The importance of supplier selection
Supplier selection is increasingly becoming the primary value driver in the procurement process: the success of your procurement cycle depends on the success of your procurement decisions.
It’s a process that requires great insight, analysis, and knowledge. But it’s not uncommon for procurement teams to have their attention split and for the focus on supplier selection to take a backseat.
Supplier selection has a big impact
It’s important not to lose focus on the value of supplier selection in the entire procurement process. It’s the key stage where you identify, evaluate, and select your suppliers.
Supplier selection is the stage where you decide what suppliers will get your business and ultimately determines how much risk you’re taking on. It determines the important questions that will influence the success or failure of your procurement process:
- Are we confident we’re selecting the optimal suppliers?
- Are we paying the best price for the good/service?
- Are we adding value (financially or strategically) to our organization?
- How much risk are we assuming when it comes to supplier quality and the service?
Reasons to keep a focus on supplier selection
The decisions made at the supplier selection stage will have an effect on the success of the entire procurement process.
Your supplier selection process needs to determine the best supplier efficiently and effectively with the most competitive prices. If you do not make the most optimal, timely decision, the rest of your procurement process may suffer.
Here are four reasons to ensure your supplier selection performance is an organization focus:
1. Enforcing poor buying decisions
A large part of many procurement cycles is the enforcement of supplier selection decisions, ensuring that organizational processes are followed and that spending is managed.
However, the tools and software you use to control the process can only enforce the decisions you make, regardless of how good or bad that decision might have been.
Poor buying decisions may lead to enforcing decisions with suppliers that aren’t cost-effective or lead to poor quality goods/services. An ERP or the typical eProcurement platform isn’t designed to help you make better, smarter decision. Without a focus on the process for selecting the best and optimal supplier, any benefit to the rest of procurement process is effectively nullified.
2. Dissatisfied stakeholders
If your supplier selection decisions are a poor match for the requirements of your organization or are in any way perceived to be less than optimal, stakeholders in your process will become dissatisfied.
In a world where organizations are increasingly looking to procurement to help achieve financial and strategic goals, dissatisfied stakeholders can have a major impact on your ability to deliver against those goals. This can range from stakeholders dragging their feet when it comes to their next procurement project, all the way to trying to avoid your processes altogether.
3. Driving of maverick spend
When individuals in your organization are dissatisfied or feel like the enforced options are not a good fit for what they need, you run the risk of increased maverick spending. Maverick spending represents purchases made outside of agreed contracts or dodged procurement processes. In an organization with a strong focus on great supplier selection decisions, maverick spend can be an expensive issue. A poor focus on supplier selection can make the issue of controlling and managing spend even worse.
4. Missed performance targets
Ultimately, better supplier selection decisions have a direct financial and strategic impact on the success of procurement, and of the organization as a whole.
It seems obvious but your ability to identify the suppliers who best meet your business requirements, and deliver against those requirements with the best value, is critical to your procurement success. If you’re finding it challenging to meet your sourcing metrics and KPIs, an increased focus on your supplier selection decisions can yield massive positive results.