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Selecting the best suppliers for your business

When looking for a new supplier, you should carry out a number of checks to assess their suitability, and what safeguards are in place if they fail to perform. Use this list as a guide for what to look for when assessing new companies you plan to do business with.

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A wise man once said "You can't choose your family, but you can choose your friends." What is less well known is that he went on to say "…and you can also choose your suppliers" and should do so based upon the rigorous criteria laid out in this article.

The 'approval criteria'

New suppliers should be able to prove that they are: technically sound managerially competent adequately resourced financially stable reliable. To assess the above, the following checks may need to be made…

Technical competence

A technical expert should be taken on visits to assess the following areas: technical background, training and experience of key personnel organisation and control of technical activities such as estimating, design, installation quality assurance and control standards applicable and methods of implementation familiarity with industry standards availability of testing equipment and procedures adequacy of after-sales service – availability and location of service engineers, spare parts, response time; record on innovation and quality improvement

Managerial competence

The sort of areas which should be looked at are: organisation of the company – availability of detailed organisation charts and staff numbers overall corporate structure (where the company is a subsidiary) key management policies covering quality, training, career development etcetera availability of job descriptions for key staff health, safety and welfare policy of the company and its record over the last 3 years maximum size and complexity of contract that can be efficiently managed does your contract represent more than 20% of their business?

If it does you need to be assured that they can cope what is the largest contract they have delivered and how was their performance is there a general air of efficiency around the company. 

Adequacy of resources

Consider the following: dimensions of workshops and list of principal machine tools availability of mobile equipment for example cranes, fork lifts numbers and skill levels of manufacturing/installation personnel adequacy of storage and distribution system for example warehouses, transport proven production planning and control systems packaging and shipping facilities available; and details of work generally sub-contracted or brought in, including names of suppliers procurement standards quality and quantity of staff. Do they appear competent?

Financial stability

Consider the following, if necessary involving an accountant: independent reference – arrange a credit check, but be aware that information can be 1 year and 8 months out of date – much can change in that time.

You may need to ask for an interim unaudited financial statement copies of the last two annual reports available for both the subsidiary and, where relevant, the holding company. Also interim reports since the last annual report which will be at least 9 months out of date references available parent company prepared to guarantee formally the performance of subsidiary company prepared to furnish performance bonds banker's guarantee.

Reliability

Consider the following: record on meeting delivery/completion dates availability of references from customers Enthusiasm Sometimes overlooked in appraising potential suppliers is the need to assess their keenness to acquire business. This factor should ultimately translate into the efficient performance of the contract. Such an assessment, particularly for 'new' suppliers, can only be subjective.

Discussion

The range of information needed will, of course, depend on the category and value of the goods or services and whether there is a real risk. The acid test is how much impact will there be on your business if the contract goes wrong.

About the author

This article was written by Matt Roper, MD and founder of the Buying Support Agency, developed specifically to help small and medium sized businesses to improve their purchasing practices and thus become more profitable via reduced costs and greater business efficiency. 

Not only do Forum members get free membership of the Buying Support Agency (worth £495), they can help you save up to 35% across a wide range of products and services, including a guaranteed minimum saving of 15%, plus a free purchasing appraisal. 

To find out how much money Forum membership could save YOU, call us on 0845 130 1722.

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