It is important for your business to be able to source top quality raw materials and services at a competitive price and with the assurance that they are being produced in a reliable manner so your company can succeed in today’s competitive market. This might not come as a surprise to you, but choosing and evaluating the right suppliers for these goods and services is a crucial part of securing them.
Your supply chain needs good suppliers-and you know they are exactly what you need in order to run a successful business. There is no doubt that following best practices can help as well as investing time necessary in order to transform potential suppliers into trusted partners in order to form a strong, strategic, and proactive relationship with reliable suppliers.
As far back as a few decades ago, the optimization of the supply chain was frequently limited to a single factor – the price. It is important to note that the perception that suppliers are mere vendors is slowly changing thanks to a variety of increasingly sophisticated tools that facilitate the management of digital data and the growing prevalence of digital transformation, as they are increasingly seen as powerful partners in achieving mutual success rather than mere vendors.
The procurement team can determine the ideal supplier for your project with the help of supplier relationship management, by conducting a detailed and transparent evaluation process for every potential supplier
As far as the creation of a new product is concerned, not all vendors will become a major partner or supplier for the project. It is also unlikely that you will be able to establish a long-term, lasting relationship with each vendor in your supply chain. In today’s economic environment, it’s definitely becoming more challenging for businesses to figure out which suppliers meet their exacting specifications for product quality, lead time, and relevance to their own core competencies, as well as doing so using data-driven supply chain management and process optimization tools.
In order to use both KPI metrics to assess your supply chain, it is important to make supplier relationship management the primary thrust of your supply chain management. Measuring supplier performance via KPI’s will help you to:
Furthermore, it is very valuable for your business to establish the supplier evaluation criteria in order to gain a better position in negotiations. In order to ensure that your business is secured, you may be able to negotiate better terms or pricing with a supplier who has high marks in most of the areas but struggles in another. There are many ways you can leverage those savings and still come out with a net gain in profits and/or competitive advantage in your supply chain as a result of addressing your supplier’s weakness and eliminating any excessive risks created in your supply chain.
An effective supplier selection process is critical to building a resilient, reliable, and flexible supply chain. In most cases, a scorecard is used to rank each potential candidate in accordance with their ability to perform tasks.
There will likely be two separate supplier evaluation and selection processes that you will use as part of your supply chain optimization strategy: one for the existing vendors and one for the new suppliers that you plan to use.
It is essential that you have in place clear and documented standards for the performance and compliance of your suppliers as part of both of these processes.
Follow this simple three-step process:
1. Identify Potential Suppliers: Precisely when choosing new suppliers, you must collect each potential candidate’s score on the scorecard you have created for each criteria that you have chosen as the selection criterion. In the case of existing suppliers, the process is similar, but there are also additional criteria that must be considered based on the supplier’s track record with your company.
2. Supplier Evaluation: Identify your top candidates and score them according to your chosen criteria once you have identified them, the next step is to evaluate them. If you have a few favorites that you want to move forward in the process, you can develop a short list of them during this time and then negotiate them along the way.
Optimizing an existing supply chain has also been shown to be very similar to the process of optimizing a new supply chain.
3. Supplier Selection: The final step in the selection process is the negotiation of contracts between the winning supplier. Use this time to review not only price but payment terms, renewal terms, rebates etc.
It is important to note that every company will have its own unique strategy for optimizing their supply chain and managing supplier relationships. As well as having varying priorities and competitive paradigms, different industries also require various levels of material supply and demand.
As a result, all vendors that are regarded as good suppliers share a number of characteristics that you can look for when evaluating whether to add a new supplier to your list of preferred suppliers or whether to keep your current one.
Here are a few qualities you should look out for in a new supplier:
1. Reliability: Obtaining a reliable supplier is imperative to making sure that you get the right items on time, at the right price, and at the agreed quality level. As part of their contingency planning, suppliers should also have contingency plans in place to ensure the continuity of their business, to protect their reputation, and to ensure compliance. These companies are ready to handle the job without you having to take on additional risk.
2. Suppliers Stability: In most supply chains, there is room for newcomers to fill non-critical positions in terms of both goods and services, and it is reasonable to expect them to do so, because new suppliers have their shot, of course.
3. Supplier Location: It is true that we live in a global economy now, and many companies are able to save significant amounts of money by outsourcing raw materials, goods, and even services to distant suppliers. There is, however, a risk of supply chain disruptions, delays, and unexpected expenses the farther your business is from your suppliers, the more miles that separate the two parties.
Be sure to carefully evaluate suppliers before selecting them, in order to ensure not only that they provide you with the lowest possible cost, but that they also provide you with a strong competitive advantage as well as lasting value, product innovation, and the opportunity to grow. In order to keep your number of suppliers under control, you will need to develop a proactive, data-driven approach that will help you maintain long-term relationships with key suppliers, reduce your reputational, operational, and financial stability risks, and ensure your access to the materials, goods, and services that you require always remains open.