing, coordinate shipments, or occasionally advance funds for production.

Such assistance can create advantages, but it also increases mutual dependence. Understand what relationship is being created.

Do not automatically rescue suppliers: A valued supplier in difficulty may request a loan. Ask whether we would lend to him if he were not our supplier. If not, identify exactly what continuity of supply makes the risk worthwhile.

Maintain second sources: For strategically important goods, maintain credible alternatives. This may justify giving some business to a second supplier even if the principal supplier is slightly better.

A second source that has received no orders for five years may not truly be available when scarcity arrives.

The extra cost of keeping an alternative alive can be understood as insurance against dependence.

Single sourcing: Sometimes one supplier possesses a unique quality, privilege, location, or technical advantage. Concentration may then be rational.

Recognize it openly. Carry more inventory if appropriate, understand the supplier’s finances, secure useful contractual protections, and investigate substitutes.

Exclusivity: Do not grant exclusivity cheaply. It may be worthwhile if the supplier gives us lower price, priority allocation, special quality, or dedicated capacity. But define duration and conditions.

Do not exchange permanent dependence for a temporary concession.

Relationships with several people: Do not let an important supplier relationship exist only between one of our buyers and one of their agents. Maintain relationships at several levels and preserve important information in the House.

A servant who says “I alone can deal with them” has identified a weakness, whether intentionally or not.

Independent information: The supplier should not also be our only source of information about the market he serves. Keep separate intelligence on prices, availability, quality, and alternatives.

Market comparison: Even after twenty years, compare important suppliers with the market. Others may have improved. Costs may have changed. New producing regions may have emerged.

Loyalty is valuable. Ignorance is not loyalty.

Do not threaten constantly: A buyer who repeatedly says, “I can buy elsewhere,” often reveals that he cannot. Genuine alternatives should be maintained quietly rather than advertised in every negotiation.

Understand the supplier’s economics: Learn which concessions cost him greatly and which cost little. Stable volume may matter more to him than price. Early payment may matter more than quantity. Taking several grades together may reduce his inventory problem.

The strongest bargains give us terms valuable to us without unnecessarily destroying value for the seller.

Gifts and private benefits: Hospitality and modest customary gifts may accompany commerce, but secret commissions to our purchasing men are different.

No employee should privately profit from choosing one supplier over another. He has sold part of the judgment for which the House pays him.

Warning signs: Watch for late deliveries, unusual requests for advances, declining quality, frequent changes in employees, sudden insistence upon cash, disputes with creditors, sale of important property, and repeated excuses.

Supplier weakness should be investigated before failure becomes public.

Replacement: Reduce or replace a supplier when quality repeatedly fails, delivery becomes unreliable, price remains unjustifiably high, dishonesty appears, or financial weakness threatens our own business.

Do not retain a poor supplier merely because the relationship is old. But leave properly: honor contracts, settle accounts, recover deposits and materials, and avoid creating an unnecessary enemy.

Friends and relatives: If a cousin supplies goods, judge the transaction commercially. Paying too much merely because he is family is a family gift disguised as a business expense.

If we wish to give a gift, call it a gift. Do not corrupt the accounts.

My sons’ buying is where enthusiasm must meet discipline.

The seller presents what is attractive. The broker emphasizes what can be agreed. The buyer imagines the profit after resale. The House must examine what is missing.

Who owns the goods? What exactly is the quality? How was it measured? What is the true quantity? What is the full cost? When must we pay? When will the goods arrive? What happens if they do not? How has this supplier behaved before? What alternatives remain if he fails?

These questions are not obstacles to commerce. They are commerce.

Remember also that purchasing is not a contest to force the seller to accept the lowest possible price. The strongest supplier relationships allow both Houses to profit and therefore give both reasons to preserve the arrangement.

But every valuable relationship contains the possibility of dependence. Preserve alternatives. Know the market. Keep specifications and knowledge within our own House. Never permit one supplier to become our sole source of goods, information, judgment, and credit at the same time.

We do not buy goods merely because they are cheap. We buy because, after quality, quantity, transport, time, financing, risk, and eventual sale are considered, placing the House’s capital in them is likely to produce a satisfactory return.

A merchant who remembers this may sometimes pay more than his neighbor and become richer than his neighbor because of it.