Evaluating Potential Supplier for Indirect Categories

Details matter when you’re searching for new direct material suppliers. You need to confirm their manufacturing and delivery capabilities, willingness to win your business, and available capacity.  It turns out, details matter for indirect suppliers as well, it’s just that the details can be more nuanced. 

For indirect suppliers, it all starts with understanding stakeholder needs.  Stakeholders depend on suppliers for more than just the items or services that are on the PO – things like: 

• IT systems to support ordering, project management, and delivery 
• Resolving problems or issues on items or services delivered 
• Defining item or service requirements 
• Reporting progress and cost savings 
• Periodic business reviews 

Stakeholders vary by the category and include any departments that interact with suppliers of the target category as well as anyone whose objectives may be affected by spend and supplier performance. 

For example, stakeholders for temporary manufacturing labor may include Legal, Finance, HR, and Operations.  Stakeholders for MRO include a broader audience, typically including EHS, Finance, Materials, Maintenance, Production, and Plant Purchasing. 

Once you’ve identified stakeholders, interview them to understand their pain points with current suppliers, opportunities for improvement, and the current service levels being delivered. 

Read 3 Crucial Questions for Indirect Procurement Stakeholders for questions you can ask to get feedback in these three areas.  Be sure to interview representative stakeholders every plant for every function affected. 

Here are five steps to evaluate potential suppliers once you’ve collected the feedback from stakeholders: 

1. Develop a list of attributes for an ideal supplier (we typically find 15-20 that are relevant). 
   
   This might include things like services offered, order to start times, industry experience, location, etc.  Review the stakeholder interviews to make sure you don’t miss anything important. 

2. For each attribute, write a sentence that describe the best case for a supplier based on stakeholder feedback.
   
   Translate the sentence into objective criteria that can be applied without requiring too many judgement calls.   

3. Identify what is the minimal acceptable level for each attribute.
   
   What does the supplier need to have or do to avoid raising a red flag? 
   For example, if having a location within 50 miles of the plant is ideal, what is the minimum acceptable – 100 miles, 150 miles, 200 miles?   

4. Summarize the attributes and the two thresholds (best case and minimally acceptable) and email to stakeholders for feedback. 
   
   You might get some additional desired supplier attributes that didn’t surface during the interviews, and you may get modifications to the threshold levels.  Sorting this out sometimes benefits from targeted follow-up interviews. 

5. Finally, interview potential suppliers you are considering and rate them against the attributes and thresholds you’ve developed.
   
   Call the sales rep and have a conversation – doing this over email won’t suffice. We’ve found it’s helpful to color code the supplier responses for each attribute: 
   • Green = meets or exceeds the best case threshold 
   • Red = does not meet the minimally acceptable threshold 
   • Yellow = falls somewhere between the two thresholds 

Conclusion

Evaluating suppliers prior to sending out an RFP will save you considerable time and effort. You can trim the number of suppliers you include by short listing supplier have the most greens and no unacceptable reds. 

This frees up time to interact more with the capable suppliers and ensure that they will be a valuable supplier partner to your company and stakeholders.

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