Supplier selection: 5 steps to finding the right supplier

Supplier selection is an integral part of ensuring your business’ success. It’s not just about selecting the cheapest option – it’s about finding a supplier that’s a great match for your business in both the short and long run.

In this article, we’ll cover exactly what supplier selection is and walk you through the 5 essential steps of the supplier selection process.

What is supplier selection?

Supplier selection is the process of identifying, evaluating and choosing third-party vendors or service providers for your business.

The goal of supplier selection isn’t just to select a supplier who’s a good fit for the moment. It’s about establishing a mutually beneficial professional relationship that’ll last. That’s why you want to choose suppliers who provide great value for your money – and ones you can rely on.

When done right, supplier selection can make a world of difference for your business.

It can help you maximise your resources, optimise your profitability and keep your operations running smoothly. In other words, supplier selection is a process you’ll want to invest in.

Want to learn more about evaluating current and potential suppliers? Check out our article: ‘Supplier evaluation: What is it, and how’s it done?’

The 5 steps of the supplier selection process

It’s one thing to know that supplier selection is an important process – it’s another knowing how to do it right.

To ensure you’re on the right track, we’ll walk you through the five essential steps of the supplier selection process.

1. Identify your business needs

The first step to selecting a supplier is to identify your business needs. To do this, it’s not enough to just identify what products and services you need from a supplier.

To identify your business needs, you need to:

• Know your quality standard, how many products you need and how often you need them.
• Consider your budget and the total cost of ownership – not just the purchase price.
• Analyse the market. Learn what your competitors are doing and which suppliers they use.
• Determine if there are industry standards you need to meet or regulations you need to comply with.

2. List potential suppliers

Once you’ve identified your business needs, you have a better idea of which suppliers could be a good fit for your goals. This is a good time to start making a list of potential suppliers.

There are several ways to go about this. For example, you can:

• Search online fora and B2B marketplaces
• Go through your personal and business networks
• Check advertisements and industry publications
• Attend trade shows and business fora

There are plenty of options – it’s completely up to you how you prefer to go about it.

3. Define your supplier selection criteria

Now that you have an idea of the types of suppliers you’re interested in working with, it’s time to define your supplier selection criteria. This’ll help you narrow down your options and get a more thorough understanding of the differences between potential suppliers.

Elements you’ll want to consider when defining your supplier selection criteria include:

• Product quality: This one probably goes without saying – your chosen supplier should live up to your quality standards, and that’s non-negotiable.
• Flexibility: Will the supplier be able to adapt to your business needs as they change? If you’re growing, this one’s important to consider.
• Delivery: Is the supplier able to meet your delivery requirements – and are they good at keeping you in the loop about foreseen delays?
• Reliability: This one’s important. You want reliable suppliers because you want to build lasting relationships. Besides, an unreliable and unpredictable supplier can spell trouble for your business.
• Cost: Everyone wants a good deal – but don’t compromise on your quality standards to save money. You should also consider if the supplier’s pricing structure will work for your business in future.
• Quality of service: Doing business with your suppliers should be a good experience – every time. Look for a supplier whose quality of service makes them stand out from the competition.

4. Gather information

Once you’ve defined your supplier selection criteria, you may already be able to narrow down your list of potentials. Now it’s time to gather more information about the suppliers you’re still vetting.

There are a number of things you can do to learn more about a potential supplier before selecting them:

• Request for information (RFI): Sending the supplier an RFI is a good way to collect more information about the supplier’s capabilities.
• Request for proposal (RFP): For a more detailed proposal on how the supplier can meet your needs, you can send them an RFP. This should include the essentials, such as the full scope of the project, your requirements, procurement process, timeline and commercial terms and conditions.
• Site visits: Seeing things for yourself is always better than hearing about them secondhand. Visit the supplier’s site and evaluate their facilities, processes, control measures and overall operations first hand.
• References: Do your research – check references and previous customer experiences to see how others feel about working with the supplier.

5. Negotiate and finalise the supplier agreement

At this stage, it should be pretty clear which suppliers are the right fit for your business – and that means it’s time to negotiate a supplier agreement.

Once you’ve come to an agreement, you’ve reached the final stage of supplier selection: creating and signing the contract.

For many transactions, the purchase order functions as the contract. Depending on the complexity of the agreement, however, you may have to create a contract and a purchase order separately.

When this is done, there’s nothing more to it – you’ve officially selected a supplier.

Conclusion

Supplier selection can help you maximise your resources, optimise your profitability and keep your operations running smoothly.

By following the five essential steps above, approaching supplier selection strategically and taking your time to consider your options, you’ll set up your business for success.