Management · November 19, 2020

How to Pick the Right Suppliers and Build Strong Vendor Relationships

Learning how to pick the right suppliers is an integral part of business success. Starting a vendor relationship is a major financial decision, and your choice can have long-term implications for your company. 


If a supplier becomes ingrained in your supply chain, replacing them can be hard and potentially disruptive to operations. Carefully mapping out your decision-making process will help you choose the vendors that will be the best fit for your business.

Set your criteria

Begin the process by creating a list of vendor criteria based on your business needs and goals. Of course, you'll want a supplier who can provide what you need at the right price. However, there are other standards to consider depending on your business strategy.

Stability and flexibility

Work to understand how well a potential supplier relationship can meet the needs of your business stage. Smaller quantities at a reasonable price may be important when starting out. However, when your company hits a growth spurt, you may need a supplier who can pivot quickly to support your scalability. In any case, good suppliers will have an established reputation within their customer base for delivering as promised.

Gather as much information as possible about the vendor's financial picture. Look for reasonable evidence of healthy credit and cash flow. Companies can go out of business quickly or be unable to purchase from their supply chain. When this happens to your supplier, your business could find itself in a scramble to find the right materials to fulfill customer orders.

Visibility

A good supplier-manufacturer relationship is built on trust. Open communication builds that trust. Suppliers should be transparent about their capabilities to meet your expectations. At a minimum, you should also be able to rely on your trading partners to maintain accurate and updated record-keeping systems, regardless of the technology they use.

However, it may be worth the extra effort to find a vendor who is willing and able to employ innovative technology solutions to optimize information sharing and increase supply chain visibility. A supplier that fits well into the ecosystems of your industry-distributors, regulatory agencies and market competitors can be a strong long-term partner.

Quality assurance and compliance

A vendor's commitment to relevant standards and laws can impact your brand reputation, along with your standing with regulators. Research specifications and requirements that are appropriate for your industry. Discuss with prospective suppliers how they handle and document quality concerns, including known quality issues, defect classifications and performance standards.

Look for evidence of quality control, compliance and ethics through licensing, accreditation, previous testing reports and certificates. A site visit or independent product testing of a supplier's samples can provide further insight. If you're planning to import, quality suppliers should expect and be willing to comply with requests for independent verification of goods before shipment.

Other factors

You'll also want to consider some of the other components of successful vendor relationships as they align with your business needs. These might include:

  • Location
  • Delivery methods
  • Cultural alignment or shared mission
  • The potential length of the relationship
  • Expertise and intellectual property

The RFP process

Once you establish the must-have and the nice-to-have vendor qualities, consider issuing a structured bid process. Requests for proposal, or RFPs, can help you manage your decision by communicating and organizing your company's search for materials or services. Vendors hoping to win your business will submit proposals with the documentation and information you need to review. At least three to four qualified bidders with competitive bids would be a solid RFP response.

Think of composing an RFP as writing a job description. Include the capabilities and credentials you want to see in successful vendor candidates. Ask for the most information possible to help you make an informed choice. If you plan to require a site visit or independent testing, state that in the RFP. Don't forget to provide information on timelines, benchmarks and the review process.

As you create the RFP, determine how you'll organize and evaluate the bid submissions. For instance, which factors from your list of vendor criteria will take top priority for shortlisting candidates? Some manufacturers may hold a qualifying round in which bidders have to submit their documentation. The next round could involve testing, site visits or other evaluations.

Consider also how you'll monitor the performance of the winning supplier. Savvy vendor relationship management involves letting vendors know how you plan to assess the ongoing relationship. Establishing strategies like these early on will help you conduct a more effective RFP process that avoids wasting time and money on all sides. This effort at professionalism can go a long way toward catching the eye of top-quality vendors and other potential business connections.

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