What are the 5 essential steps to successful supplier sourcing?

Supplier sourcing steps
June 15th, 2023
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Supplier sourcing is a crucial component in the procurement process. This stage is decisive in ensuring any company’s competitiveness, performance, and sustainability. Supplier sourcing, by definition, consists of identifying, evaluating, and then signing contracts with new suppliers. This phase is essential, all the more so given the instability, complexity, and volatility of the economic circumstance that companies operate in. To ensure the process is successful, procurement departments follow 5 key steps, usually supported by supplier sourcing tools.

Stage 1: Qualification of the need

Every supplier sourcing strategy starts with defining needs, which may be expressed by all the company’s employees. This is why the procurement function must establish strong communication and reinforce its position as a business partner with internal customers.

Once the need has been identified, it is up to the procurement departments to support the internal customer so that they can clarify it. The buyer’s know-how enables them to grasp the issues at stake and to challenge this need. At a time of ecological transition, why not rent rather than buy a product? Is a high-end product really necessary for a one-off need that doesn’t involve any particular challenges? Here are some examples of questions buyers can ask themselves.

This first stage is, therefore, all about assessing and qualifying the company’s need. This generally involves establishing a set of specifications including:

  • The overall presentation of the need (need identification and quantification);
  • The technical and or functional specifications (technical constraints, standards, etc.);
  • The assessment criteria (price, quality, customer service, deadlines, CSR, geographical location, etc.).

Stage 2: Analysis of the supplier market

This second stage of supplier sourcing focuses on finding suppliers who are most likely to meet the identified need. The procurement department can take a look at the existing supplier portfolio, but also explore the market to find other suppliers. There can be lots of information sources such as recommendations from sales partners, professional social networks, trade fairs and events, specialised directories, etc.

The aim is to identify potential suppliers who could fulfil this need, while delivering quality of service in the long term. Once this panel is established, the procurement departments contact them and ask for additional information. This is commonly known as a Request For Information (RFI).

In this document, suppliers are asked for information about the suggested offer, the structure’s solvency, the geographical proximity, the production resources, the quality approach, customer references, etc. The idea is to get to know their resources and their product and service offer better. Because this takes time for the supplier, it is important to structure and market this request properly. This means giving them as much visibility as possible on volumes, contractual elements, and critical requirements.

Step 3: Supplier evaluation

All the collected data gives the procurement departments a clear map of each supplier. They can then confirm each player’s capacity to support their needs, while reducing supplier risks (supply chain disruption, image, etc.).

This third stage of supplier sourcing is therefore entirely dedicated to analysis, based on an assessment grid. Discussion and collaboration with all the stakeholders (suppliers, business teams, etc.) are key. Buyers may even decide to meet suppliers, through site visits, for example.

This multicriteria study requires assessing both:

  • The supplier (financial health and solvency, resources, production capacity, approvals and certifications, membership of a professional federation, etc.)
  • The goods or services (quality, price, lead times, environmental impact, etc.)

Stage 4: Contract signing

Once the procurement professionals have established their "shortlist", it is time for negotiations to start. This fourth stage of supplier sourcing consists of discussions with each supplier to get the best contractual conditions (best products, services, prices, etc.). Buyers must carefully prepare for this negotiation stage so they can plan ahead for the strategic points and hone their arguments. These discussions go far beyond costs or delivery times as the aim is to establish a "win-win" relationship in the long term.

At the end of the negotiations, the procurement departments finalise the contract with the selected supplier. Among other things, the contract specifies the conditions for assessing compliance with the commitments, but also the conditions for its possible termination should there be a breach. The official commercial collaboration begins with the signing of the supply contract and the implementation of a deployment plan in the company.

Step 5: Supplier relationship management

This fifth and final stage of supplier sourcing consists of ensuring that the supplier continues to perform throughout the collaboration. This means monitoring the Key Performance Indicators (KPIs) that were previously identified, including turnover, digitalisation rate for transactions, average execution time, etc.

To set up a successful continuous improvement policy, it is also important to establish open communications with the supplier, with regular discussions throughout. This means any points of friction can be dealt with as they arise. To take things further, it is possible to work jointly with suppliers on specific strategic areas (corporate social responsibility, innovation, etc.).

Using this method of sourcing suppliers, procurement departments can establish the ideal conditions for a value-creating supplier relationship. This means they can build an efficient supplier panel that meets the company’s needs and that fits with a sustainable partnership approach, while staying in line with the company’s procurement policy and strategy. The results are even more effective with online supplier sourcing tools. All in all, this is a real competitive advantage for businesses.