As we approach the end of our series of articles about global sourcing we wanted to share five final tips on how to select your supplier.
The world is slowly reopening and supply chain professionals will play an important role in revisiting their sourcing strategy and in many cases reshaping their supplier network.
1- Size matter.
Do you need a supplier that values your business? If so, select a supplier with the right size.
If you represent a very small percentage of your supplier’s sales you will not get the attention that you may need when required. Conversely if you represent too much, your supplier is highly dependent on your activity and a drop in business could have dramatic consequences. Likewise your supplier may not be able to respond in case of a sudden increase.
Less than 3 % of your supplier’s sales will give very little leverage to your company and you should be careful when engaging with them..More than 25% is also risky territory and it is wise to bring a second source.
2- What payment terms tell you about your supplier
Payment terms are often driven by your supplier’s trust in your organization.
When dealing with a local supplier who knows your company well you may be able to negotiate favorable terms from the get-go whereas with Far East suppliers it will take time to earn trust..
Having said that, make sure to be upfront with your expectations and when your supplier will see you as a true partner you will eventually get what you want.
3- Doing some research about your supplier.
Public companies are easier to research than privately held companies because the SEC requires that they file quarterly and annual reports. Information is generally available on the company website under Investor relations.
Private companies are usually more difficult to investigate. You can check the website, you can type the name in your favorite search engine or you can also try one of the news databases like dun & bradstreet.
Although one of the best practices for private companies remains to send a survey. Some companies will be reluctant to share some of their financial information and my recommendation is to give them multiple choice answers (i.e. sales below $5M, between $5M and $10M, between $10M and $50M…)
4- MOQ Minimum Order Quantity and available capacity.
It is important to ask about MOQ and available capacity as it will help you to determine how flexible your supplier is when it comes to providing small quantity or high volume orders.
Asian manufacturers often focus on large orders and will reject the small ones. Although this is changing and companies tend to be more flexible in a time of fierce competition.
MOQ can be very costly, some companies are adamant about these minimum quantities and even though you need only 100 pieces they will ship and charge you for a MOQ of 500, 1000 or sometimes more…
5- Visits and on-site audit.
For a variety of reasons visiting your supplier is still an important aspect of the selection process.
Website and sales professionals tell you what you want to hear but plant tours don’t lie and there’s no substitute to meeting people in person.
Most importantly keep an open mind when touring your supplier. Your host is likely to be excited to have you on the floor and eager to share his knowledge of the company, just listen and open your eyes. Try not to be too judgmental during the tour, each company is unique and enjoy the opportunity to learn about their “secret sauce” and what truly makes the company different.
Personally I am very sensitive to cleanliness, I believe that cleanliness reflects the culture of a company. I also try to engage with employees through a little “Hi” or “Hello”, the nature and the tone of the reply tell me a lot about the culture.
Documentation is important, look for instructions, procedures, safety signage.
Light is also a good indicator of how much the management cares about the employees working conditions.
Finally, asking the right questions sends a powerful message about your candor and interest in the company operations.
We hope that these articles have provided insights and perspective that can contribute to the development of loyal suppliers to your organization.
Kusu remains available to assist companies to streamline their supply chain, reduce cost and capitalize on the power of Southeast Asia.