Inputs account for a large part of the production costs of companies and, therefore, maintaining a healthy and long-term relationship with the best suppliers is vital to the success of a business. As an example, input expenses in the construction industry account for around 44% of the so-called Basic Unit Cost of Construction – which only stresses the importance of finding the best suppliers and developing a truly efficient procurement management.
According to experts, one of the main faults of companies is the lack of an institutional alignment with their suppliers of materials, equipment and services – a communication gap that can impair the company’s production flow. Another problem is the focus on superficial issues, such as price and time.
To prevent you from making the same mistakes of your competitors, we have listed below 7 steps to find the best suppliers. Learn how to manage them in your everyday life, and revolutionize the supply management process in your company. Check it out!
1- Do an in-depth market survey before entering each supplier in your database
Efficiency in ordering processes, delivery time reduction, fair prices, transparency, etc.: having an excellent supply chain management involves developing strict criteria to find the best suppliers – which means implementing modern, analytic methodologies and information systems that can help in the selection process of these stakeholders.
Then look for references, evaluate the opinion of other customers and, particularly, don’t forget to use technological resources to automate and decrease the time spent in supplier analysis processes. Moreover, there are operational intelligence systems for the supply area, capable of performing certification, evaluation and analysis of the best suppliers in the market.
Using mathematical algorithms and comparing lots of data automatically, an operational intelligence solution linked to the supply area can check if the company to be contracted has all the necessary documents, the required products and a good track record in the market, in order to foresee possible difficulties and monitor the quality immediately. This is a detail that makes all the difference when attempting to gain agility in the processes of procurement and follow-up, in the maintenance of inventory levels and in the reduction of operating costs.
2- Promote an institutional alignment with your suppliers
The growing implementation of strategies, such as Supply Chain Management (SCM), in the management of company-supplier relationships indicates that the businesses have already perceived the clear interdependence of all members of the production chain for mutual success.
Therefore, the segregation that was characteristic of the old relationships between the procurement sector and product suppliers is being replaced by the incentive to long-term relations, closer procedures between stakeholders, and even joint institutional alignment meetings, with the purpose of harmonizing processes – so the suppliers could be able to sell more and the companies wouldn’t be subject to inventory rupture, due to unexpected demand fluctuations.
It’s worth remembering that, in many businesses, there are even systems integrated with manufacturers, to provide supply information to suppliers and automate procurement processes. Conditions such as delivery times and available modes are other factors that can be aligned, and even displayed on specific systems.
It isn’t recommended at all to get carried away by the “lowest price temptation” – which makes some procurement managers to overfill their active supplier base, establishing a temporary and rotating relationship with multiple companies, always based on price only. It’s then impossible to create bonds, as the bargaining power is weakened in the procurement process and quality is placed in the background. It isn’t enough to have good suppliers; it’s also necessary to have a good relationship management with the supply sources.
3- Check the supplier’s time-to-market and size
Know-how and production capacity are two extremely important factors when looking for the best suppliers. That’s because is fairly common that manufacturers sign input supply contracts far beyond their delivery capacity. Afterwards, this can result in delays, partial deliveries, and – of course – low inventory levels.
Therefore, give preference to suppliers with experience in the provision of raw materials / equipment with a volume that is compatible to the needs of your company. It’s even worthwhile to do a sort of benchmarking, to find out which suppliers are working with your competitors.
4- Meeting the deadlines depends on your company too
Agility and flexibility are essential aspects for your company, in order to always have the best products, with the lowest production cost and always available to the market. For such purpose, all members of your production chain need to be aligned, with special attention to suppliers.
But it isn’t enough to depend just on the supplier: the company must have smart systems to calculate key indicators electronically for the procurement sector, such as Order Point, Economic Purchase Lot and Minimum Stock. If your company has good capability to anticipate seasonal fluctuations in demand, you can trigger purchase orders in advance and then avoid depending entirely on supplier efficiency. Please remember that meeting the deadlines depends on supplier’s excellence, but also on the existence of inventory management systems in your company.
5- Use e-sourcing
The so-called e-sourcing is a widely used approach in the procurement and supply areas. Its method involves an in-depth analysis of the total purchase cost of all products and services used in a production cycle, followed by a mapping of their specifications, service levels and market situation of suppliers. In addition, it enables incorporating variables, such as customer needs and organizational goals. All such work is done with the purpose of finding the exact input for each product, by maximizing profits without losing quality.
The use of this strategy is crucial to drive a partnership with your stakeholders, but having also a supplier relationship management system and an e-procurement solution is key for its implementation.
6- Don’t rely on a single supplier
Fostering long-term relationships with your suppliers doesn’t mean that you should restrict your database to just one supply source. No matter how good your product / service provider is, incidents can happen and if you don’t have a plan B (C, D, E…), you will certainly face problems in your production line.
7- Consider the quality of purchased products
Excellent prices, quality and delivery times are the items that make up the ‘triple crown’ of a good supplier. These variables should guide the selection process of the company that will meet your production or service needs. However, it’s important to stress that, among such items, quality should be the first to be analyzed.
We live in a digital age, where information is disseminated very easily. End users are also highly demanding now, and using low quality inputs can seriously affect your end product, and the image of your business.
Now you know all steps to promote a good management and find the best supply sources for your company. Be sure to share also your experience with supplier selection in the comments. See you in our next post!