Supplier selection! This may be the most important decision you make.

June 26th, 2008

A question I often hear from retailers

A question I often hear from retailers, is how many suppliers do you have in your North American supplier database? I sometimes want to blurt out a response that is number oriented because ours is the largest and most diverse. However I end up holding myself back in order to better understand the question that is really being asked. The discussion normally evolves along the line of quality and what data you have available in the database in order to make high quality supplier selections. Although reduction in cost may in fact be the ultimate goal, it in fact may not be the end point after the necessary due diligence required to pick the right supplier or suppliers.

Developing a plan that addresses the often conflicting objectives during your decision-making process and identifying the optimal list of suppliers requires significant amount of data in order to mitigate log term risk. Measuring your supply chain partners on cost only may cause you to miss many of the non-financial aspects that are so important such as:

1. Customer references
2. Product quality
3. Flexibility
4. Terms
5. Funds
6. Distribution
7. Responsiveness
8. Safety Focus
9. Eco Focus
10. Collaboration practices
11. Aggregated category opportunities
12. Experience

The risk of a new supplier performing poorly can negate any savings gained from direct product cost reductions. Driving sustainability in supplier improvement is one key to minimizing these potential risks within your company’s supplier base.

How your e-procurement partner addresses these questions is also key.

I look forward to your comments.

Ron

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