The Supplier selection is a process that is present in every organization. The key in the selection of suppliers of a product or service lies in the importance of knowing what criteria to use to select them, since it must be taken into account what kind of impact the products or services they offer will have and if this will have a positive impact on the productivity, quality and competitiveness of the organization itself.
The search for and selection of suppliers can occur for different reasons, either because the organization is starting operations and does not have suppliers, the organization already has suppliers but they do not meet its needs and require better quality, or it is desired to expand the supplier portfolio so that the organization has a parameter of comparison.
Identifying potential suppliers
This is the first stage for the selection of suppliers, the purpose of which is to establish a list of companies that manufacture or distribute the different products according to the needs of the organization in order to request information about the company.
Once the information on the suppliers is available, the most appropriate suppliers are selected, taking into account the selected criteria in order to reduce the number of suppliers.
It is advisable not to have only one supplier, so that if one fails, the organization is not left without supplies.
Criteria for supplier selection
In order to get to know what these criteria are, a list of all those companies that offer products or services according to the requirements of the organization should be drawn up, in order to subsequently request the respective quotations, and a rating should be assigned to each of the criteria; this rating may vary according to the range of importance given to each one.
The supplier companies should also be considered for their track record in terms of work performed, facilities, technical strength, financial level, level of organization and administration, reputation and location.
Once the list of potential suppliers has been drawn up, direct contact is made to request the information to be obtained. It is important to insist that they clearly respond to the following aspects:
Quality:
a) Product quality. When selecting a supplier, great importance should be given to the quality of the products, and comparative evaluations of the technical characteristics should be made, tests should be carried out, etc. Generally, this criterion is used to obtain a product of a certain quality.
b) Technical characteristics. The information that the supplier must provide about the characteristics of a piece of equipment or machinery to the customer so that they can know the performance of the same, in order to be able to choose the most appropriate to the needs of the organization and also to compare with other suppliers.
c) Warranty. Ensure that the product warranty is as extensive as possible.
d) Trained personnel. To have personnel qualified by the supplier company.
e) After-sales service and technical assistance. Refers to the period after purchase during which the supplier guarantees assistance, maintenance or repair of what has been purchased.
Economic conditions:
a) Unit price. Competitive prices should be selected, considering fair prices and in accordance with the quality of the product, and price discounts should be requested from the supplier for bulk purchases.
b) Method of payment. It can be credit or cash according to the purchasing policy of the organizations.
c) Prices of containers and packaging. Taking into account that such containers and packaging are in accordance with the product, protecting it and in addition to low cost.
d) Payment of freight and insurance.
e) Surcharges for deferment of payment.
f) Discounts for prompt payment.
g) Discounts for cash payments.
Other conditions:
a) Conditions for termination of the contract.
b) Delivery terms.
c) Return of goods.
d) Inventory management.
The supplier selection process
- Gather and rank supplier selection criteria
Once the organization has determined that a supplier is required to meet a set of business needs, you need to start by identifying what you need to procure in detail.
- Developing a Confidentiality Agreement or Contract
Conducting a formal purchasing process involves disclosing sensitive company information to suppliers who will participate in a formal evaluation process. Therefore, it is necessary to ensure that both parties are protected and to achieve this it is necessary to sign a Confidentiality Agreement.
- Research the supply available in the market for the product or service you want to purchase
Look for any supplier that could meet the needs you want to cover. The purpose of this step is to gather an extensive (but not exhaustive) list of suppliers you would like to consider.
Sometimes this step involves writing what is known as a Request for Information or RFI. In this document, you invite a significant number of suppliers to provide their letters of credentials, requesting financial information, product or service catalog, organization chart, technical staff, allies, etc.
- Create a short list of suppliers
With the information provided you conduct a preliminary selection, forming what is called a Short List.
The preliminary selection will be carried out by making an initial high-level evaluation of the long list. The purpose of this step is to create a short list of potential suppliers that are likely to meet your needs.
- Develop a Request for Proposals
This request for proposal is for participating suppliers (from the Short List) to provide their prior knowledge and experience in solving a specific problem or addressing an opportunity. For a proposal not necessarily clear requirements and characteristics, this will allow you to see the scope of potential suppliers.
- Evaluate proposals
As part of this step, you can interview suppliers, ask for demonstrations, make site visits to suppliers, ask for references, or visit some of the supplier’s previous customers. Usually some kind of calculation is made based on how well the supplier and proposal meet each requirement requested, multiplied by some factor of importance.
- Make a decision and negotiate the contract
It is very important that you are clear that a business relationship must be based on trust and a win-win vision.
You must be prepared so that in case the process does not progress satisfactorily, you can move on to your second or third option, as long as those options continue to meet your minimum requirements.
RRemember that a company’s suppliers will largely determine its success. For this reason, knowing how to choose the right supplier is a very important decision that can make the difference between having low or high costs, good or bad quality supplies, among others.
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