What is supplier identification and why is it important?
Establishing a robust, unbeatable, and sustainable supply chain requires accurate supplier identification, efficient supplier relationship management, data-driven negotiation, and unfettered compliance. With the growing impact of supplier relationships, collaboration, and opinions on supply chains, it has become increasingly imperative for companies to invest unparalleled skill, data, cautiousness, and time in choosing, negotiating and signing contracts with suppliers and vendors. As demand rises, so do the competition, costs, supply chain expenses, potential risks, and the need for well-informed decision-making. Supplier identification is a process that involves utilizing a data, comparison, and information-based system to find, shortlist, choose, negotiate and enter a contract with the ideal supplier. Companies use metrics such as prices, compliance rates, suppliers’ goals and missions, quality of product, lead time, and compatibility of values to determine the best choice for their business plans and ambitions. Ensuring your company has chosen the right supplier can serve as the differentiator between being an industry leader and failing to keep pace with the rapidly evolving market or fast-growing competitors.
What are the Five Steps Involved in Supplier Identification?
Supplier Selection Scoreboard: When entering a contract with a new supplier and negotiating terms, the company must be aware of its requirements. These requirements can include various supplier characteristics, depending on the product, service, or supply chain needs. Some supplier characteristics to be included on the supplier selection scoreboard include cost, certifications, quality, social responsibility, lead time, delivery, product development, etc. These characteristics are also determined by the values and organizational structure of the company. Having a well-established supplier selection scoreboard can help clients carry out an efficient, data-based, and accurate supplier identification process. Additionally, with an established benchmark, professionals can easily identify, shortlist, and determine their business’s ideal strategic partners.
Identify Suitable Suppliers: Utilizing the supplier selection scoreboard, companies can move to the next step that includes researching, evaluating, discussing, and identifying suitable suppliers. For many companies, this step consists of the time-consuming and imperative process of receiving proposals, brochures, and demos and determining which suppliers provide the ideal offerings. During this step, procurement officers should interact, meet, and discuss with multiple suppliers to identify a small group of suitable suppliers. Researching should not be limited to reviewing websites and reviews but must include official meetings and discussions, in-depth research into previous client experiences, costs incurred and prices offered, quality of product, and other generic metrics imperative to the supplier identification process.
Scorecard Ranking: With the data procured in the previous step, companies often decide and shortlist a small number of potential suppliers or vendors, further discuss their offerings with them, stakeholders, and other crucial departments, and gain all necessary information. After obtaining the required data, companies must utilize the established supplier selection scoreboard to determine which supplier or vendor is best suited to their requirements. Having done so, the highest-ranking supplier may or may not be the ideal option. For instance, while a supplier may meet quantifiable criteria, their business values may not align with that of the company, creating future rifts’ potential. In contrast, a choice with slightly lower scores may understand and perfectly align with the company’s mission. Additionally, choosing multiple high scorers, conducting interviews, site visits are imperative to the supplier identification process. If the company fails to identify the ideal supplier at this point, it may be necessary to reevaluate the criteria or expand the search.
Negotiate: Having identified a clear winner, companies can move to the next, extremely crucial stage of supplier relationship management – negotiation. At this point, the company must have an objective and clear understanding of their needs, expectations, and contributions to the upcoming partnership. The professionals involved must also have a comprehensive understanding of their market and establish a strong foothold in the negotiations with relevant data. Determining the ideal prices and contract terms to create a mutually beneficial, sustainable, and cost-effective partnership is challenging and requires in-depth research, collaboration, and effort from both involved parties. Companies must also accept and consider their potential partners’ suggestions and ideas and review their impact on upcoming plans or current negotiations. This step can make or break the supplier identification process, and failure to agree may require companies to begin the process once again.
Create Contract: This step can be rather straightforward, particularly if the negotiation process was highly collaborative and the company has prepared a strong contract management plan. With a clear contract management plan, the business can establish proper roles and responsibilities, detail their requirements and expectations, avoid potential confusion, and create an airtight contract. Once signed, the supplier identification process is complete, and both parties move forward in the supplier relationship management process. After signing the contract, companies should sign purchase orders and closely scrutinize the compliance, quality, delivery time, lead time, and prices offered by the supplier to ensure they meet the agreed-upon terms.
Identifying, negotiating with, and entering into contracts with the ideal strategic partners and suppliers can help companies tackle a plethora of external and internal business challenges. A global retail company witnessed a sudden surge in losses and could not identify the reason for their massive losses over the year. After identifying challenges with multiple suppliers’ products, compliance rates, prices, and deliverables, the company decided to terminate their contracts and find better vendors. The global retailer chose to partner with SpendEdge and leverage our supplier identification expertise to do so efficiently. Our experts carefully and informatively guided the company through the supplier identification process, helped it find fewer, more valuable, cost-effective, and well-aligned suppliers to meet their needs. With their new data-driven and well-researched partnerships, the company was able to identify various shortcomings within their supply chain, reduce unnecessary expenditure, improve delivery times and product quality, and significantly improve their business. SpendEdge helped the company improve operations, reduce costs, establish sustainable partnerships, and mitigate various unnecessary risks with an efficient supplier identification process.