Selecting an international supplier can be a challenging proposition. While it’s always preferred to travel evaluating foreign suppliers in person before signing a contract, it’s not always possible to do so. In these cases, you need to hone your evaluation skills and develop protocol for choosing the best opportunities.
The Benefits of Working with Foreign Suppliers
While everyone wants those three letters – U.S.A. – printed on their product, it’s simply not feasible to domestically source products and materials in every situation. Sometimes the product doesn’t exist in the United States, while other times it’s three or four times more expensive here than it is abroad. In fact, there are many benefits to be gleaned when you work with foreign suppliers.
- Cost advantage. Obviously the biggest benefit is the cost advantage. In many instances, foreign countries have a comparative advantage when it comes to the cost of goods and raw materials. As a result, the same product can be produced for a much lower cost and then imported to the United States.
- Access to resources. Sometimes, foreign countries have access to certain raw materials that don’t exist in the United States. Other times, the quality is better in foreign countries. Either way, there are advantages to sourcing materials from their native countries.
- Trade agreements. Finally, the United States has trade agreements with many different countries that can make importing a breeze. Sometimes the agreement allows businesses to bypass certain landed costs and make the transaction even more cost effective.
With that being said, there are also potential drawbacks to working with foreign suppliers. If you want to counteract these risks and enjoy more of the benefits, there needs to be a plan in place for evaluating foreign suppliers and maximizing the chances of success.
6 Tips to Effective Supplier Evaluation
While each business owner may have a different formula for evaluating suppliers, the following tips are generally considered best-practices by all – regardless of the industry.
1. Check References and Referrals
Much like you would when purchasing an item on Amazon or eBay, it’s wise to read reviews and check references prior to syncing up with a supplier. You can learn a lot about a supplier by seeing what previous customers and clients thought of their services. After all, it’s generally better to learn from someone else’s mistakes, as opposed to suffer through your own.
2. Establish Performance Indicators
The first key to effective supplier evaluation is establishing performance indicators. These are the metrics by which you will determine whether or not a supplier is qualified to meet your needs and demands.
Performance indicators will vary depending on the product you’re sourcing and what your needs are. For example, if you’re sourcing fresh ingredients that are made to be consumed, two performance indicators will be (1) FDA approval, and (2) fast delivery time. On the other hand, if you’re sourcing heavy machinery, your performance indicators may be (1) low-cost shipping and (2) minimal damage during shipping.
3. Create an Evaluation Method
Armed with performance indicators, you now need to create an evaluation method. In other words, how will you continually evaluate suppliers to ensure they’re meeting or exceeding required performance levels.
Evaluation methods may range from surveying employees and interviewing suppliers to reviewing supply chain data and studying shipment metrics. Whatever the case, it’s important that you regularly monitor and audit suppliers and vendors to make sure you’re reaching optimal efficiency.
4. Involve Multiple People
In terms of evaluating suppliers, one of the biggest mistakes you can make is relying on a single source of information. In order to accurately determine whether or not a supplier is meeting your needs, you must involve multiple parties and resources.
Ideally, this will include a combination of human employees and automated platforms. The more resources you use, the less likely you are to make a mistake or reach a conclusion based on inaccurate information.
With that being said, it’s also important that you have a final decision maker. The issue with involving too many people is that it’s often more challenging to make a decision. By establishing a decision maker up front, you can make sure disagreement isn’t an option.
5. Ignore Price in the Beginning
One of the biggest problems businesses encounter with first working with an international supplier is putting too much emphasis on price. While price is obviously a huge factor, it’s not the first thing you want to think about. In fact, you should ignore price in the beginning.
Cost will definitely play a critical role in your evaluation of a supplier, but you can easily become hypnotized by dollar signs and decimal points if you let them rule your decision making early in the process. Instead, focus on quality, trust, and other metrics in the initial stage.
6. Know When to Issue Warnings
When a supplier doesn’t meet your expectations, you have a decision to make. You can either part ways with them or issue a warning. While there are certainly times when parting ways is the only solution, be wary of cutting ties so quickly. Every supplier makes mistakes and you can use these incidents as teachable moments.
“You can drop a supplier for poor performance but strategically it is better to retain your vendors and not to flip around all of the time to replace them,” writes Carolyn M. Brown of Inc.com. “By giving a warning, you give the supplier or vendor an opportunity to correct the problem.”
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