Identification and Selection of Reliable Suppliers

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Why are do you use a supplier directory? 

  1. You are in the Purchasing Department and suddenly are in shortage of the "Golden bolt" that comes from another country and do not have local approved suppliers...what is worse, you have no idea which companies have the ability to bring it in rapidly.

  2. You are in the Purchasing Department and you are required to substitute imported products with national content to reduce cost: but who can make this product? How do I make a search of qualified suppliers?

  3. I have a national provider, but it is not has not been reliable on the past.

To answer all of these questions is not easy, and if we meditate honestly, we will notice that in the majority of manufacturing plants, we do not have enough training in our operations personnel, to carry out a nice robust process of Identification and Suppliers Selection that ensure three things: savings, reliability, and happy internal customers.

Reality is that in most cases (and particularly in low cost countries), the level of expertise of Procurement professionals is very basic and very often, supplier development  is under the responsibility of local buyers who do not have appropriate training and working  hours will never be enough, to keep up with tactical and strategic activities.

It is inevitable that manufacturing buyers focus on production priorities, to ensure on time delivery and fulfillment with quality product first, instead of focusing themselves on developing a new Sourcing Strategy. It is what it is.

For Sourcing professionals working in multinational corporations this may sound obvious but, ask yourself:  how good of a job are you really doing to keep up with the needs at each and everyone of your locations and the speed they want you to do it?

In smaller corporations the stretch is even harder. Less resources do more.  

For this reason, more companies are opting for contracting strategic sourcing activities to specialized consultants.  The scope of work can go from only Market Intelligence activities up to a full sourcing suite.

Working with a professional Sourcing Agent,  will bring results faster for the organization, which means reduced time to market on high spend items and realization of cost savings much earlier than with internal staff. In addition, outsourcing these activities brings reduced cost in the company payroll, because the consultant works by project, motivated by sharing the benefit of the results and returns on a need to basis.  Very attractive Ha?

The scope of work with a specialized consulting firm depends on the specific needs of each company; in some cases, it will be just to identify and qualify potential suppliers as preparation for bidding a package, but another time could be a more thorough supplier development program.

What is market intelligence?

Summary of steps of this study as follows:

1. Definition of supplier selection factors and develop a weight factor for each one.

2. Conduct Request for Information: supplier reach out for preliminary list.

Those company names and data from Hoovers or Thomas Register might seem nice in a sheet of paper but you need to collect some information to know more about their true capabilities.

Let me tell you something: the length of time and provisions you take to evaluate technical, financial and management capabilities of a potential vendor before the bid is indirectly proportional to the number of problems you will have after you place the first purchase order. Therefore, before a vendor received the bid invitation, you must conduct a proper evaluation. I very often see companies do not put enough care on this step, and when the fiasco occur, they blame it all on the sloppy supplier, when in fact, it was a sloppy sourcing work.

3. Potential supplier prequalification and selection of short list to invite to bid.

4. After 1, 2 and 3 are complete, we can proceed to develop a bidding strategy.

In some cases, the market would not give us qualified suppliers at this point in time but, you found some with potential, is that the end of the story? No, you can consider at this point a Supplier Development program for local vendors, to be able to use them in the near future.

How can we do a successful supplier development project? 
Majority of senior buyers and end customers opinion is that vendors must first meet the appropriate international quality management standard to the product, to insure a reliable company management system is in place and quality product.
On the other hand, experience tell us as well, that having a certified supplier is not enough guarantee. We must engage them in continuous improvement initiatives to develop a reliable supply base. 
You must set vendors a very clear goal and a path to achieve it; giving technical advice and training on quality tools advanced such as Six Sigma, Statistical Process Control, Control Plan and Lean manufacturing is a good idea. 
Again, any size of company internal resources will never be sufficient to work in a sustainable way and thoroughly with all of them, it is therefore necessary to look out and consider outsourcing these activities with a third party. 
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