Did you make the right decision on your new supplier?

Taking a consistent step by step approach when appointing suppliers will provide true governance around the process and give your business the tools to succeed in on-boarding quality suppliers. To kick start a successful supplier appointment, here are our top 5 steps:

Step 1: Determine the scope

Ensuring you know exactly what goods or services your business requires is key. Stakeholders from multiple divisions may be required to assist, plan and identify key products or deliverables which will allow better refinement of the scope and cost control. This refinement allows you to be direct in your approach with the supplier and limit scope creep. When defining the scope, you should ensure there are formulated guidelines for how the team will assess each of the suppliers in a consistent manner. Assigning performance values and weightings in these guidelines should be a priority. Cost cannot be the only determining factor for your business.

Your organisation may have to comply with the Modern Slavery Act (2018) and may have set Environmental, Social and Governance (ESG) commitments and targets. Therefore, it is important to make sure you include these human rights and sustainability considerations when defining the scope.

Step 2: Request for proposal (RFP)

Now that you have determined what is in scope, your business should craft a detailed request for proposal (RFP). An RFP sets out the scope and highlights the process and timelines that all parties will be accountable to. If your organisation has a Supplier Assessment Questionnaire (SAQ), you should consider including it in the RFP so you can make a more informed decision. A SAQ includes a wide range of questions to be answered by potential suppliers on topics such as data protection, business conduct, environmental performance, human rights, etc.

A well-crafted RFP also clearly defines the expectations and helps run a smoother, more organised campaign. Determining who will participate in the RFP is also part of this process; will it be open to market or will you have a closed selection of (existing) suppliers you prefer to work with? There is evidence that companies with a lower number of suppliers achieve cost reduction (e.g., preferential discounts due larger volume, operational efficiencies of dealing with a limited number of suppliers, etc). Besides, another benefit of consolidating the supplier base is better supplier engagement and more collaborative relationships, that could lead to value co-creation.

Step 3: Evaluate the RFP

Your clearly defined RFP will have provided the suppliers ample time for Q&A to refine their understanding of your requirements, submit their proof of concept in some cases and issue their proposal. As you have already defined the guidelines for assessment of the proposal, you should now be able to review each proposal objectively and shortlist suppliers.

Step 4: Supplier assessment and contract negotiations

Now that you have been able to shortlist the suppliers, undertaking reference checks and reviewing the answers in the SAQ (if any), will provide key assurances from external parties and can provide great insight into performance and areas of focus for the team when negotiating and implementing the supplier into your business. Following this process is the negotiation and agreeing to commercial terms. These commercial terms in contracts allow for both parties to limit financial and operational risk and should be well documented. It may be prudent for you to have the contracts reviewed by your legal counsel to assist you in identifying any blind spots or red flags within the contracts.

If your company has a Supplier Code of Conduct that sets business and ESG expectations as well as respective responsibilities, you may also consider requesting the supplier to accept and sign the Supplier Code of Conduct. As supplier engagement is becoming increasingly important, setting contractually the modality of that engagement is critical.

Step 5: Award and implement

Having completed the above step, now comes time for the final supplier selection. Based on all of the inputs throughout the process above, your business should be well informed to select the supplier and execute contracts. As touched on earlier, having the relevant stakeholders in your business involved through the process of the supplier selection will streamline and allow for successful implementation into your business.

If you are looking to improve your supplier selection process or have any queries around how the process above could work for your business, please contact your usual Forvis Mazars advisor or one of our specialists via the form below or on:

Date published: 10/12/2024

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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