Companies are increasingly looking overseas for new suppliers who can offer competitive pricing on raw materials, components and general business consumables. When you take into account language barriers and different ways of doing business it is inevitable that things go wrong and the supply chain can come under threat. So what steps should companies looking for new suppliers take to make sure they get it right?
It’s important to draw up a list of potential suppliers and then to carry out due diligence on the company and its directors. Ask for bank and trade references and follow them up. Once you have a short list of potential suppliers, contact them and request a quotation. Ask them to state prices and the applicable Incoterms® rule; they should also indicate if any discounts are available for volume and early settlement. Be sure to ask for the manufacturing lead-time and the transit time separately; suppliers can be guilty of quoting the shipping time but forget to tell you it might take a month to manufacture the goods.
Be clear on the payment terms and method. Make sure that any bank account details provided for payment relate to a business account rather than a personal account to avoid getting involved in a potentially fraudulent transaction. You should also request sufficient samples of each product to allow you to adequately test them to make sure they meet your quality standards.
The decision to put an agreement in place with a new supplier shouldn’t just be based on the product and the price. You should also take the following factors into account:
Ease of communication – do you or your potential supplier have at least one member of staff who can communicate adequately in the other’s language? This is important to make sure there are no misunderstandings which could be expensive.
Size of company – is the company large enough to manage your requirements and how would they handle a significant increase in orders from you?
Stability – find out how long the company has been trading and how well established they are. It is also worth checking to see how long they have been manufacturing the products/components that you wish to procure. If they frequently change their product range to meet demand for the latest must have item, perhaps they can’t really offer you the supply chain security that you require.
Location – are they located near to an airport or a seaport which allows for easy and fast transit?
Innovation – are they constantly seeking to improve their offering by refining the design of the product or by adapting the manufacturing process to get the benefit of cost savings which can then be passed on to you?
Of course, once you have found your new supplier, it is important to hold regular review meetings with them, even if this is just a monthly phone call. This allows both parties to build a stronger relationship and provides an opportunity to discuss any known future events that might impact on supply and demand.