What benchmarks should you use to evaluate suppliers during negotiations?

Normally, for quality benchmark can be refer to ISO/ASTM/EN standards to check if your supplier able to meet. Regarding the operation & process KPI, you may check it against your internal standard, or the company in the same industry if you don't have existing internal standard. in this case, you have to develop and define quality metric including PPM, first pass yield rate, outgoing lot reject rate...etc.

Quality benchmarks serve as critical tools for evaluating a supplier's ability to meet your product and service specifications, expectations, and industry standards. These benchmarks can encompass various aspects, such as defect rates, delivery times, customer satisfaction, and regulatory compliance. To effectively assess supplier reliability and consistency, clearly define your quality requirements and communicate them explicitly to your suppliers. Continuously monitor and track supplier performance using data and feedback mechanisms. Compare the results against your defined expectations and industry norms. Implement a system to reward or penalize suppliers based on their quality performance, reinforcing desired outcomes.

In my experience it is critical to be able to compare like with like. Having a rough idea of the price of goods/services is fantastic, but unless there is a clearly defined set of specifications that you can use to compare "apples" with "apples" it becomes a pretty useless piece of information. Valuable to run a "due diligence" comparison every few years to make sure you are still getting the best deal available.

Receiving comparable quotes on the same or similar lines or products is always a necessity in an effort to reduce costs. Asking for discounts including, but not limited to price breaks, by number of items purchased. Evaluate how many items are needed in a defined time frame enabling the buyer to decide if the discount is worth the additional inventory. Who is a competitor with your supplier? What are the competitors advantages and disadvantages compared to chosen supplier?

for cost benchmarks, if yourself are strong enough, then you will need to create the "should cost" then benchmark this against price your supplier quoted. if you don't have should cost model, then you will need to ask your supplier to breakdown their cost into the following composition: - material - labor - overhead if you are question the price, please ask them to show their purchasing invoice for the material they buy from their supplier to validate it. some more important tips before you going into the negotiating with supplier: - confirm you are using same incoterm. incoterm will impact final cost significant - consider to evaluate the total cost of ownership of the product you buy. don't solely look at the unit price.

Cost benchmarks provide valuable insights into a supplier's pricing structure and competitiveness relative to market alternatives. These benchmarks encompass various components, such as unit prices, discounts, fees, and taxes. To effectively utilize cost benchmarks, conduct thorough market research to establish price ranges for your products or services. Engage in negotiations with suppliers, leveraging your budget and value proposition to secure favorable terms. Analyze the total cost of ownership (TCO), encompassing maintenance, transportation, storage, and disposal expenses. Regularly review and adjust contracts to reflect changes in costs or value.

It's an oldie but a goodie...people do business with people. Too often, the importance of customers is recognised and how "the customer is always right" but suppliers are seen as being there to serve. Suppliers and supplier relationships play a key and vital role in delivering what our customers want. Good business relies on good partners. Yes, there are some (many) cards we need to hold close to our chest but working collaboratively with suppliers is crucial. We, are most likely, not their only customers so in fact they may well have a far better insight to new products and services, what is and isn't working, "the next big thing" and information on other markets that you may want to enter.

Relationship benchmarks evaluate the quality of interactions and support provided by a supplier to your organization. These benchmarks encompass aspects such as communication, collaboration, innovation, and flexibility, providing insights into supplier trustworthiness, loyalty, and their contribution to your competitive edge. Establish clear and consistent communication channels with your suppliers. Share your vision, objectives, and challenges with them, seeking their input and ideas. Encourage suppliers to innovate and enhance their products or services based on your feedback and needs. By fostering strong supplier relationships, you can cultivate trust, loyalty, and mutual growth.

Risk benchmarks assess your organization's exposure to potential threats or losses arising from supplier relationships, encompassing factors such as availability, security, sustainability, and ethics. These benchmarks help you evaluate the vulnerability and resilience of your suppliers. Identify and prioritize potential supply chain risks. Evaluate the risk profile and preparedness of your suppliers. Implement risk management strategies tailored to specific risks. Establish regular monitoring and updating mechanisms for risk assessments and contingency plans. This proactive approach enables you to make informed decisions, minimize disruptions, and safeguard your business operations.

sometimes, supplier selection decision made solely based on lowest price will add huge risk to your business, and probably kill your project. so, to evaluate the cost by consider the risk. to ensure stable supply and stable price, sometime, there will be extra cost to secure your goal. for example, to secure stable supply, some supplier may need to keep safe inventory, and it will cost higher unit price by depreciate those cost to the quantity you ordered.

to consider the TOC (total ownership cost) for example, if I am going to buy a copier machine. supplier A quote usd1,000, whereas supplier B quoted usd1,500. you may conclude to select supplier A. but if you drill down to the detail, you may figure out that, supplier A: the cost quoted is only for a machine, there is no technical support after. they will charge usd 200 per time if any technical support requested. supplier B: the cost quoted not only included the machine itself, but also including 1 year period technical support and maintenance. in this case, probably supplier B will be the best choice.