The right suppliers
Good supplier identification and evaluation are key components of an effective supplier selection system. In doing global sourcing, building a solid supplier database, primarily for China, Asia and other best-cost countries, is an invaluable exercise.
However, in addition to drawing on a database, it is important to retain a disciplined approach to identifying new suppliers and reevaluating existing suppliers each time new sourcing activities are conducted, given the rapid changes in the market. The first aim is always to determine a comprehensive “universe list” of potential suppliers. This universe list includes all potential suppliers and represents an orientational map of the entire pool of possible suppliers.
The universe list is then put through a series of relevant high-level filters which deselect inappropriate suppliers to arrive at a robust “short list.” It is important to understand that the characteristics of different industries, categories and products will impact the filtering and evaluation process. For example, things like product complexity, quality requirements and technical specifications must be considered. Simple online searches and superficial checks only create risks and must be avoided.
Systematic and rigorous engagement with the short list extracts detailed information on supplier capabilities, suitability and credibility. Their level of interest and willingness to comply with demanding contract stipulations must also be gauged early on.
A strategic approach to negotiation and contracting is then necessary before actual orders can be placed with any specific supplier. Contract provisions and critically important clauses must receive close attention. Due to differing business protocols and mindsets, all possible risks and contingencies must be foreseen and addressed.
Once an order is placed, the focus shifts from supplier selection to the management of selected suppliers.
Managing suppliers
Effective supplier performance management involves strong project management, relationship management and contract management capabilities.
It is all about aligning expectations and measuring and managing misalignments. It is particularly important to develop a quality management plan, which includes solid quality assurance and quality control elements for monitoring the vendor’s internal procurement protocols and document management. Overall schedule management is another integral part of the overall supplier management process. A partnership approach with the supplier greatly enhances China procurement.
Management of logistics must be closely integrated with the procurement process to ensure overall supply chain success, as logistics issues and costs can often impact the value and risk in a significant way. Furthermore, anticipating and forming agreements with the supplier regarding their after-sales obligations, warranty claims management and dispute resolution is pivotal.
Being aware of the risks
There are many complexities and risks which necessitate various skills during the supplier selection and the supplier management processes, including engineering and technical skills, commercial experience, procurement process knowledge, solid program and project management, logistics acumen, analytical capacity, strategic relationship skills, holistic risk management, cross-cultural expertise and communications, and mastery of relevant languages. No doubt, it is a tall order. However, if done well, it provides valuable opportunity for companies to effectively integrate China into their global supply chains. Getting it right can add significant value to a company’s capital project procurement, operating expenditure procurement and services procurement. The key is a twostep approach: selecting the right suppliers, and then managing suppliers to optimize their performance - and if the risks appear too great, do not proceed as China sourcing must only be done if it is done well.
The author Rachel Wu is a director with The Beijing Axis in Beijing. The firm does global procurement, international sales activation and cross-border advisory and has offices in Asia, Europe and Africa. Contact her at [email protected].