02 Mar Sourcing suppliers and how to avoid procurement pitfalls
We’ve all seen those two-line messages on LinkedIn, calling out for recommendations to help source suppliers to quote for a product or service. The company is in a hurry and wants a quick response, and it seems to be that whoever comes back with the cheapest price or shortest lead time will secure the purchase order and it’s job done.
Time and time again, Alliance Procurement Solutions is called in to deal with the fallout of flimsy agreements, unfulfilled orders and supplier relationships that have turned sour because due diligence wasn’t applied from the outset.
No business can afford the amount of damage this could do to its brand and bottom line when the result of cutting corners in procurement comes back to bite you. And now there is more pressure that ever before to build more resilient supply chains following the global disruption of Covid and more recently the fallout of Brexit.
There couldn’t be a better time to reassess how you source your suppliers, but more importantly how you source the right ones for your business.
Businesses continue to struggle with impact of Covid-19 across all areas of their operation, and within this mix procurement is perhaps one of the hardest hit functions as supply chains are still reeling from the shockwaves and there are fast-changing production requirements.
When companies have to respond quickly to changing requirements, the temptation is to rush decisions and cut corners in the name of expedience, but in our experience this is just a false economy and can prove a lot more costly in the long run.
We are aware of a company which required goods for an important project. When sourcing a supplier its focus was entirely on cost. It placed a purchase order with a supplier which offered a cheap price for goods it believed had already been sourced. The business cut corners and failed to complete any detailed due diligence. Months went by with no goods delivered and the business finally discovered that nobody at the supplier knew anything about the order. The cost of that delay was huge and could easily have been avoided had due diligence highlighted gaps in the contract review process.
Counting the cost
The lesson is that quick fixes have long-term consequences. When businesses are under pressure it is tempting to make snap decisions but failing to carry out due diligence can prove very costly and could even jeopardise the business.
Without proper vetting, clear selection criteria and a detailed specification, businesses expose themselves to all kinds of dangers. Before you know it, suppliers fail to deliver and orders can’t be fulfilled, quality is compromised, or it turns out the supplier is involved in unethical practices which has a devastating impact on your reputation.
The time saved in not doing the groundwork is far outweighed by the cost of getting it wrong. For many manufacturing companies, around half of their revenue is tied up in their supply chain and without managing procurement effectively it is impossible to build resilience. Put simply, supplier selection is a matter of risk management and who can afford to take careless gambles on the future of their operation in the current climate?
All this can be avoided if you are prepared to take step back and give procurement the respect it deserves. To future-proof your business, it is critical that you get back to basics to the basics of supply chain management. Top tips include:
- Before approaching suppliers, draw up a comprehensive specification which details exactly what you are looking for and what success looks like.
- Create a level playing field on which all suppliers have a chance to succeed. Be transparent about your expectations and offer everyone feedback. The more collaborative and open you are, the greater your chance of finding the right supplier.
- Ask yourself whether a supplier shares your values and ethics. If not, you could be exposing your business to unnecessary risk and the relationship is unlikely to be successful.
- Focus on total capabilities rather than just price and lead time.
You have to commit time and effort to any successful relationship. Get to know your suppliers and give them the time to get to know you. You are interdependent and need to invest in a long-term partnership. Build due diligence into your systems, processes and culture and supplier selection will no longer be such a risky and onerous task.
We hope you’ve found this information useful, if you have any questions or would like further help or advice, please contact us on 0330 311 2601 or [email protected]