Editor’s Note: Ardent Partners recently published a new sourcing-themed report, Beyond Price: Finding the Right Suppliers Using Sophisticated Sourcing Strategies. If you would like to access the report, it is available for download here (registration required).
While many supplier capabilities are embedded within the quality and price of the specific item or service, there may be other factors related to supplier production (and delivery) that can or should be considered when managing a sourcing project. These factors may or may not be directly related to the contract currently being negotiated. Here are a few:
- Production process (and technologies used) – Regulations (current and future), customer preferences, and business trends are just a few examples of how the production process and production location can impact a sourcing decision. For example, production that occurs in regions with high levels of child labor could present a supply chain risk that is too large to bear, even if the price was right. Sustainability is another example – consider a supplier that has a distinct production process which creates a larger or smaller carbon footprint than the competition. Similarly suppliers using the next generation of a technology for production may be more expensive today, but less expensive over time; these suppliers may also be better able to help develop new innovations.
- Value-added or complementary products and services – With many supplier bids, there are aspects of the supplier’s business like superior customer service or a more aggressive maintenance program or longer lifetime warranties that can alter the overall value of the contract and/or extend the life of the product. These services could be included in the supplier contract. But, it is also possible that they will not be needed in the near-term, but, that the speed of the business makes it highly probable that the services will be needed in the future. And then, there are the suppliers that offer complementary services like a janitorial services supplier that also does landscaping or a manufacturer that also does assembly. Each of these suppliers offers a service that enables greater flexibility in the buying company’s future.
- Capacity – Suppliers operating at or near full capacity may be better positioned to withstand a down cycle or the loss of major customers; but they will be less able to increase production and/or less interested in changing production than those with excess capacity (in theory, anyway).
- Operational & technical capabilities – Beyond the delivery of a specific bundle of items or services, having a supplier with superior operational and technical capabilities can be a huge advantage in volatile markets. For example, when “market changing” events (political, financial, weather, etc.) occur, we are often able to see which suppliers and companies were better prepared/adapted better than their competitors.
- Geographical reach – Global suppliers can be very valuable in helping to drive standard contracts and standard approaches to different categories across a big enterprise. One dirty little secret of global Chief Procurement Officers is that they struggle to find truly global suppliers. That said, a supplier’s geographical reach can be very important to these leaders as their businesses and operations continue to evolve.
Considering the breadth and depth of suppliers available in many (but not all) commodity markets today, it can be daunting to find the best fit for the organization’s needs. Not all suppliers are the same, even if pricing may be comparable. There are many non-price attributes to consider during a sourcing event; and in particular, these five production and delivery factors sometimes get overlooked and can cause you and your organization many headaches. Or, if you’re savvy and consider these factors, you just might find the best supplier that fits not only your needs but also helps you innovate, be a market leader, and take your performance to the next level.