5 Ways to Evaluate Your Vendors
Do Your Vendors Measure-up? 5 ways to evaluate them according to a global distributor In some respects these metrics relate to all businesses. Use them to formulate your company’s own “common core” tests.
Increasingly, OEMs see their suppliers as not simply vendors, but as a key asset in realizing their business strategy. However, measuring the value of this strategic supplier relationship is difficult as so many of the benefits it brings are intangible. Nevertheless, these are the key factors that all stack up to build ROI into your strategic supplier relationship. A brief analysis by Rockline Europe:
- The Best Price
This is not necessarily the lowest price, but a fair price for both the supplier and the customer, where both can benefit from a sustainable margin. Work together and you can both do well.
- Operational Effectiveness
A measure of your supplier’s technological expertise can express itself in two ways:
Consistency of supply.
* On time.
* On budget.
* Streamlined use of resources.
* Fast response to increase in demand.
83% of decision makers in FMCG (Fast Movement Consumer Goods) industries cited ‘being out of stock’ as the number one factor impacting ROI.
A supply chain disruption can cost a manufacturer millions, irreparably harm a brand and drive customers straight to the door of a competitor. A strategic supplier relationship can prevent this kind of disruption.
Speed to market.
To what degree is your supplier contributing to your effectiveness in capitalizing on new market opportunities? Being first to market means:
* Locking out a competitor.
* Being first in the minds of the consumer.
* Greater market penetration and expansion.
The length of time in bringing a new product to market is of critical importance for ROI.
There are two influences on ROI to consider:
* Consistent quality in keeping with the brand’s promise, no matter where the product is made.
* Maintaining quality during rapid increases in demand.
The ROI should be considered in terms of costs avoided. Consider this horror story: Cadbury Schweppes recalled one million chocolate bars after a salmonella scare. The total cost of the recall was in excess of $30 million, with a loss of market share of 1.1%.
Quality is an arms race between you and your competitors. Each time your competitor improves their product, they change the basis of competition. A supplier who can meet dramatic improvement changes well satisfies ROI.
Most major brands put sustainability targets at the forefront of their business goals. More and more consumers are drawn to brands that can demonstrate that they are effectively lowering their impact on the environment.
Unilever has a comprehensive sustainable living plan, including the commitment to source 100% of their agricultural raw materials sustainably by 2020.
Suppliers proactively reducing their environmental footprint make a positive payoff to ROI.
- Innovation and Technical Expertise
Brands must innovate or die. 96% of all new projects fail to meet or beat companies’ targets for ROI.
Increasingly, brands don’t have the resources to innovate effectively.
* Less than 25% of companies have adequate resources to undertake all their planned projects.
* Development personnel are being over committed on average by 75%.
* Many companies face as much as 37% of their innovation projects becoming ‘at risk’ each year.
* For a company with $200 million committed to innovation, that’s a whopping $74 million in danger of loss.
This is why FMCG experts believe that the extra value suppliers contribute through technical expertise and innovation has the biggest impact on the ROI from a strategic supplier relationship.
Will you take a broader view of your suppliers’ role in your business and their effect on your company’s bottom line? Perhaps it is time to expect and indeed to demand more than the traditional buyer-seller relationship. Measure a vendor’s true value to your company and award business on that basis – you’ll get more bang for your buck!