Working with 3rd party suppliers can be a risky business, as some companies find to their cost!
Hard earned reputations can take years to develop and only seconds to lose.
Imagine this…Your company is a major supplier within an important sector of the automotive industry. It’s ‘CV Show’ time again and you have taken a big stand and put a big hole in the marketing budget. You have a brand-new product which is featuring majorly on the stand, provided through a relationship with a 3rd party supplier.
Towards the end of the first day, the new product fails due to reliability issues.
It’s a disaster! Customers, and potential customers, are arriving to see the new product but leave disappointed. Support services arrive on the stand in the middle of the show to try and fix it, but it’s no good; they can’t get it working. Finally, on the last day of the show, they breathe some life back into the failing product.
There would be tough conversations in the board room after such an event.
This example scenario serves as a reminder of the importance of a sound supplier evaluation process. In this case, it could be said that this was a strategic relationship, as this was a ‘new product entry, into an existing market’ – one of the most important revenue and profit generating mechanisms available.
Supplier selection represents one of the most important decisions a company can make in remaining competitive, especially nowadays, where markets can change quickly.
Supplier selection is an evolving process. Market research for new suppliers should be a constant process and high priority for all companies in order to optimize profits by reducing costs, introducing innovation.
Personally, having spent most of my working life within a corporate environment, I am familiar with the evaluation process. As a young, eager, revenue hungry executive, I found this aspect of business development somewhat tiresome. My attitude then was one of, “look, I’ve found the right partner for this, let’s just get on with it”. But no, legal and procurement must ‘earn their salt’ and perform due diligence.
In basic terms there are four stages to supplier selection assuming that the concept in mind meets the business development aspirations of the business.
- Define the business needs in order to contact appropriate suppliers
- After RFI, select a shortlist of potential suppliers
- Interview the suppliers finding info on history, experience, customers etc
- Select one supplier and apply the selection process
And arguably No. 4 is the most important and sometimes skipped!
Supplier or vendor selection decisions are complicated by the fact that various criteria must be considered in the decision-making process.
I have written several courses on business development and one of the lessons is to understand the interests of the person you are talking to in order to tailor the conversation to meet the needs of that individual. The same is true here. For different personnel within the organisation, different vendor attributes will be important. The table below shows what issues feel important to different roles in supplier selection.
Don’t be tempted by the juicy red apple hanging low on a branch. It might be full of worms!
The analysis of criteria for selecting and measuring the performance of suppliers has been the focus of purchasing practitioners since time began. But the real documented work was done in the 1960’s.
In a nutshell (after some research as I am not a procurement person) the majority of research about supplier selection problems mentions Dickson’s study which states:
The supplier selection process should involve a diligent pursuit of the answers to the following criteria:
- Product quality.
- Performance Delivery – The certainty of the right product delivered at the right time in the right quantity.
- Service – Fault rectification and SLA, handling complaints, ease of doing business, and quick response.
- Price/Cost – Competitive pricing and total cost
- Lead-time – The elapsed time from order being placed to delivery.
- Financial strength – Cash flow and stability.
- Flexibility – Ability to adjust volumes and delivery times.
- Technical ability – Modern equipment & premises, ability to follow the development plan
- Development – Innovation and the ability to improve products and reduce costs.
- Production Capacity – Capacity to increase and decrease volumes.
- Management approach – Good relationship and commitment, trustworthy.
- Geographic location
After garnering the opinion of some 300 procurement professionals, Quality was considered by 100% of the respondents as the most important aspect followed by service.
At Mediafleet, we get very nervous when talking to potential suppliers, so we follow these simple rules. It’s true that some suppliers get frustrated even to the extent of getting ‘pushy’, but we have developed our reputation on delivering what we say we will deliver. Embarking on relationships with fast talking but poor performing suppliers is not the way forward for any company.