As it has a direct link with profitability and image of businesses, the issue of supplier selection must be seen as extremely important for organizations.
In Finding Nemo animation movie, the character Nemo asks Dory:
– How do you know that nothing bad will happen?
And Dory replies:
– I don’t know.
If Dory were a buyer and Nemo’s question was related to suppliers, Dory’s company would be in serious danger of incurring financial losses.
The procurement area that selects good suppliers drives business growth, increases the chances of innovation and improves its gross and net profitability.
Without a proper selection of the best suppliers, most initiatives to increase an organization’s innovation capacity are doomed to failure.
Besides, problematic suppliers can generate risks to brand image, delivery delays, unreal values for the market and improper raw materials, among other obstacles.
To help procurement professionals in their mission to choose the best suppliers, we selected the key tips on the subject:
Keep on reading!
Supplier selection: how to select the best partners
1. Do market research
Supplier selection must start even before the procurement professional knocks on the door of potential partners. Therefore, market research is vital in this process.
Before proceeding with the hiring process, you must look for as much information as possible. To be assertive, avoid hiring suppliers just for their prices, as this doesn’t guarantee the best choice.
However, it’s crucial to evaluate the prices charged by suppliers; after all, financial balance is one of the things that help ensure the healthy growth of businesses.
At selection time, remember to weigh everything that is involved in this process: competitive prices, product or service quality, reputation in the market and results that can be achieved with the new partnership.
Evaluate also the work and supply methods, and understand if they have synergy with your business.
2. Check supplier credibility
A key action before selecting suppliers is to check the credibility of each supplier company. This step reduces partner-related risks, and prevents unforeseen events and delays.
Talk to other organizations that are already trading with the chosen suppliers; try to understand their transaction history, and if there are any financial, legal, compliance or reputation risks.
Never assume Dory’s attitude! In fact, not knowing the risks related to your partners is very daring, as the name of your company is at stake in such case!
In this situation, request contact from customers and, if any company consulted by you has terminated the contract, clarify the reasons. Take the opportunity to learn about the strengths and weaknesses of that supplier.
Your company can also choose to transact with companies that are in the market for some time already, in order to increase credibility.
Ask also for the suppliers’ contact details, to check the support provided and how their communication channels work. All this makes a difference in the routine of buyers.
Another important measure is to check the quality of offered products and services.
Ask the suppliers to send samples to be analyzed and, in conversations with customers, you can ask about this topic, and check if the products delivered match the samples sent by them.
3. Evaluate supplier transparency
The best way to manage risks in the supply chain is to have a relationship with suppliers based on transparency and trust.
Therefore, question the suppliers’ current processes, what problems they had in the past and how they had been fixed.
Remember that buyers and suppliers must work together to enable a fair price negotiation and adequate delivery times.
Learn also about the supplier’s ability to meet increased demands and urgent orders. In this way, you don’t run the risk of having the operation of your company stopped.
4. Check that deadlines and deliveries are met
When negotiating with suppliers, it’s important to clarify your business needs and expectations with the new partnerships.
Ask if the partners are able to meet the expected deadlines and deliveries. Ideally, any contracts with suppliers should address these issues.
When the definitions of time and delivery aren’t well established in the contract, your company will be subject only to the conditions of suppliers.
Don’t forget to clarify the importance of flexibility in suppliers’ service, in case you must increase demand in a certain period, for instance.
5. Hire suppliers whose goals are aligned to your own goals
Suppliers are an important link in the supply chain, and such link is directly related to your company.
Therefore, work with partners who have goals and values aligned with those of your own company.
This is a way to ensure customer recognition and improve brand image.
If the company has a positive difference with regard to competitors, every entrepreneur will want to strengthen this idea.
Add more value to your business by establishing commercial partnerships with suppliers who have principles similar to your own principles.
6. Don’t depend on a single supplier
You want to have a good supplier and establish a relationship of trust. However, even if such relationship is very reliable, unforeseen issues and problems can always occur. For this reason, the procurement area shall not fully focus on just one supplier company.
Having a plan B can prevent problems if the supplier terminates the contract unexpectedly, or fails to deliver the product on time.
Your company is committed to its own customers, who also demand that their purchases are delivered on a defined date.
The selection of suppliers takes several aspects into account, which involve time, delivery, quality and relationship, among others.
The tips provided here will help you to hire good suppliers and considerably decrease future problems related to them.
Finally, we leave you with a classic phrase from the animation movie Finding Nemo, to inspire you in the challenging procurement career:
Keep on swimming!
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We prepared also a text on the best solutions for the procurement area in 2022. Have you read it? Click here to access the content!