Evaluating Your Suppliers

Supply Chain Management can help you to weather the challenges that the world throws at us every day. During the Covid19 pandemic we experienced severe interruptions of our supply chains.  Shortages ensued and prices rose starting a worldwide inflation spiral.

It is important to understand the supply chain issues and source materials (raw materials, components, finished goods, etc.) in a way that will mitigate your risks.  For starters, there are 2 competing philosophies. 

On the one hand, some researchers recommend that you select your best supplier, we will discuss supplier selection in a moment, and develop a strong, mutually beneficial relationship.  The supplier will have reasonable stable volumes and will do its best to fulfill your orders first when goods are in short supply.  At the same time you get leverage that allows you to negotiate better pricing.

The other argument, and the one I tend to endorse is to build resiliency into the supply chain, by finding multiple suppliers for each key component.  By sharing your volumes among 2 or more suppliers, you decrease the likelihood that a catastrophic failure at one supplier will adversely affect your operation.

In either case, you need to select suppliers who most closely fit your goals and objectives.  This will require much more than initially meets the eye.  To begin with, of course, you will want to consider the criteria which you consider most important. Price and reliability might well be on your list, but other aspects of quality and sustainability might also be included.  

• Can the supplier get their goods (and services) to you in a timely manner and at the right price? 

• Quality – does the quality of the product(s) meet your standards and even more importantly, the standards your customers demand?  Is that quality consistent?  Will the supplier replace defective products in a timely manner?  What steps will the suppler take to eliminate (or continuously reduce) the likelihood of defects?

• Certifications – There are a lot of different things that you may be interested in here.  For example, what is the supplier’s record on sustainability?  The ISO 14001 standard certifies a business in the area of environmental management.  ISO 9000 measures quality, ISO 26000 social responsibility, etc.

In my business, we do a lot of work with food manufacturers.  For those clients, it is crucial that their suppliers are certified in one of the food safety standards (SQF, BRC, ISO 22000, etc.)

So whatever the particular requirements might be for YOUR business, it’s important to build a scorecard in which you layout the relative importance of each criterion. 

Now it’s time to do your research.  You need to identify as many potential suppliers as you can and then do the necessary due diligence to figure out how they measure up against what’s important to you.  If the supplier is based in a bright red building and the building color is not on your scorecard, then it is not important.

The tendency is to conclude that the highest grade wins, but, it is worth continuing the process at least one more round.  Say for example, Supplier A scored high on quality but their prices were considerably higher than the competition.  Meanwhile Supplier B scored higher overall, but their quality was inferior to the Supplier B. 

It would certainly be worth a conversation with both A & B.  For A, you might point out that their prices are too high and perhaps see if you can negotiate better prices.  For B, you might highlight their quality deficiencies and suggest ways for improvement.

In my next blog post, we can start exploring the other side of the supply chain.  Your prospective customers.

In the meantime, as always, please feel free to email me at brian@brianshube.com or leave a comment here.