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Guide

Supplier selection process

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Choosing the right supplier involves much more than scanning a series of price lists. Your choice will depend on a wide range of factors such as value for money, quality, reliability and service. How you weigh up the importance of these different factors will be based on your business' priorities and strategy.

A strategic approach to choosing suppliers can also help you to understand how your own potential customers weigh up their purchasing decisions.

This guide illustrates a step-by-step approach you can follow that should help you make the right choices. It will help you decide what you need in a supplier, identify potential suppliers and choose your supplier.

Thinking strategically when selecting suppliers

The most effective suppliers are those who offer products or services that match - or exceed - the needs of your business. So when you are looking for suppliers, it's best to be sure of your business needs and what you want to achieve by buying, rather than simply paying for what suppliers want to sell you.

For example, if you want to cut down the time it takes you to serve your customers, suppliers that offer you faster delivery will rate higher than those that compete on price alone.

For some pointers to help you identify what you want from suppliers, see the page in this guide on what you should look for in a supplier.

The numbers game

It's well worth examining how many suppliers you really need. Buying from a carefully targeted group could have a number of benefits:

  • it will be easier to control your suppliers
  • your business will become more important to them
  • you may be able to make deals that give you an extra competitive advantage

For example, if you've got a rush job for an important customer, your suppliers will be more likely to go the extra mile if you spend $1,000 a month than if you spend $250.

However, it's important to have a choice of sources. Buying from only one supplier can be dangerous -where do you go if they let you down, or even go out of business?

Equally, while exclusivity may spur some suppliers to offer you a better service, others may simply become complacent and drop their standards.

What you should look for in a supplier

Reliability

Remember - if they let you down, you may let your customer down.

Quality

The quality of your supplies needs to be consistent - your customers associate poor quality with you, not your suppliers.

Value for money

The lowest price is not always the best value for money. If you want reliability and quality from your suppliers, you'll have to decide how much you're willing to pay for your supplies and the balance you want to strike between cost, reliability, quality and service.

Strong service and clear communication

You need your suppliers to deliver on time, or to be honest and give you plenty of warning if they can't. The best suppliers will want to talk with you regularly to find out what needs you have and how they can serve you better.

Financial security

It's always worth making sure your supplier has sufficiently strong cash flow to deliver what you want, when you need it. A credit check will help reassure you that they won't go out of business when you need them most.

A partnership approach

A strong relationship will benefit both sides. You want your suppliers to acknowledge how important your business is to them, so they make every effort to provide the best service possible. And you're more likely to create this response by showing your supplier how important they are to your business.

Identifying potential suppliers

You can find suppliers through a variety of channels. It's best to build up a shortlist of possible suppliers through a combination of sources to give you a broader base to choose from.

Recommendations

Ask friends and business acquaintances. You're more likely to get an honest assessment of a business' strengths and weaknesses from someone who has used its services.

Directories

If you're looking for a supplier in your local area, it's worth trying directories such as Yellow Pages and Thomson.

Trade associations

If your needs are specific to a particular trade or industry, there will probably be a trade association that can match you with suitable suppliers.

Business advisors

Local business-support organisations, such as chambers of commerce, can often point you in the direction of potential suppliers. You can also contact our Strategic Information Centre.

Exhibitions

Exhibitions offer a great opportunity to talk with a number of potential suppliers in the same place at the same time. Before you go to an exhibition, it's a good idea to check that the exhibitors are relevant and suitable for your business.

Trade press

Trade magazines feature advertisements from potential suppliers. You can contact our Strategic Information Centre for a list of specialist trade magazines.

Drawing up a shortlist of suppliers

Once you've got a clear idea of what you need to buy and you've identified some potential suppliers, you can build a shortlist of sources that meet your needs.

When considering the firms on your shortlist, ask yourself the following questions:

  • Can these suppliers deliver what you want, when you want it?
  • Are they financially secure?
  • How long have they been established?
  • Do you know anyone who has used and can recommend them?
  • Are they on any approved supplier lists from trade associations or government?

Do some research and try to slim your list down to no more than four or five candidates. It's a waste of time for you and the potential supplier if you approach them when there's little chance of them fulfilling your requirements.

Choosing a supplier

Once you have a manageable shortlist, you can approach the potential suppliers and ask for a written quotation and, if appropriate, a sample. It's best to provide them with a clear brief summarising what you require, how frequently you'll require it and what level of business you hope to place.

Get a quotation

It's worth asking potential suppliers to give you a firm price in writing for, say, three months. You can also ask about discounts for long-term or high-volume contracts.

Compare potential suppliers

When you've got the quotation, compare the potential suppliers in terms of what matters most to you. For example, the quality of their product or service may be most important, while their location may not matter.

Price is important, but it shouldn't be the only reason you choose a supplier. Lower prices may reflect poorer quality goods and services which, in the long run, may not be the most cost effective option. Be confident that your supplier can make a sufficient margin at the price quoted for the business to be commercially viable.

Check that the supplier you employ is the one that will be doing the work. Some suppliers may outsource work to subcontractors, in which case you should also investigate the subcontractor to determine if you are happy with this arrangement.

Wherever possible it is always a good idea to meet a potential supplier face to face and see how their business operates. Understanding how your supplier works will give you a better sense of how it can benefit your business.

And remember that your business' reputation may be judged on the labour practices of your suppliers. It makes good business sense to consider the ethical dimensions of your supply chain.

Negotiate terms and conditions

Once you've settled on the suppliers you'd like to work with, you can move on to negotiating terms and conditions and drawing up a contract. See our guide on how to negotiate the right deal with suppliers.

Getting the right supplier for your business

Know your needs

Make sure you know what you need. Don't be tempted by sales pitches that don't match your requirements. Understand the difference to your business between a strategic supplier, who provides goods or services that are essential to your business - such as high-value raw materials - and non-strategic suppliers who provide low-value supplies such as office stationery. You will need to spend much more time selecting and managing the former group than the latter.

Spend time on research

Choosing the right suppliers is essential for your business. Don't try to save time by buying from the first supplier you find that may be suitable.

Ask around

People or other businesses with first-hand experience of suppliers can give you useful advice.

Credit check potential suppliers

It's always worth making sure your supplier has sufficiently strong cash flow to deliver what you want, when you need it. A credit check will also help reassure you that they won't go out of business when you need them most.

Price isn't everything

Other factors are equally important when choosing a supplier - reliability and speed, for example. If you buy cheaply but persistently let down your customers as a result, they'll start to look elsewhere.

Agree on service levels before you start

It's a good idea to agree on service levels before you start trading so you know what to expect from your supplier - and they know what to expect from you. See our guide on how to manage your suppliers.

Don't buy from too many suppliers...

It will be easier for you to manage - and probably more cost-effective - if you limit the number of sources you buy from. This is particularly the case with low value-added suppliers.

...but don't have just a single supplier

It's always worth having an alternative supply source ready to help in difficult times. This is particularly important with regard to suppliers strategic to your business' success.


Original document, The supplier selection process, © Crown copyright 2009
Source: Business Link UK (now GOV.UK/Business)
Adapted for Québec by Info entrepreneurs


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