Does your business rely on at least one supplier? Or do you need multiple suppliers in order to perform your daily operations? Either way the quality, reliability, and value for cost of your suppliers and supplier vetting is crucial to your organization’s success.
On the other side, if your suppliers don’t live up to the standards you require, your organization can be damaged.
Suppliers can tarnish your reputation by causing you to deliver unsatisfactory products to your customers. A supplier with internal problems can delay your orders, making you miss deadlines and break promises. Late or low-quality products could cause you to lose major customers or be forced to process refunds.
It’s vital, then, to use a consistent Supplier Management system to vet excellent suppliers and secure the ones that will help your brand to stay strong.
When your Supplier Management process is standardized, you can quickly run it again and again, vetting more suppliers more quickly.
That gives you the luxury of sifting through suppliers at your leisure and finding and keeping the ones with the best attributes. You could also hire some just to test them out, or you could create bidding wars between them.
Use this guide to vetting suppliers, broken into four major steps to narrow down a list of trusted suppliers.
Then, evaluate each one and choose the ones that will be great additions to your supply chain.
1. Set Up Your Supplier Selection Criteria
You’ll first need to create a shortlist of potential suppliers that you’ll evaluate more in step 3. You probably don’t have time to vet every possible supplier, so you’ll want to narrow them down.
To do this, decide what your particular goals are with each new supplier category. For example, imagine you want to deliver products faster. Then maybe you might choose a supplier that’s weak in an area like communication yet is amazingly fast.
No one supplier is perfect in every dimension, so, based on your current objectives, choose what criteria are:
- Must haves for each category
- Deal breakers that you can’t live with, or without
This can also help you manage risks to your business. After vetting a supplier and realizing they have certain weaknesses, you can negotiate for a lower price based on the shortcomings that could cause problems for your organization.
Keep prospective suppliers in categories and compare them with each other within that category. Don’t compare a supplier of an important product component with a supplier of unimportant office supplies.
2. Search Sources of Potential Suppliers
Next, use reliable sources to find good candidates for your shortlist. These suppliers will be at least slightly vetted by the sources you find them in, including:
- Trade Publications: Publications created for an industry or profession may list trusted suppliers.
- Trade Associations: Groups created for certain professions or industries may recommend suppliers, if you ask.
- Professional Recommendations: Ask your friends and business associates about suppliers they’ve worked with to get candid recommendations.
- Directories: If you need a local supplier, look through local business telephone directories.
- Trade Shows: Talk with representatives of suppliers at trade shows face-to-face. Research suppliers ahead of time and then interview several in a row.
- Local Business Organizations: A group like your local chamber of commerce may connect you with suppliers they know well.
- Software: You could use software that connects suppliers to clients and pre-vets suppliers for the platform.
Try to pre-vet candidates until you have only a handful, which you can then interview.
3. Discover the 10 Cs for Each Supplier
One excellent system for the final vetting of potential suppliers is Carter’s 10 Cs of Supplier Evaluation. You’ll need to interview one or more contacts at each supplier to gather information for some of these points. You might even interview their other clients.
Rate each supplier on a scale (like 1–5) for each area below, rather than a pass or fail.
- Competency: How well they have satisfied other clients that are similar to your organization.
- Capacity: Their ability to handle large orders, which is affected by how busy they are with other clients already.
- Commitment: This includes both their commitment to being a reliable partner for you and their commitment to standards of high quality, such as Six Sigma.
- Control: Their control over their own supply chain and processes, which indicates how reliable they would be at delivering your orders and adapting to unexpected problems.
- Cash: Their financial strength, including positive cash flow and liquidity, which can allow them to stay in business in difficult times. Get evidence of their cash position and, possibly, creditworthiness.
- Cost: The price of their goods compared to similar suppliers’ goods. This may not be as important as other factors that can affect your reputation and professional relationships.
- Consistency: The degree to which they use a system to produce the same goods and quality of goods reliably.
- Culture: The values of the supplier, which should align closely enough with yours in ways that count and that benefit your relationship.
- Clean: Their consistent use of environmentally-friendly practices, along with their good treatment of their own employees and neighbors.
- Communication: Their usual communication methods, which should be similar to methods that work well for you, along with their communication methods during a crisis. They should also reach out frequently to find out what you need.
These factors together can create the two other main results you’re looking for: reliability and value for cost.
4. Gather Quotes from Your Final List
Finally, you’ll need to get written quotes from the companies you’re most interested in and that have a great chance of meeting your needs. Send them a written list or brief of what you need in turn, including the quantities and time frames you have in mind.
The quote from the supplier should be their solid price for a longer period of time than one month, such as three months. Also, ask if you can get discounts if you choose them for longer periods of time or higher volumes.
Compare quotes from several different firms for each category. Remember that the lowest price might not be your best option. You need the best value for the price, not just the cheapest price. Sometimes, a low price may come with low quality or may be too low to keep the firm in business.
Also, find out if the supplier will do the work in-house or will contract the work to another supplier. If the latter is the case, you’ll have to also vet their sub-contractor.
Keep Your Suppliers Organized
As you vet new suppliers, receive quotes, and hire them, you’ll need a great system to keep track of suppliers, their capabilities, their prices, and your place in the process. Keeping careful records will also allow you to transparently show the details and ethics of your supply chain.
Remember during the vetting process to be very focused on exactly the qualities of suppliers that you most need. Don’t be dazzled by a supplier’s sales pitch or reputation. Decide in advance what you most need and simply evaluate if a particular supplier has it or not.
The more quickly and reliably you’re able to move through interviews and get quotes, the faster you’ll be able to partner with the suppliers you need to build an effective supply chain. So, keep practicing this supplier vetting process and getting better at it, and the strength and reputation of your organization can keep getting better.
Author: Tyler Brown