Procurement teams are increasingly looking to new vendors to secure supply as they continue to grapple with shortages, longer lead times and other supply chain uncertainties.
But while adding suppliers may help ensure supply in a time of a crunch, they also can bring new risks. Here are six criteria — beyond cost — to consider when selecting a new vendor.
To counteract declining growth in the early 2000s, Procter and Gamble implemented a goal that 50% of its innovation would contain a significant component of outside collaboration. The result has been enhanced innovation in everything from Olay beauty products to Oral B toothbrushes.
Greater collaboration can help give companies a competitive advantage and bring products to market faster. Suppliers should be willing to experiment, learn and adapt. They also should have the assets and the complementary capabilities to drive those innovations.
2. Deep pockets
As input costs rise, working capital for operations goes down. For suppliers, that means more financial stress that could ultimately impact their service or quality.
Before onboarding a new supplier, complete a financial health check to ensure that they can deliver on their promises. This should be an ongoing process with all your vendors in order to protect supply and support business growth.
3. Diverse supplier base
Just as your company should have a diverse supplier base, so should your suppliers.
We had a scenario wherein one of our Tier 1 suppliers had a sole Tier 2 supplier for few of its input materials. After being hit by supply issues, the supplier changed the status of its materials from low to high in the risk matrix.
A large supplier base gives companies more flexibility and the ability to secure alternative supply in the case of disruption. When looking for a new supplier, trace out their supplier network and look for any potential risks.
4. Multi-country footprint
Look for suppliers with a presence in different countries to expand your geographic footprint and guard against localized supply shocks.
Pandemic lockdowns in China and Vietnam have shown how a dependence on suppliers concentrated in one geographic area can wreak havoc on supply. A wide geographic footprint can be a cushion against disruption. Levi’s, for example, was able to insulate itself from the impacts of lockdowns in China due to its strategic partnership with suppliers that operate around the world.
5. Tech focus
Organizations need the right technology, partners and talent to manage supply chains. Suppliers with enhanced tech offerings can give your company a competitive edge and give you more visibility into supply.
Look for suppliers that use tech to boost customer service through offerings such as automatic order processing, real-time order status and consignment tracking.
6. Sustainability priorities
Many brands have unveiled ambitious sustainability goals but are struggling to meet them due to constraints of more eco-friendly materials.
Some brands like Nestlé are co-investing with their suppliers to upgrade recycling infrastructure and ensure sustainability targets are met. Find suppliers that are open to working with you on sustainability, and have the keenness, resources and infrastructure in place to make your goals a reality.
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