If you’re procurement professional in a manufacturing or sales company, you might have heard that supplier selection these days is all about total cost of ownership, rather than just obtaining the lowest prices possible.
The numerous supply chain stakeholders existing inside and outside of your company all have certain expectations, which your team must take into account when selecting new suppliers.
Selecting Suppliers for Value
This post highlights three of the most important drivers of value for supply chain stakeholders in relation to sourcing primary materials and goods. It also explains why each of the value drivers is vital for successful supply chain management.
1. Customer Service
A supplier that excels in customer service is a valuable partner in any company’s supply chain. Your purchasing team, goods-receiving staff, inventory managers, and your company’s customers all have a stake in the level of service provided by upstream suppliers.
Let’s be honest, customer service is one of the things we all value most in suppliers, even as consumers, and it’s the same when businesses buy from businesses.
The better the customer service your company receives from its suppliers, the better it can serve its own end-customer base. If you must pay a little more for your products or materials to enjoy a high level of service, don’t let that be a deal-breaker when selecting suppliers.
2. Short Delivery Lead Times
Low, low prices are a poor substitute for expeditious delivery. Getting materials delivered fast is another of the qualities supply chain stakeholders value highly in a supplier.
During supplier selection, your team should give preference to candidates with distribution sites close to your own, or that can otherwise guarantee short lead times for your purchases.
Longer lead times not only extend your company’s cash-to-cash cycle time and make it harder to meet your customers needs; they also lead to increased inventory holdings. Your colleagues in the logistics function are more likely to insist upon purchasing buffer stock to offset the length of time it takes for inbound deliveries to arrive.
Accepting lengthy lead times might get you lower purchase prices, but the overall cost of ownership could easily skyrocket. On the other hand, a more conveniently located vendor is likely to save you money, even if your company must pay more for its purchases.
Low prices and lots of promises won’t impress the majority of supply chain stakeholders. Proven supply and service reliability however, is perhaps the single most desirable characteristic of a primary supplier.
After all, even short lead times and great customer service mean little if your company can’t get materials when it needs them.
When vying for your business, suppliers will often promise high availability and swift delivery. Those promises should certainly not be taken at face value, especially from a supplier offering prices significantly below those of its competitors.
Always follow up references and ask each potential supplier’s existing customers about service performance and product availability. Once you sign a contract with a supplier, your company will be depending on its reliability, so make sure the supplier has a good record of honouring commitments.
Value The Needs of Supply Chain Stakeholders
Poor supplier selection may only impact the procurement function when it comes to correcting the error. For other supply chain stakeholders though, the problems can begin from the first day of business, and continue until your team acquires a better alternative source of materials.
Of course, as a procurement professional, you must naturally focus on price to a certain degree when choosing suppliers. But lowest prices might not make a winning deal. Always try to look beyond purchase price and select suppliers for maximum value over the full life of the supplier/buyer relationship.
Good customer service, minimal lead times, and assured reliability are priceless value drivers for the supply chain. Not only do these qualities add value, they can also save operating costs and increase profitability. That’s why supplier selection is much more than a quest for the lowest price per unit.