Partner Article

Will you be chopped or chosen? Part One

The Preferred Supplier is a new business support initiative brought to you exclusively on Bdaily by Malcolm Gallagher of BizVision and his expert partners. Over the coming months you’ll gain from a growing collection of incisive articles here on Bdaily and other support activity to help you become and stay The Preferred Supplier.

Almost daily big companies are making big announcements about how they are planning to reduce their supplier base down to a list of preferred suppliers.

They may call it “optimising their supplier base” – you could call it being chopped! Your goal is to avoid the axe and be “the chosen one”. But how to go about it?

At The Preferred Supplier we believe that your sustainable success starts with greater understanding – not just of the customer but the thinking behind their actions.

In the past, it was generally thought preferable to have many suppliers. Having a large number of suppliers introduced competition which generally drove down prices. In addition, having many suppliers increased flexibility in changing work orders and volume.

However, advocates of reducing the supplier base argue that it allows buyers to have closer relationships with their suppliers. In many cases buyers and suppliers can then establish productive collaborative working arrangements truly based on trust. Less, or even one supplier, makes it easier with communication.

The ultimate feeling is that suppliers become more reliable when there are only a few of them and that makes for a very strong argument in “favour of chopping”.

But who to chop is the critical question. And does this bring opportunity for the new supplier?

The sort-of-good news is that it is not an exact science. It is a very objective process that requires frequent value judgments. This means with a little insight you can strengthen your case to be the chosen supplier and it all starts with knowing the selection criteria in the first place. Oh and importantly, don’t confuse selection criteria with what you need to do to bid for contracts –we’ll cover this last bit another time.

A few years ago excellent work by Ray Carter of DPSS Consultants identified 10 key criteria in supplier selection and it just happens that each begins with the letter “C”. Below are the first 2 – we’ll cover the other 8 in follow-up blogs. Your two to start are Competency and Capacity. Read through and see how you feel you score on a red, amber or green basis.

Competency

As a quality supplier you should be able to demonstrate that both your people and your processes exhibit a suitable level of competency in the areas associated with the goods or services you are providing. For your people this may be in the way you train them or their experience. For processes, this may come in the form of efficiency or lack of errors.

How is this applied in supplier selection? As a buyer seeks to find a suitable supplier, they will look to see whether or not that supplier has internal systems to evaluate their people, such as staff appraisals, training programmes, and personal development plans.

You, as the supplier should also have systems to evaluate the actual processes to determine whether or not they are producing a quality product. You should be showing that you have the right number of skilled staff members in each area relevant to the goods and services you are providing along with the right supervision of your people.

Capacity

For you to be a suitable supplier you should have sufficient and suitable resources in the form of property, equipment, people, and time to meet your own company demands. Other elements of capacity to be considered are that you should be able to adapt to changes in demand.

You will also be evaluated on how much of your annual turnover will be with that one customer. If the percentage is high, say greater than 25 percent, then your customer is likely to consider the implication. For example, if your customer’s payments provide the majority of your cash flow then a late payment could bankrupt you as the supplier, leaving your customer lacking a supplier and a possible supply chain problem.

Another key aspect is that the buyer will look to see if you as the supplier subcontracts your services. They are thinking are they contracting with you as the one company but actually receiving goods and services from another?

Got you thinking? Follow through with me at The Preferred Supplier to get the other 8 supplier selection criteria to help you be chosen not chopped!

This was posted in Bdaily's Members' News section by The Preferred Supplier .