Supplier Selection in 5 Steps: Identify & Retain the Cream of the Crop
It’s no secret that the supplier selection process can either make or break your business, depending on how you handle it. Discovering potential suppliers takes time and financial resources, so it’s not a process your procurement team should take lightly.
That’s not to mention all the money you’ll spend paying the supplier you ultimately choose, which reinforces the need for a rigorous supplier selection process.
Ideally, you want to find suitable suppliers that not only offer excellent raw materials, goods, and services at fair prices - but also mesh well with your organization to ensure a positive, long-lasting relationship.
That’s the best way to ensure your supply chain runs like clockwork without any major issues.
Yet, if you’re new to purchasing and supply management, you may not have a suitable system in place for selecting suppliers for the materials, goods, and services you need to run your business.
Or if you already have a process in place, it may not be fully optimized - which can cause you to overlook your most suitable suppliers without even realizing it.
That’s why we’ve put together a simplified guide containing 5 steps to help you master the supplier selection process.
What is Supplier Selection? Its Criticality to Your Business
Formally defined, supplier selection is the process of discovering, researching, evaluating, and ultimately contracting with third-party suppliers of goods and services.
As an example, many construction companies need to source raw materials, tools, and other equipment from third-party contractors for their work.
So if a construction company needs bricks for a project, it’ll need to select a brick supplier.
As you can imagine, there are thousands of brick suppliers out there, which is where the supplier selection process comes into play.
First, the company needs to compile a list of potential suppliers that they then narrow down based on each of their:
Quality of materials and services
Other specific criteria
Once the vetting process is complete, typically by sending vendors RFPs (request for proposal) and RFQs (request for quotations), the construction company will choose and contract with the most qualified supplier on the list.
Why is supplier selection so important?
It is because when done right, you’ll see far-reaching benefits such as a lower production cost, more revenue, and a steady supply chain that doesn’t cause you issues.
When done wrong - the results can be utterly disastrous for your business.
As an example, retail company Target experienced a huge loss of revenue in 2016 due to poor supplier selection. Welspun India Ltd. was Target’s supplier of cotton bed sheets, but they had to end their relationship due to Welspun using a cheaper type of cotton in sheets that was incorrectly labeled as premium Egyptian cotton.
This caused Target not only to cut ties with the supplier but also to issue refunds to over 750,000 people that purchased the low-quality bed sheets.
The story reflects how crucial it is to vet your suppliers as thoroughly as possible.
Use DeepStream to Ace Supplier Selection in One Convenient Location
A lot goes into the supplier selection process, which is why you need intuitive RFx (request for) software like DeepStream by your side.
It’s a cloud-based RFx platform that enables you to automate your RFP, RFI, and RFQ workflows.
You can communicate with suppliers and track your RFx history via DeepStream’s interface instead of having to keep track of zillions of email threads.
Not only that, but you can also handle the evaluation process entirely through our platform, complete with intuitive tools to simplify the process.
5 Simple Steps to Master the Supplier Selection Process
While selecting suppliers may seem daunting at first, these 5 steps will help you quickly make sense of it all.
1: Identify What You Need From Suppliers
First and foremost, you need to sit down with key stakeholders to determine what your business needs from suppliers.
What products, materials, or services does your company need to operate successfully?
Beyond that, you should discuss any industry standards or regulations that you need to comply with - as that can affect your supplier choice.
Among other needs you may have…
For example, if your company is subject to certain industry standards, your customers and business partners will likely want (or even require) your suppliers to fall under the same umbrella.
Once you’ve clearly defined your needs, you can move on to the next step.
2: Compile a List of Qualified Suppliers
Next, it’s time to search far and wide to uncover as many suppliers as you possibly can. It’s essential to cast a wide net here to ensure you don’t miss out on a picture-perfect supplier.
Where can you find suppliers to compile a list?
Your personal and business networks are a great place to start. Other options include industry trade shows, advertisements, online reviews, and industry publications.
The key here is to focus on ones that are likely a good fit for your needs.
3: Develop Your Supplier Selection Criteria (Creating a Short List)
Now that you have a lengthy list of suppliers, you’ll need to develop supplier criteria to set your standards and start whittling down your list.
Your supplier selection criteria is a list of qualifications and preferences you’d like your preferred supplier to have.
It’s what you’ll use to narrow down your long list into a much shorter one. Things that can go into your criteria include:
Location. Do you want to work with a local, regional, or international business?
Quality of products. It’s crucial to pay attention to the quality of a supplier’s products/services.
Price. You’ll want to make sure that the suppliers’ goods and services are well within your budget.
Flexibility. Another deciding factor is how flexible a supplier is with their delivery schedules. Generally, the more flexible they are, the better.
These are just a few factors that you can use to narrow down your list so you can start the RFP process.
4: Send RFPs/RFIs to Suppliers on Your Short List
Now it’s time to begin RFx processes to narrow down your list even further. To start, you can send out an RFI (request for information) to ensure each supplier fully meets your criteria.
From there, you can send an RFP to receive a more detailed proposal from qualified suppliers.
Intuitive RFx software like ours will save a ton of time and resources during this phase - as you can automate and manage all your communications with suppliers in one spot.
5: Evaluate and Pick the Right Supplier for You
Once you get responses to your RFPs, it’s time to hunker down and make an ultimate decision.
The supplier you choose should be the one that checks off the most items on your supplier criteria list.
That’s the best way to ensure you wind up with a high-quality supplier that will mesh perfectly with your business.
Smart Supplier Selection to Supercharge Your Procurement Process
By following these 5 easy steps, you’ll be able to select the most qualified supplier for your business. That will help you save time and money, as well as see an increased profit and enhanced customer satisfaction.
To turbocharge your supplier selection process, you should check out DeepStream. It will greatly simplify your RFx processes through its automation tools, communication capabilities, and user-friendly interface.