Comparing Suppliers To Maximize Your Sourcing Success! (this is to answer many questions regarding comparing suppliers)

 

There are a few ways to go about comparing suppliers, and this "guideline" is for comparing suppliers for a specific existing product that you consider a part of your core product line. Iit does not fully take into consideration issues such as strategic alliance, product development, systems optimization, and other concerns that come up depending on your business goals. The following steps are a great guide to minimize your risks in finding the right supplier for the product you're counting on to bring revenue to your company.

 

1)      Know your product: It's your job to conduct due diligence on the product you're sourcing, and don't dare consider passing this responsibility off to someone else. Depending solely on your supplier or customer for this information is a sure-fire way to get burned. Know things like:

 

a.       The product materials and technologies

 

b.      If you can, research the raw materials prices for the market from which you're purchasing. A big delta between this and your finished product price is a red flag, if there's not a lot of value-added done by the factory.

 

c.       The typical production lead times it takes for this product to be manufactured according to the standard you want. If someone quotes you a product that is way below or way over the anticipated lead time, you know something is fishy

 

d.      The most common manufacturing flaws for your kind of product:  If you're doing cabinetry or staved core doors, you need to know things like how long the wood is kiln dried, and at what temperature.

 

e.       The packaging that is appropriate for your product to be safely delivered to your destination. If you're doing glass, you better have a standard drop-test requirement in the packaging requirements.

 

f.        The accepted defect rate, and what constitutes a defect. Make it measurable. Hand-painted Christmas ornaments have a totally different acceptable variance than do silicon chipsets.

 

2)      Benchmarking Your suppliers: Get past the common lazy-way of comparing suppliers:  FOB unit pricing.

 

a.       What you need to know is TOTAL COST OF BUSINESS WITH YOUR SUPPLIER. Which means you need to put together an objective criterion from the due diligence you've already done for your product, and apply it across the board to the suppliers you're comparing.

 

b.      It also means you need to know what are the CTQ (Critical to Quality) issues beyond simple product composition and pricing that you desire in a supplier.  A brief list of such metrics might include:

Communication ability
Response time
Efficiency in managing your project
Payment Terms
Warranty and refund policy
Expertise in your product (if relevant)
Manufacturing time
R&D capabilities
In-Stock Inventory levels
Logistics Abilities and pricing
                                                             

 

 

a.       Try to get at least 3 reference of companies who have purchased from this company before. Make sure that these are not all new customers, but customers who have been with them for a while. Ask these customers this question. “I know there’s no perfect company, so I don't expect a perfect review from you. If you could point to a few areas of weakness in this supplier what would they be? How do you wish this supplier would improve their service to you?” If you can ask them for reference from a customer whom they have had since their business began. These are jewels.

 

b.      Try to get reviews of this supplier from a few different associations or organizations. Be on the lookout for inconsistencies – and if you find them, ask your supplier to explain them if they are on your list of top suppliers.

 

c.       Ask your supplier if they have any financial policies they have in place to minimize financial risk for their customers. Do they have a stated minimum working capital amount? Minimum account balances? Minimum inventory levels?

 

d.      If possible, work with manufacturers who have sales or distribution offices in your country – this enables you to have very strong contracts. If not, visit this factory. MAKE SURE to look at the registration certificate of the factory, and confirm it matches the company name on the business cards you've been getting.

 

 

a.       Once you've determined your critical to quality metrics and have conducted financial due diligence, use weights for each metric according to their importance to you. Then take these weights into consideration when evaluating your suppliers on these metrics.

 

b.      Re-evaluate your new ranking for each supplier with your "gut" feeling for each supplier. I think it's important that there is a coherence between the objective criterion you’re trying to create along with the intuitive impression you have for your suppliers.

 

5)      Sampling and Testing:

a.       Now, you should order samples from your preferred suppliers, and do basic product testing on these samples using tests that mimic the reasonable wear-and-tear these products are likely to experience.

 

6)      Small Production Run:

a.       Order a SMALL VOLUME order from your preferred supplier. If possible,  do this from more than one supplier. This small volume order gives you real information on how well your supplier runs its business, and it tells you the risks you'll encounter in the shipment process as well. Will your doors warp? Will the glue come apart? Will the glass break? Will the batteries corrode?

 

b.      In this step, depending on the dollar amount of the order, you may want to hire independent QC to monitor the progress of your order.

 

a.       Now you're ready to move ahead for large-volume production with your supplier. For your first large-volume order, you should seriously consider independent QC in order to mitigate risk on this significant investment.

 

Keep in mind that international trade is wrought with risks. For any deal to work out well, your supplier must be solid, your logistics must be solid, your company process must be solid, and your customer's processes must be solid. To be successful, you must minimize these risks and maximize your return on each order. It is impossible to totally eradicate risk from your sourcing operations, but with a disciplined and well-thought-out processes, you can do a lot to minimize the possibility of getting burned.