Top 5 Criteria for Choosing Suppliers
Dealing with suppliers involves several steps. Once you’ve identified what your company needs when receiving the purchase order, it’s time to assess the potential suppliers and choose the best one is a complex process.The biggest mistake you can make is choosing a supplier without fully analyzing all the necessary criteria. Fortunately, there are a few key points that can help you make your decision more easily.
First: Know your demand very well
The first step in supplier mapping is to fully understand each demand directed to the purchasing department, especially with regard to quantities and delivery deadlines that need to be met.
With this information in hand, you can better align your demand with the service each provider offers, and then choose the one that best suits your needs and conditions.
In addition, it becomes possible to identify probable errors that may occur in the delivery of products, such as differences in quantity or accessories that need or do not accompany the part, for example. In this way, you can proactively prevent this from happening.
1. Price and conditions
Perhaps the price and payment terms are the factors that weigh most when choosing a supplier, especially considering that the cost in question must fit the budget and be in line with the planning of the area.
Suppliers must offer a fair price for the product, but it is good practice to always negotiate. It is worth considering that low price does not always mean low quality, just as a high price does not necessarily indicate a high level of quality.
Carefully review the submitted quote identifying what makes up your price, such as included parts, packaging and selected Incoterm, and see if the final value really makes sense.
Beware of budgets far above or far below what the market usually offers. High prices may be just the beginning of the negotiation, with a margin for it to be reduced to an acceptable level, while very low prices may hide contractual obligations.
A good way to analyze the product price is to calculate the Purchase Price Variance (PPV). It refers to the difference between the actual price of the purchased product and its standard price, always related to the number of units purchased. This is one of the main indicators used to measure the variation in the price of goods and services purchased in a given period of time.
Remember to check the quote’s expiration date, because the price you see today may not be the same 3 weeks from now, and if you need to make the purchase next month, this quote may no longer be valid, so it’s necessary to resubmit the quote requests. Unless an annual contract is signed or that a term is established for that amount.
To maintain a good relationship with suppliers, it is important to establish deadlines that can be met, making sure that the part will be in your factory, or warehouse, before it is needed for production.
Try to find out if the supplier has a history of unforeseen events that have caused delays in delivery, such as accidents or frequent transport problems, for example. Once again, it is worth checking the delivery options and Incoterms that each supplier offers. In addition to making a huge difference in the final price, different types of transport require different deadlines, and you should be prepared for that.
Only associate with companies that work with visions and values similar to those of your company and that, in some way, can also enrich your production in an intangible way. An analysis criterion relates to the sustainability of the supplier’s production in question, does it have environmental awareness and environmental protection programs, for example?
Make sure your supplier is trustworthy. Check the company’s legal and economic status and documents related to compliance and code of ethics before entering into a partnership.
Especially in the digital age, in which the consumer demands more and more transparency regarding the origins of direct and indirect materials, the reputation of its supplier can be decisive in the final customer’s purchase decision. As we said in the topic of values, it is important to partner with good companies, which can enrich not only your business, but also your image.
Also, make sure the supplier is accessible and has a customer relationship service. This is especially important if a problem occurs, and you need their help to resolve it.
To ensure you’re not being taken in by empty promises, deepen your research by consulting sources beyond the corporate website and look for other supplier customers before closing the deal. Research providers’ social media profiles, analyzing how they handle criticism and complaints, as well as whether there is any effort to maintain a good public image.
Develop a sourcing plan
Technological transformation has revolutionized the routine of all sectors, including purchasing. There are options that allow you to constantly monitor the performance of each supplier, calculate risks and possible delays, generate reports, compare conditions and much more!
It is essential to have the entire purchasing movement very well organized, with information such as the status of each demand, supplier responsible for each order, terms, and conditions of delivery, among others, organized in an easy-to-view panel.
To do this, use technological solutions that allow you to follow each step of the process. But before adopting any technology, it is necessary to study the cost and feasibility of each solution so as not to fall into the herd effect. Also ensure that your entire team has been trained to deal with the new solutions, being able to extract as much information as possible.
Be sure to adjust the schedule whenever necessary. Take into account changes and/or additions to the order and any other situations that may delay a delivery.
By facilitating the relationship with suppliers, you enable a better exchange of information between the parties, so that improvements can be implemented without too much complication and with mutual benefits.
Another way to ensure good service provision with suppliers is to trust a company that works daily for the satisfaction of its customers in all areas. If you haven’t tried our services yet, send us your international spare parts quote request today!