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8 Most Common Supplier Problems (and How to Fix Them)

If you’re looking for a supplier to ensure the timely delivery of your goods from overseas, then it’s likely you’re going to face some challenges along the way.

Procurement for a supplier can be a very difficult and complex process, from determining the right pricing to ensuring your relationship is going to last long-term.

Below, we’ve outlined eight of the most common problems you’ll face with a supplier, and suggest a number of tips on how you can fix those problems.

  1. Sacrificing quality for savings

Your customers expect quality products, and so you should expect quality from your suppliers.

However, quality can be expensive. Therefore, to save on costs, we see a lot of suppliers using cheaper materials, sacrificing quality in the process. Businesses, vying for the cheapest option, will accept this because it means they save money.

The result, however, means a suboptimal or even defective product. In the long-term, this can result in higher costs for a business because customers demand refunds or, at worst, sue the business for damages if the product is defective and causes them loss.
Solution:
Cost savings is essential - but it isn’t the only thing that’s important.
To efficiently monitor both quality and cost, you can create a KPI dashboard that keeps track of your products’ quality, and the cost of manufacture. Review these KPIs regularly, as it will guide you in choosing (and keeping) a supplier.

2.Providing your supplier with vague specifications and requirements

If a supplier is going to provide you with a product you and your customers are happy with, then you’ll need to give them the exact specifications and requirements of the product that you expect.

We often see businesses providing vague, uncertain and generally poorly communicated requirements and specifications to their supplier. The result is not only delayed product development, but the manufacture of products that don’t meet your expectations.

The details you’ll need to give your supplier include things like:
  • Precise dimensions
  • Size
  • Colour
  • Purpose
Solution:
Provide your suppliers (through your procurement team) with a comprehensive description and detailed specs of a product so that the outcome is the product you and your customers expect.

3.Failing to conduct a supplier pre-assessment

If it’s too good to be true, it probably is. Many suppliers will enthusiastically and convincingly offer you the best products you could dream of, and verbally guarantee effective results. The result will often be disappointment.

This is because businesses will to subject their suppliers to a rigorous vetting process. They often fail to ask the right questions, seek the right details or understand their suppliers’ own manufacturing process.
Solution:
Create robust supplier selection criteria based on your organisation’s key objectives and values. This will help you choose the right supplier for your business.
You may do this by creating a template on a spreadsheet or specialised software to make the evaluation process faster.

4.Not talking about KPIs

KPIs (or key performance indicators) measure the success of each business. It’s absolutely essential to communicate your KPIs to suppliers so that they know your expectations.
For example, delivery KPIs impose rigorous requirements on suppliers, forcing them to deliver products on time and to your required standards.
Solution:
Make KPIs a priority when selecting a supplier. Clearly define each KPI so that you can relay it to your suppliers. Every quarter, review the performance of your suppliers against your KPIs so that you can gauge their performance and decide whether you need to start looking for alternatives.

5.Making decisions based on ‘gut’

We constantly see organisations making decisions about their suppliers based on ‘gut’ feel rather than concrete data. For example:

  • Making purchase orders based on the wrong assumptions, wrong data or a ‘feeling’ about what might be needed
  • Choosing a particular supplier because you are friends with a person in the company, when they have a poor record of meeting delivery KPIs.

This can often lead to challenges that adversely affect your bottom line.

Intuition is certainly important. It is critical to trust your instincts, especially if you’re experienced and you’ve been dealing with suppliers for a very long time. But it’s also risky. You can minimise your risk by making decisions based on data, which is unbiased and objective information. This is where KPIs (explained) are invaluable.
Solution:
Use data to guide your decision-making, not your gut.
Critically, do not ‘pick and choose’ data that supports your intuition or your personal bias. Analyse all data so you can make the best decisions for your organisation.

6.Doing business without a written contract

When you work with a supplier without a written agreement, there is a high risk that a dispute will arise. And it often won’t be clear who is right and who is wrong, because there is no contract to guide you. A study conducted by World Commerce and Contracting showed that poorly managing contracts can reduce your bottom line by 9%, which doesn’t take us by surprise.

Some of the key terms that should be defined in a written contract include:

  • The parties (for example, the exact corporate entity who is buying and supplying)
  • The scope of work
  • The type of product
  • Rates
  • Incoterms
Solution:
When close deals with a supplier, make sure you have a well-drafted contract. It is always a good idea to engage a lawyer experienced in international trade to help you negotiate favourable terms.

7.Procurement Bypass

Even when procurement procedures are already in place, employees or departments can still ‘defy’ them by purchasing items or services on their own (without going through approved processes). This is called “procurement bypass”

Management is then taken by surprise when the expense report comes out – as they’ll see purchases they never approved. If this is tolerated, it can significantly impact an organisation’s bottom line.

8.Failing to take into account inflation properly

Procurement and supply chain professionals always take into account inflation in their projections, but it is always a challenge to determine the nearest estimate. There are a lot of factors contributing to inflation, from demand-pull and cost-push to increased money supply and currency devaluation.

If you fail to take inflation into account correctly, you’ll end up spending more money than your business can handle in the long-term.
Solution:
Understand how inflation is affecting the costs in your supply chain and, if necessary, re-negotiate the contract with your supplier to take those costs into account.

Key takeaways

While dealing with suppliers can be challenging, there are solutions to every problem. Addressing these challenges will usually requires a proactive and collaborative approach, emphasising clear communication, transparency and a mutual commitment to shared goals.

By adopting a strategic approach to managing your suppliers, you can identify potential risks and opportunities for improvement, fostering stronger partnerships that enhance your efficiency and profitability. Regular performance evaluations, timely feedback and constructive negotiations can lay the groundwork for sustainable, long-term relationships with suppliers.

If you need any help finding the right suppliers for your business, the team at The Sourcing Co can assist. We’re a professional sourcing company that can help you find the ideal supplier to manufacture and deliver the goods you need to grow your business and keep your customers happy – all while mitigating the risks discussed in this article. Get in touch with our team right here.
2023-08-24 07:17 Sourcing and Importing