How to vet your suppliers
- 12 Apr 2019
Suppliers are a key part of your supply chain. A steady flow of goods passing through your business ensures that your organization can continue to operate comfortably. But what would happen should this supply chain become disrupted or if a deal became untenable? Evaluating suppliers is crucial to overall success.
To avoid this, you should always have a vendor vetting process and check your suppliers to make sure they’re able to fulfill your requirements, no matter the circumstances. In this blog post, we dish out some of our top supplier vetting tips to help you do this. This post is ideal for those starting in procurement or useful for those that have been around for a while and need a useful resource for reference for vendor vetting procedures.
Why vet your suppliers?
The supplier vetting process is an instrumental part of the supplier onboarding process and in our experience working with clients of different sizes, this can get overlooked in favor of speeding up the onboarding process.
We believe failing to properly check your suppliers or by cutting corners in your onboarding process, you’re setting up potential problems for the future. It’s at this stage where you can gauge if a supplier is suitable for your organization or not and so, we recommend taking your time and making sure you ask yourself all the questions covered in the next section of this helpful guide.
#1 - What can your organization do for us?
This is perhaps the most fundamental question of the entire process. It’s here you should really be explaining to your prospective supplier what you need them to do for your organization. You should:
Define what it is you need;
Ask for them to demonstrate that they can clearly meet your requirements;
Explain to them what a good relationship looks like to you;
Discuss anything else mandatory to the deal.
#2 – Where else do you supply this product/service?
Whether you’re vetting a candidate for a vacancy you intend to fill, or more personally, looking for a builder to carry out renovation work for your home, you’re going to want to see evidence of their work - and it’s no different for prospective suppliers! Quiz them on who they work with, what they’ve done, and find out how happy their clients are.
If you’re feeling particularly bold, you could ask to be put in contact with one of their customers to find out how things are doing – and don’t be afraid to ask some of the tough questions! Generally speaking, when you’re speaking to a customer of a prospective supplier, you’ll be able to get a well-rounded view of the pros and cons of working with them.
#3 – What will you do to improve my business?
Whenever you are evaluating suppliers or hiring a new employee, it’s always to add value to your business in whatever way they can contribute - so ask the same questions from new hire interviews of your prospective supplier – what value will they add? Ask them to be specific about what they’ll bring to your organization. Is it a competitively priced product/service that’ll help you pass on cost savings to the rest of your business? Or will they just make your costs more predictable?
Either way, once you’ve got an idea how they’re going to improve your business, you need to hold them to account, so enlist their help on agreeing to objectives that are realistic and deliverable.
#4 – Assess your suppliers’ ability to operate
This is perhaps the most important part of the entire supplier vetting process, but you need to make a judgment on whether your chosen vendor can fulfill your requirements for the short term and beyond. We recommend starting with these points:
Finances – is your chosen supplier financially stable? Are they in profit? How do their books look? And how much debt are they carrying? Some of this information is available on public web pages, but perhaps consider being frank with your supplier and asking for these points upfront. If the financial situation with your supplier doesn’t look great, but you’re still interested in going forward, perhaps consider offering a shorter-term contract as a trial.
Infrastructure – interrogate your supplier to identify the way their organization is set up and whether they have the systems in place to support the volumes of goods/services you might need. Ask for a tour of their facilities, if it is appropriate, so you can witness their operation first hand.
Their supply chain - question what their supply chain looks like. Is it robust and capable of supporting them if circumstances changed for the worse? Or if you needed to increase the volume of one item, would your supplier’s supply chain be able to accommodate that? You’ll also want to investigate if they’re able to accommodate short-term requirements, such as unseasonable weather conditions or extenuating circumstances.
Ethics – operating ethically has become instrumental for organizations in recent decades, as consumers demand to know more about how, where, and who produces the products they consume. Therefore, finding out if your supplier adheres with the Modern Slavery Act 2015 and in general, acts ethically is incumbent on you as a business.
Customers – find out details about their customers. Does your supplier have a strong relationship with one specific customer? If so, this could help you understand if they over-rely on one client, because if they do, and if that relationship ends, it could interrupt the level of service you receive.
Disaster plans – speak to your prospective vendor and find out what disaster plans they have in place. By agreeing to work with a particular supplier, you’re going to be integrating them into your supply chain and therefore, you need to ensure that they can continue to deliver if the worst happens. Your customers won’t care if your supplier can’t continue to deliver! You want to check for all the usual disaster scenarios, fire risk, flash flooding, total systems failure, and such. If they don’t share these plans, question why and reconsider whether they’re a viable supplier or not.
#5 – Get a clear idea of cost
To clarify, this isn’t just the price of doing a deal with your prospective suppliers, you’ll want to make sure they’re being transparent with all of their pricing. Ask your supplier:
What is the total cost of their product/service?
Does this cost include things like maintenance, service upgrades, exceptional orders (If applicable)?
Are the delivery costs included?
What sort of margins are they making?
You want to make sure you’re getting a good deal and that the organization you’re dealing with gets a profit, but you certainly don’t want to be taken advantage of.
Supplier vetting can be a complex and time-consuming process, though leveraging an automated system can shift the brunt of the laborious tasks off from the staff’s shoulders. Regardless, evaluating suppliers is instrumental for procurement professionals to undertake because, in the long run, it saves headaches.
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