As markets become more globalized, companies have access to a more extensive pool of potential suppliers. While it's great having more choices, it's difficult to determine the best fit when there are so many options.
Choosing the wrong supplier can result in supply chain disruptions, low-quality goods, and late deliveries, which in turn affect customer retention at your company.
A well-planned supplier selection strategy helps ensure that you're working with the best possible vendors for your organization.
Read on to find best practices for the supplier selection process and explore factors that must be considered to ensure the continuity of high-quality materials and their timely deliveries.
Step 1. Create a List of Requirements
To effectively select suppliers that meet your business requirements, it's crucial to document your company's specific needs and expectations and develop a set of criteria for evaluation.
Engage with key stakeholders from quality control, logistics, and procurement teams to ensure that all perspectives are considered. Take into account the following factors when creating a list of requirements:
Step 2. Identify Potential Suppliers
At this stage, start by conducting market research to find the ones who operate in your industry or niche. To do this, you can use supplier databases and directories. Some popular options include ThomasNet, Global Sources, and Alibaba. These databases allow you to search for suppliers by product type, location, and other criteria. You can also check trade publications for your industry.
Another option is to request referrals from other companies or professionals in your industry and connect with local business organizations, such as chambers of commerce or industry associations. And don't forget to attend trade shows or industry events to get in touch with more peers. They can provide you with first-hand knowledge and insights into potential suppliers in your area, including their reliability, quality, and overall performance.
And, of course, let's not underestimate the power of social media. By searching for suppliers in your industry and engaging with them on social media like LinkedIn or Twitter, you may be able to establish relationships and learn more about their products and services.
Step 3. Conduct a Preliminary Evaluation
After identifying potential suppliers, it's time to conduct a preliminary evaluation to shortlist those who can meet your company's requirements. This process involves gathering basic information on each potential supplier, such as their products and services, location, size, and years in business. Take your time to thoroughly check customer reviews, paying close attention to negative feedback and how suppliers handle it.
Moreover, it's important to check if the supplier has filed for bankruptcy or has any legal issues, such as outstanding lawsuits or liens, as these can indicate financial problems.
Depending on the number of potential suppliers, their locations, and your company preferences, you can also take some additional actions at this stage. Here is what you can do:
If it works better for your company, you can instead conduct these steps after the bidding process, which we'll go over next.
Step 4. Put Out a Call for Bids
Once you create a shortlist of potential vendors or suppliers, you can invite bids by filling out a Request for Proposal (RFP) or a Request for Quotation (RFQ) form and sending it to potential suppliers. Ensure that you provide all the necessary information, such as the quantity, delivery dates, quality standards, and any other relevant details about the products or services you require. This can help ensure that vendors or suppliers understand your requirements and can submit accurate and appropriate bids.
Remember to set a deadline for bids to be submitted. This deadline should provide sufficient time for potential vendors or suppliers to review the requirements and prepare their bids adequately. It is also important to communicate with potential vendors or suppliers during the bidding process to clarify any questions they may have.
Managing bidding processes can be challenging as it involves a lot of time-consuming manual tasks, such as handling spreadsheets, sending and receiving emails, and keeping track of multiple documents and versions.
A supplier management system is a great way to counter this problem and make the bidding process less tedious and, at the same time, more successful. Precoro offers such a solution: in it, you can invite a limitless number of suppliers, customize registration forms and set mandatory fields for them, and provide them with an opportunity to engage in an RFP process.
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Step 5. Assess Bid Submissions
Start by carefully reviewing all the bid submissions received from the suppliers and ensure that they have fulfilled all the requirements and provided the necessary information. Score each bid using the predetermined evaluation criteria from the first step, assess each supplier's ability to meet your needs, and verify the legitimacy of their bids by requesting product samples or ISO compliance documentation.
Once the top bids have been identified, negotiate the terms and conditions of the contract with the suppliers. Negotiation will provide an opportunity to clarify any issues and ensure that you are getting the best deal possible.
You can also consider signing a short-term contract to see how the supplier performs. This reduces risk because if the supplier fails to meet expectations, you can part ways much sooner than you would with a longer contract.
Step 6. Monitor Supplier Performance Regularly
Successfully identifying a reliable supplier is a significant milestone for any company, but the responsibilities associated with vendor management do not end there. Ongoing monitoring and evaluation of supplier performance are critical to maintaining successful relationships and ensuring quality service and product continuity.
One of the most effective ways to ensure that suppliers fulfill their commitments is to implement a robust system that consolidates all supplier and order information in one place, making it readily accessible and accurate.
For example, while you may initially find a supplier who meets all your quality, price, and shipment requirements, their performance may deteriorate over time, resulting in delayed shipments, incomplete orders, or low-quality products.
With an effective supplier management system like Precoro, you can identify these changes early on and work with suppliers to address them, potentially avoiding costly supply chain disruptions. There's a lot more you can do with it, too. Let's see what else.
Using Precoro also means that your suppliers will have access to the Supplier Portal. With it, they can receive purchase orders, submit and manage invoices directly through the portal, attach additional documents and notes, and much more.
By leveraging a robust automation tool, implementing relevant KPIs, and establishing clear criteria for evaluating suppliers, you can have peace of mind knowing that you are fostering partnerships that meet your needs and provide value to your business.
Educational Materials
To find out the difference between vendors and suppliers, read this article.
If you missed our previous newsletter about sustainable procurement benefits and best practices, follow this link.
To learn best practices for supplier management, follow the links to our blog post or recent newsletter.
For complete guidance on how to choose and track procurement KPIs, check out this material.
If you want to learn how to create a budget and gain budgetary control, click here.
For an in-depth comparison of free PO software vs. paid software, read our blog post.
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