The UK has faced a number of supply chain disruptions in recent times and, as a result, 55% of companies are reported to be looking for new suppliers [1]. A good starting point to understand potential areas of weakness is to carry out a supply chain mapping exercise. But when it comes to recruiting a new supplier for your supply chain, how do you know what makes a reliable partner? The temptation is often to focus on price. However, shaving a few pennies from the cost of a new service, component, or raw material could end up costing your business more down the line.
Here are some tips for a smarter sourcing strategy to source reliable suppliers and ensure you avoid supply chain issues.
What type of supplier do you need?
Your supplier evaluation strategy might vary, depending on the type of supplier you’re looking to engage.
For example, if you are sourcing services energy or utilities, where most suppliers are very similar, then price is likely to be a more important factor. However, if you are sourcing materials via a manufacturer, you’ll focus on lead times, quality, and previous experience within your sector or industry.
In some cases, it may not be practical or wise to source directly from a manufacturer. SMEs may find it more cost-effective to buy from more expensive distributors or wholesalers that are more likely to accommodate small orders and offer better support to smaller businesses.
When buying materials overseas, it could be simpler to buy goods through a specialist importer rather than dealing with the complexity of negotiating directly with an offshore manufacturer.
How to find suppliers
Once you have identified the most appropriate sourcing model for your business, the next step is to create a longlist of potential suppliers. There are a number of ways of doing this, including using trade directories and shows. “Trade directories are always our first starting point because it’s an easy way to get a comprehensive list of active suppliers in your industry,” says Ben Price, co-founder of Heatable, which sells new boilers and heating systems. “We’d usually follow that up with a simple Google search, using a variety of keywords to get a good range of responses.”
Another way is to simply ask other companies in your industry, providing this doesn’t mean you’re both competing for something that’s in short supply, says Peter Scott, client director at supply chain consultancy Proxima. “Ask about their positive or negative experiences and recommendations. It’s a form of collaboration that happens a lot more than you might think, and it could save you a lot of time.”
How to identify the most reliable suppliers
Businesses should work to develop a standard supplier checklist that helps them evaluate new suppliers against a set of criteria that is important to their business. “Look at pricing and how that can be optimised, but don’t forget to look at financial stability, operational reliability, and ESG (environmental, social, governance) credentials,” says Scott.
Competitive pricing
While price shouldn’t be the deciding factor, it is nevertheless important. Heatable always considers it alongside reliability and relevant experience, says Price. “We do research the best deals and ask if suppliers offer discounts for large or long-term orders. But a low price doesn’t matter if someone goes out of business or if they miss deliveries.”
If you use the American Express® Business Gold Card for business expenses, for every £1 you spend you’ll get Membership Rewards® points¹ that you can use on a wide range of perks and gifts for your team.
Here are five other key checks for new potential suppliers that go beyond cost:
Check certifications
Certification provides you with assurance from your new supplier about the provenance, quality, or reliability of products and services. These will vary by industry but might include:
- Health and Safety certifications are especially important in manufacturing and distribution sites
- Forest Stewardship Council (FSC) certification can be used to show that timber used in manufacturing and construction is from sustainable sources
- ISO 9001 is the internationally recognised standard that shows a company’s processes meet quality management standards
- ISO 2700 is a set of standards relating to information security management and is important when sourcing any type of information/data service
Check financial stability
Services like Dun & Bradstreet or Experian can run a one-off financial check on a potential supplier, or larger firms can provide complete access for a monthly subscription fee. “It’s important to remember that the data provided by these services can be quite binary, or a simple red/amber/green analysis of a company’s financial history,” cautions Scott. “While the insight is useful, it needs to be viewed in context.”
Check shipping / location information
Adriano Ferretti, supply chain manager at haircare business By Aaron Wallace, says sourcing from UK suppliers helps reduce risk to the business. “When we order a shipping container, it might take six weeks to get a delivery slot, or it could take 12 weeks. "It might cost £12,000, or it might cost £18,000. Buying from UK suppliers fits our ethos but also reduces risk."
Check customer service (and how to avoid fake reviews)
It’s common sense to ask a potential supplier for customer references where you can speak to them directly. The supplier will likely put you in touch with a happy customer, but you’ll still get a reasonable insight into their past experience and service levels.
“References from other customers are helpful, and we pay special attention to any comments or reports of late or damaged deliveries. Ultimately, our customer blames us and not the supplier for this kind of problem, so this is crucial,” says Price.
You should filter online reviews by your language and to include photographs – this will eliminate many fake reviews.
Check lead times and delivery statistics
By Aaron Wallace looks in detail at stock levels, lead times, and manufacturing timelines of all potential suppliers. The company has large orders to fulfil with UK retailers, and any delay could seriously impact its reputation. “We look at what stock they hold and what lead time they have with their supplier, says Ferretti. “If they take 50 weeks to source materials and then manufacturing starts, the lead time will be very long, and it’s unlikely to work for us.”
Check payment terms
Finally, it’s important to understand any potential supplier’s payment terms fully. Having suppliers with longer payment terms helps Heatable with its cash flow, admin, and accounting, says Price. “We request amendments if the terms aren’t what we would like. For example, we’ll ask for early termination if prices increase, or Net 30 billing options [where payment is due 30 days after the end of the month in which an invoice is sent] so we can pay on a given date rather than on delivery.”
Remember, the American Express Business Gold Card offers 54-day payment terms, which can give you even more flexibility in your cash flow².
It’s helpful to negotiate with suppliers but remember that a good supplier can become a long-term partner and could offer value that offsets less than ideal payment terms.
How to find reliable suppliers
By Aaron Wallace uses a standardised process to score potential new suppliers, classifying them based on factors such as cost, financial stability, manufacturing process, quality, and lead times. “That means if one supplier scores five on quality but only one on cost, but another company scores four for quality and four for cost, we can compare those easily, and decide which is most important to us and fits our strategy best,” says Ferretti.
1. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
2. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. The American Express Business Gold Card has an annual fee of £195 (£0 in first year).
3. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Sources:
