How can you quickly identify high-quality suppliers when purchasing new suppliers? Here are 10 experiences for your reference.
01 Audit certification
How to ensure that the qualifications of suppliers are as good as they show on the PPT?
Certification of suppliers through a third party is an effective way to ensure that customer requirements and standards are being met by verifying the supplier’s processes such as production operations, continuous improvement and document management.
Certification focuses on cost, quality, delivery, maintenance, safety and the environment. With ISO, industry-specific certification or Dun & Bradstreet code, procurement can quickly screen suppliers.
02 Assessing the Geopolitical Climate
As the U.S.-China trade war escalates, some buyers have turned their attention to low-cost countries in Southeast Asia, such as Vietnam, Thailand and Cambodia.
Although suppliers in these countries can provide lower quotations, factors such as weak infrastructure, labor relations and political instability in the locations may prevent purchasers from obtaining stable supplies.
In January 2010, the Thai political group Red Shirts took control of the Suvarnabhumi International Airport in the capital Bangkok, which made all air import and export business in Bangkok suspended and had to go through neighboring countries.
In May 2014, there were serious violent incidents of beating, smashing, looting and burning against foreign investors and enterprises in Vietnam. Some Chinese enterprises and personnel, including those in Taiwan and Hong Kong, as well as enterprises in Singapore and South Korea were attacked to varying degrees. cause loss of life and property.
Before selecting a supplier, an assessment of supply risk in the region is required.
03 Check financial soundness
Purchasing needs to constantly pay attention to the financial health of suppliers, and must not wait until the other party encounters operational difficulties before reacting.
Just as there are some abnormal signs before an earthquake, there are also some signals before the supplier’s financial situation goes wrong.
For example, executives leave frequently, especially those in charge of core businesses. The excessively high debt ratio of suppliers may lead to financial pressure, and the slightest carelessness will cause the capital chain to break.
Other signals may be a decline in product on-time delivery rates and quality, long-term unpaid leave for employees or even mass layoffs, negative social news from supplier bosses, and more.
04 Assessing Weather-Related Risks
Although the manufacturing industry is not an industry that depends on the weather, the disruption of the supply chain still has an impact on the weather. Every summer typhoon in the southeast coastal area will affect suppliers in Fujian, Zhejiang and Guangdong.
Various secondary disasters after the typhoon makes landfall will cause serious threats and great losses to production operations, transportation and personal safety.
When selecting potential suppliers, procurement needs to examine the weather conditions typical of the area, assess the risk of supply disruptions, and whether the supplier has a contingency plan. When a natural disaster occurs, how to respond quickly, restore production, and maintain normal business.
05 Confirm whether there are multiple manufacturing bases
Some large suppliers will have production bases or warehouses in multiple countries and regions, which will give buyers more choices. Shipping costs and other related costs will vary by shipping location.
The distance of transportation will also have an impact on the delivery time. The shorter the delivery time, the lower the inventory holding cost of the buyer, and the ability to quickly respond to fluctuations in market demand to avoid product shortages and sluggish inventory.
Multiple production bases can also alleviate the problem of tight production capacity. When a short-term capacity bottleneck occurs in a certain factory, suppliers can arrange production in other factories whose production capacity is not saturated.
If the shipping cost of the product constitutes an exorbitant total cost of ownership, the supplier must consider building a factory close to the customer’s location. Suppliers of automotive glass and tires generally build factories around OEMs to meet customers’ inbound logistics needs for JIT.
Sometimes it is an advantage for a supplier to have multiple manufacturing bases.
06 Get inventory data visibility
There are three well-known big Vs in supply chain management strategies, namely:
Visibility
Velocity, Velocity
Variability
The key to supply chain success is increasing supply chain visibility and velocity while adapting to variability. By obtaining the warehousing data of the supplier’s key materials, the buyer can know the location of the goods at any time by increasing the visibility of the supply chain to prevent the risk of out-of-stock.
07 Investigating Supply Chain Agility
When the buyer’s demand fluctuates, the supplier needs to be able to adjust the supply plan in time. At this time, it is necessary to examine the agility of the supplier’s supply chain.
According to the definition of the SCOR supply chain operation reference model, agility is defined as indicators of three different dimensions, namely:
① fast
Upside flexibility Upside flexibility, how many days it takes to increase production capacity by 20%
② amount
Upside adaptability, within 30 days, the production capacity can reach the maximum amount.
③ drop
Downside adaptability, within 30 days, how much the order is reduced will not be affected. If the order is reduced too much, the supplier will complain a lot, or transfer the production capacity to other customers.
By understanding the supplier’s supply agility, the purchaser can understand the strength of the other party as early as possible, and have a quantitative assessment of the supply capacity in advance.
08 Check service commitments and customer requirements
Prepare for the worst and prepare for the best. Buyers need to check and evaluate the customer service level of each supplier.
Purchasing needs to sign an agreement on supply with suppliers to ensure the level of supply service, and use standardized terms to regulate the rules of order delivery between purchases and raw material suppliers, such as forecast, order, delivery, documentation , loading method, delivery frequency, waiting time for pickup and packaging label standards, etc.
09 Get lead time and delivery statistics
As mentioned above, a shorter lead time of delivery can reduce the buyer’s inventory holding cost and safety stock level, and can quickly respond to fluctuations in downstream demand.
Buyers should try to choose suppliers with shorter lead times. Delivery performance is the key to measuring supplier performance. If suppliers cannot proactively provide information on on-time delivery rates, it means that this indicator has not received the attention it deserves.
On the contrary, if the supplier can actively track the delivery situation and timely feedback the problems in the delivery process, it will win the trust of the buyer.
10 Confirm payment terms
Large multinational companies have uniform payment terms, such as 60 days, 90 days, etc. after receiving the invoice. Unless the other party supplies raw materials that are difficult to obtain, the buyer prefers to choose a supplier who agrees to its own payment terms.
The above are the 10 tips I have summarized for you to identify high-quality suppliers. When purchasing, you can consider these tips when formulating purchasing strategies and selecting suppliers, so as to develop a pair of “eyes with sharp eyes”.
Post time: Aug-28-2022