How do I choose a supplier
Supplier selection: do you know the decisive criteria?
The profit lies in purchasing. This is the case in retail in order to make a profit at the end of the day, but manufacturing companies also buy goods - often 40 percent or more. Purchasing is about more than the price. The decisive factor here is the quality of the suppliers.
The profit in purchasing? As the?
Take the following example: You have a turnover of eight million euros. You use 50 percent of materials and your operating costs are 42 percent of sales. And as a profit you only have a miserable 640,000 euros. Now you suddenly realize: money doesn't make you happy.
You want to change that: to increase your profit by 80,000 euros, for example, you would have to increase your sales by 12.5 percent. Or else: You reduce your cost of goods. To achieve the same effect on profit, you only need to buy two percent less goods to be used in production. That may make clear to you the importance of purchasing for the company's success - and the deeper meaning of the wisdom "in purchasing lies the profit".
Where are the levers to reduce the cost of goods?
Your will certainly be a very important one Delivery be. Ask your employees in purchasing! They will tell you the negative effects of poor supplier performance if they:
- Exceed deadlines,
- Not keeping promises
- Deliver badly needed goods of poor quality.
In your capacity as a supplier for your own customers, you will lose out if you now:
- Not keeping promises to her,
- Your purchasing department has to pull out all the stops to save the situation with special promotions.
What do you learn as a company from this?
That you your Set up purchasing professionally have to. There are always good, bad and bad suppliers. Your company is no exception. In order to rely on the right suppliers, think carefully: What do you expect from your suppliers?
What is a professional purchase?
Above all, he needs answers to the following two questions:
- Which suppliers do we want to work with on a permanent basis in the future?
- How do we want to work with our suppliers?
Only when you have answered these two questions for yourself can you determine the criteria for your supplier selection.
Which criteria are important for your supplier selection?
One criterion becomes the price be. In order to keep your costs as low as possible, you should have to pay as little as possible for the goods to be procured. But you will also determine higher-level purchasing goals. It is best to first think about the number of criteria. If the number is too low, you may be overlooking important advantages or disadvantages that can be important for assessing individual suppliers. In contrast, too large a number of criteria is associated with a high expenditure of time for the supplier comparison.
In the next step you define the criteria for evaluating the suppliers. Which ones come into consideration depends on, among other things. of:
- the type of goods to be procured,
- the industry affiliation,
- the situation on the procurement market.
If the criteria for the supplier evaluation are available, you can check the suitability of the suppliers to be considered. Various methods are available for this, such as:
- the one-factor comparison,
- the scoring procedure,
- the quotient method.
The Single factor comparison is particularly easy to use, but only takes one criterion into account. Michael Konetzny, a business graduate, commercial director in a medium-sized company and responsible for the efficient management of the company, recommends that Scoring procedure. It is suitable for a more precise result based on several factors with different weightings.
This procedure evaluates the evaluation criteria you have set on a scale from 1 to 5. Good performance receives a comparatively high score, poor performance a rather low number of points. An evaluation scale is used to carry out this evaluation process (see Fig. 1).
After you have given a number of points to the suppliers in question for each criterion, add up the scores for all criteria for each of them. But don't be mistaken! It would be a bit easy if you choose the supplier with the highest score as the best supplier for you. Rather, different procurement situations require a differentiated weighting of the criteria:
- Own production bottlenecks make the delivery time of a supplier much more important than the price.
- If your aim is to manufacture particularly high-quality products, the quality of the materials used will be your priority.
To carry out such a weighting, define a weighting factor for each criterion (see Fig. 2).
Only consider characteristics for which you have reliable information.
You can strive for an improvement in success and a partnership relationship with your suppliers. Here, too, it is less about the price than about:
- Product quality,
- possible error and shortage costs, etc.
With this procedure you can clearly determine which suppliers you can prefer. You can also use the weighted evaluation results to rank your suppliers. The disadvantage is the comparatively high cost of implementation - especially with regard to obtaining information.
In which Quotient method evaluate your suppliers using so-called rates. They relate the result of a characteristic achieved by the respective supplier to certain parameters (Fig. 3 and Fig. 4).
How do you determine these rates?
Preferably using an Excel spreadsheet. Konetzny warns, however, not to act prematurely when you have the results of the supplier evaluation. Markets are changing ever faster and the influence of purchasing performance on company results is increasing. For this reason alone, your purchasing department should regularly reconsider its relationship with its suppliers. Relationship management needs to be carefully considered. Only the purely arithmetically determined evaluations are not always of importance.
May you praise - or will your supplier raise prices right away?
Not too often, but every now and then with pleasure. You can signal to good suppliers that they are good - without having to fear that they will raise their prices. At the latest in difficult times, such good business relationships will pay off for you.
If you liked this article and are interested in such and similar topics, read an issue of the 14 days free of charge "Leadership and Management CURRENT".
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