Supply Chain Management: How to Choose Vendors
In the article, What is Supply Chain?, it was emphasized that vendors should be treated like business partners because, in reality, that's what they are. But how to choose the ones that are right for a business? It can be as daunting as choosing employees!
As with hiring staff members or entering into a business partnership, there are steps that need to be taken to find the perfect vendors, including:
- Research. Going to trade shows, networking, asking for referrals from industry colleagues and searching on the Internet are all ways to begin locating appropriate supply chain partners.
- Interview and Review. This is a two-way street. Prior to doing business, many vendors will ask customers to submit a questionnaire, application or other documentation to verify they are eligible to buy the products or services being sought. This is especially the case if a customer wishes to purchase at wholesale prices, as tax exempt for resale to customers or if there are regulations restricting purchase (i.e. some chemicals, medical supplies, etc.). Similarly, customers should confirm vendor eligibility to meet their needs by either calling, emailing or meeting potential vendor candidates.
One of the easiest ways to determine if a vendor is a good fit is to have a checklist of questions and requirements that must be met.
Which of the following vendor qualifications is most important to your business?
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14 Key Questions to Consider When Selecting Supply Chain Partners
The following questions bring up several issues that help determine whether a vendor is a good fit for the business. Creating a checklist or spreadsheet for answers can turn the questions into a helpful decision making tool.
- Does this vendor offer the product(s) or service(s) sought? Obvious question!
- How close is the vendor to the business and/or the point of delivery? This is a huge question if the vendor will be shipping goods either to the business or the business' customers. Great pricing can quickly be eroded by exorbitant freight time and cost. As more businesses transition their operations from offline to online, the likelihood of doing business with vendors all over the world increases. Additionally, many online businesses may be representatives for other companies that are a world away. Even if the online business is based locally, there's a chance that their products could be sourced from across the country or even across the ocean. Do not assume that an order submitted to a local supplier will arrive any sooner than one placed with a supplier outside the home area. Always verify production and delivery times for all orders.
- What is the normal turnaround time for the product or service to be purchased? Emphasis on "normal." This will be a key component for planning purposes.
- Is rush service available if needed? At what additional cost? What are rush service parameters? Answer to this three-part question can help businesses evaluate whether it makes sense to take on rush or emergency projects.
- Does the potential vendor have corporate social responsibility (CSR) policies that are in alignment with those of the purchasing organization? For example, union associations usually try to steer clear of suppliers who do not use union labor. To do otherwise, would erode their message of solidarity and support of workers. Click here to learn what is a union bug.
- What are the vendor's payment terms and available payment methods? Is a purchase order required? If a vendor only accepts cash or checks, those customers who primarily use credit cards for payment may not be interested in doing business. Some vendors also require a purchase order commitment.
- Does the vendor have a dedicated inside sales representative or team to be assigned to the account? If not, who will be the primary sales contact? If doing an order requires hunting down a sales rep who's always on the road, it could be very difficult to get orders done.
- How should orders be submitted? Will acknowledgments be sent? There's nothing worse than emailing an order to a vendor that seems to go into a black hole. It can require a great deal of followup calling and emailing which wastes customer time and effort. (True story: In 2013, I still had a couple suppliers who mailed—yes, snail mailed—order acknowledgments. This in the era of email!) Orders that can be easily submitted and acknowledged on a website can score points with customers.
- Where can information on available products and services be found? An extensive vendor website can be a helpful tool for customers and can help avoid a lot of phone calls. This is a plus for both the vendor and the customer.
- Are custom products and services available if needed? Some vendors are set up strictly for "retail" business which does not have customization or build-to-spec offerings available.
- Are vendor sales tools available for customers to assist in reselling the products or services? In some industries, this can represent a huge cost savings for customers since custom websites and printed brochures will not have to be developed.
- Has the vendor received any awards or been rated by industry-relevant organizations? Vendors who have been highly rated by industry peers could be good candidates.
- If required, does the vendor have the necessary licenses or qualifications? This could include requirements for the supplier's personnel, facilities, products or services. An example would be requirements that products meet various ISO (International Organization for Standardization, www.iso.org) standards.
- Is the vendor's price point within budget? With 13 other questions to be considered, price is just one part of a supplier's total package and should not be the only deciding factor.
It is unlikely that all suppliers will perfectly fit the ideal profile developed from answering the above questions. Businesses need to decide which qualities are non-negotiable and which ones can be tradeoffs to get things done productively and cost effectively.
Interestingly, the one question that could have ramifications far beyond the profit and loss statement is Question No. 5. Missteps in selecting responsible vendors could call into question the purchasing organization's core values and reputation with their customers and the communities they serve. Choose carefully!
Disclaimer: The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.
© 2013 Heidi Thorne