Finding the Perfect Supplier, 7 important points to consider when choosing new suppliers.
Finding the right supplier to purchase from can be a minefield, with many potential supply partners either not providing the right level of service and support you require, or just don’t seem to be the “right fit” for your business.
Assessing a supplier’s suitability is not restricted to simply choosing the lowest price. There are many different aspects to consider when searching for the right supplier for your business. This article will hopefully highlight some of the most important elements to consider when sourcing a potential new supplier.
If conducted correctly, utilising a formal and measurable tender process, the selection of a supplier and ultimately the on-boarding process for a new supplier should be quite in-depth and possibly include one or more site visits depending on the nature of the supplier. Below is a relatively short list of the areas to consider when looking for a new supplier:
Price.
Although cost is normally one of the main drivers to change suppliers, the lowest cost supplier does not always equate to the best choice. Cost should be compared against all supplier bids and any excessively low or high cost bids should be interrogated to ensure like for like bids have been submitted. If a supplier submits a significantly lower cost with no clear differentiation of service or technology, this may show lack of understanding on the part of the supplier or the use of inferior materials or processes. Investigation into very low-cost suppliers may also uncover opportunities through effective use of technology and cost management efficiencies.
Total Cost of Ownership (TCO)
The initial purchase price of a product or service is generally only the first cost associated with the purchase. Total Cost of Ownership considers the whole life cost of the item including, processing costs, environmental impact, end of life costs etc. Focusing only on the purchase price of an item can limit the potential scope of further cost savings gained through process efficiencies, extended product life and reduced disposal costs.
Capacity, Capability, Competence (3 C’s)
The potential supplier’s ability to successfully produce the product or undertake the service you require is fundamental to the selection process. These areas can be assessed through:
- A thorough “desktop” audit, reviewing information freely available online relating to their past and current performance.
- Including a detailed questionnaire into the tender process asking very specific questions relevant to your requirements will allow you to gauge all suppliers’ responses comparatively.
- Supplier site audit, observing the manufacturing processes from start to finish. It is also important to take note of the general environment including building upkeep, tidiness, staff morale etc. this provides a good understanding of the state of the business.
Financial Security
There are many different credit rating companies available providing detailed financial and corporate information about any registered business, these companies charge for their services and are well worth the premium for peace of mind. Please note however that any credit search only provides a retrospective viewpoint and is not infallible as companies regularly cease trading with very little prior warning.
Use of technology
How suppliers utilise new technology can provide good insight into their flexibility and ability to adapt to new opportunities. Companies which have a defined capital programme for new or developing technology are more open to new ways of working and flexible to change, maintaining a robust maintenance schedule and breakdown procedures for machines can provide further peace of mind and insight into the business dynamic.
Location
A supplier’s location in relation to your business can have a significant impact on how you work with the supplier. Suppliers in different countries to you i.e. China, India, Eastern Europe etc can offer potential cost savings, however they are not the right choice if you require small quantities, short lead times or flexibility. If you are looking to purchase in smaller quantities then working with a more local supplier will offer a better solution.
Fit with Business.
The final point to consider when assessing a new supplier is if they will be a “good fit” with the way your business operates. Do they have a similar ethos and values? Are they aligned with how your production processes operate? i.e. Just In Time, changeable orders, stock holding etc. how do the staff relate to their counterparts within your business?
Finding the right supplier for your business is not a task to be taken lightly, the impact a poor supplier relationship can have a dramatic effect from increasing costs through poor quality or delayed deliveries to stripping customer good will due to continuing issues.
If the process of supplier selection and on boarding is conducted in a formal and measurable way then the resulting supplier relationship should be more robust and mutually beneficial. There are many different issues which may occur which threaten a good supplier relationship, by following a structured process the negative impacts can be lessened or mitigated allowing for a mutually beneficial relationship to develop over time.
