What are the key questions you should ask a new supplier

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Establishing an effective supplier network can be complicated – signing up to new suppliers is a gamble – you are relying on continuity within your material flow with minimal risk. Most organisations will adopt rigorous sourcing processes to help in select suppliers that adequately meet business needs – but what are the key questions you should ask of a new supplier? Consider the following:

Can the supplier demonstrate the required performance levels you require?

Of primary importance is whether the supplier can provide the flow of parts to the schedule that you need and meet your quality requirements – this is usually the primary reason that you wish to do business so you must be comfortable that the supplier can deliver accordingly.

Is the supplier customer-responsive?

Within the supply-chain, communication is key. Responsiveness to the customer can be indicative of both attitude and performance. Bear in mind that most organizations require more than just material flow from their supply chain adequate communication between both parties can be vital.

Do they have the experience and expertise?

A supplier’s experience is a valuable way to gauge its expertise. Although newer firms may offer quality products, more experienced companies generally have more established workflows and thus, can offer a more reliable supply. Be comfortable with the pedigree of the organization – this could encompass processes, people and systems. It may be beneficial for you that the supplier provides sample materials/products which can be scrutinized (this could include a qualitive review of the production process).

Can they easily integrate into your business processes?

It would be helpful if you agree on certain terms and work descriptions so that you ensure any ambiguity regarding the product is removed. It would also benefit the supplier to consider how the two organizations processes will be integrated as part of the procurement transaction (this is especially true when dealing with complex parts).

Do they have dedicated account management and references?

A good company will always have a good number of clients. These clients should be made known to you so that you can research performance. It is also an unbiased way for you to find the weakness of your supplier. It is also important for you to ascertain key contacts – typically your account manager. Any relationship between supplier and buyer will have its foundations with the account manager – they will assist with any disputes or development activity.

What is the basis of the supplier/buyer relationship?

You should be able to negotiate a guaranteed price for a certain amount of time. You should also be able to renegotiate terms every so often to reflect changes in the market. In addition, all terms should be set out on a contract or agreement – in order that all parties are aware of their responsibilities and facilitate resolution in the event of any dispute.

What happens when change occurs?

Sometimes, a project may be canceled, meaning that forward demand is no longer required. How would you deal with that situation? What contingency will you put in place? Conversely if the supplier has changes in their business, for example a change of ownership or financial issues – what will it mean to you?

What Is Strategic Sourcing?

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Strategic sourcing is a procurement strategy that is used to make sure that the supply chain is continuously improved. It is in essence, the method of meeting a company’s needs from suppliers through analysing the supply markets and then agreeing suppliers who are geared up to meet agreed objectives.
Introducing Strategic Sourcing

To implement strategic sourcing, it is necessary to analyse the current supply chain (often referred to as the ‘as is’ process). The analysis needs to look at the processes involved in the supply of goods, to assess how goods are secured.

The market as a whole needs to be explored to ascertain who provides supplies, so that all potential suppliers can be identified. This element of the analysis is actually quite complex. Historically the choice of suppliers tended to be focused on price alone, so if they could offer a certain range of goods at a specific price, then they would be selected.

However, choosing suppliers on the basis of cost alone does not take into account other factors, such as delivery times, flexibility, whether they have the internal mechanisms to offer good customer care, react to sudden changes in demand and so on. So when initiating strategic sourcing, all these issues are looked at, to enable a full profile of suppliers to be drawn up. This is not a ‘snap shot’ of what suppliers can offer, more like a biography.

External factors need to be assessed to understand what risks exist. This is an important step and can be a key step in selecting what suppliers get selected. Any supply process has risks and the job of procurement is to manage these risks and to ensure that they are kept within acceptable limits and continuity of supply is maintained.

Nature Of Strategic Sourcing

Strategic sourcing has a strong emphasis on continuously evaluating and improving the process of supply. There is no implementation and then sitting back, waiting for the benefits to happen, strategic sourcing is about continuously working to ensure that the supply chain is as efficient and stable as it can be.
Fundamental to the process is the building of mutually beneficial relationships with suppliers. This is not about the supplier being kept ‘in his place’ and viewed as subordinate, but rather about working jointly and collaboratively, so that the relationship can continue.

Benefits Of Strategic Sourcing

The main benefit cited with regard to strategic sourcing is saving costs. The more that the supplier and the customer work together the greater the savings are. Because the relationship is beneficial to both parties there is an in built incentive to make the relationship work and ensure that the supply chain is continuous and without any interruptions.

Strategic sourcing can take some time to bring about, mainly due to the lengthy analysis that has to be undertaken prior to the strategy being implemented, and it can also take some time to build up good relationships with suppliers. However, once the infrastructure is in place, then the relationship can continue to grow and become ever more productive.

Ultimately strategic sourcing makes the customer happy because s/he has regular supplies that are offered at an acceptable price, whereas the supplier is also happy because s/he has a regular and ongoing customer, enabling them to have financial stability and perhaps more importantly, regular and anticipated cash flow into the business.