by Camille Chin | August 4, 2022
Many product sourcing and procurement teams have been sourcing new suppliers in response to product shortages, longer lead times and other supply chain uncertainties. Sourcing suppliers is arguably the first step in supply chain management and it’s vital: getting quality goods at competitive prices sets a business up for desired margins.
Finding, vetting and selecting suitable suppliers to provide the goods your business needs, whether raw materials or finished goods, involves many considerations that go beyond product price, quality, and supplier reliability.
Here are five essential criteria to consider when sourcing new suppliers.
A wholesaler or retailer with just one Tier 1 supplier would be a red flag. A Tier 1 supplier with just one Tier 2 supplier for its input material should be too. When sourcing new suppliers, review supplier networks and look for potential risks.
A large supplier base and suppliers with a presence in different parts of the world will help to ensure that all contributors have alternative supply sources if an unexpected challenge occurs (a pandemic, a war, a drought or flood, for example). Building a sourcing strategy and supplier network with a wider geographic footprint takes time and money, but it will provide an invaluable backup plan.
Levi’s pre-pandemic shift away from sourcing in China due to global trade uncertainties spared them from some of the hardships that other brands faced when factories in China closed in early 2020. Levi’s reduced its manufacturing in China from 16% in 2017 to about 1 and 2% in 2019.
Two-thirds of the average company’s environment, social and governance (ESG) footprint lies with their suppliers so the suppliers that a sourcing team works with and the products they purchase have a huge role to play in shaping an organization’s ESG footprint.
In a survey of 20 Chief Procurement Officers (CPOs) at large European companies, 60% of the procurement professionals knew where they wanted their organization to be in terms of sustainability, but had no aligned strategy. Start by ensuring that new potential suppliers want to work with your company on sustainability and have the resources and infrastructure to make your shared ambitions a reality.
A recent article described TOMS sustainability goals. The footwear brand wants to:
• source 100% sustainable cotton by 2025
• use packaging made with at least 80% recycled materials
• review their carbon footprint and establish reduction targets by 2025
In Amazon’s B2B e-Commerce Evolution report, 46% of survey respondents said that buying local was a top procurement priority for their organization.
There are many advantages to working with domestic suppliers. Closer proximity to suppliers translates into easier communication and collaboration, and improved control over workflows and product development/quality. Near-shore suppliers and a shorter supply chain also means less transportation and storage requirements, which reduces costs, tariffs and taxes, and environmental emissions. Most importantly, when suppliers are in the same time zone, unexpected issues can be managed more readily preventing lengthy (and expensive) delays.
Ask yourself these key questions to determine if it make sense to work with a local supplier:
• Can you purchase your product or material locally?
• Will a local supplier be able to fill your orders consistently?
• Is it profitable to work with a local supplier?
Customers across all sectors want products that perform better, offer new features and are tailored to their unique needs. Many companies don’t have the capabilities and/or expertise to innovate internally so they turn to suppliers for help.
Suppliers must be willing to experiment, analyze and adapt, and they require budgets and resources to drive innovation. Collaborating with suppliers can lead to better designs, new opportunities to optimize costs, faster time to market and much more.
Businesses fail for a variety of reasons, including increasing costs and late payments from customers. Unfortunately, it’s not uncommon for suppliers to go belly up. Before onboarding a new supplier, complete a financial health check to review how a supplier’s finances have changed over time.
Financial reviews of all your global suppliers should be done a few times a year (2 or 3 times at least) to protect supply and growth, and to avoid sudden disruptions that may be costly.
There are countless criteria to weigh when to looking for new suppliers and every organization has their own priorities when it comes to supplier relationships. What are you looking for in a long-term business partner? A local footprint? A shared interest in sustainability? Ethical business practices? Exciting, innovative products and services? Define what matters most to your organization so it’s easier to decide which suppliers meet your criteria and which don’t.
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