Before you start searching for and selecting suppliers, the task is usually handled by the purchasing department within the company. They gather information and build a list of companies or individuals who could potentially become suppliers.
It is best to spread your purchases across several suppliers so the company never finds itself facing a stock shortage.
The first step in the search for suppliers is to be clear about the product you are looking for, along with its quantity and quality.
The steps to follow when looking for suppliers would be:
1. Gathering information – Supplier sources
So… let’s get to work! Some of the sources where we can find suppliers are:
- The internet. On the Shopify blog you will find very useful, sector-specific information for finding suppliers.
- Yellow pages
- General news press
- Radio and television
- Publications specialized in the company’s line of business
- Bank publications and reports
- Trade fairs and exhibitions specialized in the sector
- Business and professional associations
- Chambers of commerce
- Public-body databases (ministries, regional governments, town councils, universities, official bodies, etc.)
- Information obtained from companies specialized in database management
- The company’s own internal sources, such as product specialists and technicians
On this list we should note down relevant information, identifying details, the type of product the company offers, and its history, so we can gauge its position in the market. The most important factors at this stage are price, technology, and service.
2. Requesting information
Once we have several potential suppliers, the next step is to request information, which means getting in direct contact with them to ask about the product.
The most common ways companies request information from suppliers are:
- Visits from sales representatives: In this approach, sales reps go in person to speak with the factory managers and ask about all the features or requirements they need to know. It is one of the most reliable sources of all, since you quickly obtain very valuable information.
- Visits to the suppliers’ premises: It is also common for a representative or a group of purchasing-department agents to interact with the supplier company in order to evaluate it and get a clearer picture of the potential partner.
- Information-request letters: These letters are less common but also useful when we want concise answers on specific topics. These letter templates explain the business and ask for direct information on precise matters.
3. Supplier evaluation and selection
Once we have a file on the different suppliers, we move on to the hardest step: choosing which one will be ours.
With the information gathered, you usually create a file for each supplier along with a comparison table. That file will show the supplier’s identifying details (name, registered address, tax ID, town, phone, fax, email), followed by the features of the product or service it offers and the commercial terms.
As for the comparison table, we would list the different suppliers against general criteria such as: delivery time, discounts, price, transport, insurance, technical support, and payment methods. With this table we can compare which supplier offers the best terms, although the evaluation has only just begun.
As we mentioned in the previous post, it is important not to work with a single supplier, because if anything happens your entire business rests on that one company. So keeping other suppliers with whom you place a few purchases a year is a good strategy in case you ever run into an incident.
- Final selection of suppliers
We now have the different characteristics of each supplier at a company level, and to choose which one we’ll keep we can follow several criteria.
- Price: this element is essential when selecting the vendors who will accompany you while you consolidate your company. However, the cheapest option does not always represent the best value for money. If the quality of your supplier’s product or service is low, it could cause extra costs from returns or replacements, and the risk of damaging your company’s reputation.
- Reliability: this is surely the key factor to look for. An efficient, trustworthy supplier will always send the correct quantity of items, exactly as agreed, on time and in good condition.
- Stability: it is advisable to choose experienced suppliers who have been in business for a long time.
- Location: dealing with suppliers that are far away can mean longer delivery times and higher freight costs, especially when you need something urgently. Customers increasingly demand that the products they buy reach them as soon as possible.
- Payment terms: assess the payment methods and terms each supplier offers, aiming to find the one that suits you best. Ask whether there is any possibility of financing, deferred payments, or whether there is an additional cost for late invoice payment.
4. Supplier certification
The final step in the supplier search and evaluation process is their certification. More and more companies decide to do this following commonly established guidelines and objective criteria, for example by using the ISO 9001 supplier evaluation criteria.
That said, a common misconception about the supplier search and evaluation process is believing that the process ends here. Carrying out a thorough certification of our suppliers does not exempt us from future work monitoring the activity of our supplier companies.
Once the supplier search and evaluation process is complete, companies only remember their suppliers when various incidents occur that affect our own business. It is easy to forget that our legal system establishes subsidiary liability for the activities carried out with the supplier companies we work with (for example, in article 43.1 F of Spain’s General Tax Law, the Ley General Tributaria).