A Buyers Guide to Determing the Trustworthiness of Your Suppliers
Trust : Consider for a moment that trust is your bank account, every time trust is violated equals a withdrawal from that account and every time there is a moment of honesty and transparency there is a deposit. How many of your suppliers would be in overdraft with you?
"Bad news does not get better with time" I learned this lesson while recruiting in the U.S. Army however in the supplier relationship within a supply chain bad news can present a path of two choices. Opportunistic selling or pro-active honesty. Often a project manager or buyer is faced with a large list of parts needed to complete an upcoming mission. Sometimes a line item that was purchased and on order with a supplier has a delay. This usually is not the supplier's fault as this delay is often caused in the manufacturing process. This is where the supplier has a choice, to upsell an emergency solution often with a large markup, or to be pro-actively honest by stating the situation and helping the customer solve the problem, even if it means they buy from somewhere else. In this situation, if your supplier waits until the last minute to inform you of the delay, you may have a problem. It is a tactic that involves putting you in a sense of urgency and may sound something like this… "I just found out that this line item has been delayed by 6 weeks and I know you need it next week for your project, but do not fear, I have a solution! I was able to track down an equal from an obscure source that you will never find. The only issue is that it will cost 35% more than the item you had on order with us" Sound familiar? At this point, you should be asking some questions and taking some steps:
When did you find out about this delay? They may have just found out but most likely they were informed a while ago and had time to work out a more expensive and thus more profitable solution before informing you of the delay (opportunistic selling)
How did you arrive at this miracle cure you are presenting? This question is to better gauge the credibility of the solution that is being sold to you. Often an equal part from another brand is similar in price so an explanation of the more costly part is appropriate. You may find out that the pre-package deal involves avoidable mark-ups such as freight or expedited fees.
Get a second opinion. Check with another supplier of the part being presented to measure its true price regardless of the delivery date.
Depending on the answers given and your comparison you may
discover that this opportunity ends up as a withdrawal from your trust account.
On the other hand, if your supplier is proactive and reaches
out to you the moment they find out about the delay, this is a good sign. This
shows you that your supplier is engaged with your order and wants to be
transparent. It may not be great news to hear about this delay, but you now
have time to react and so does your supplier. Working together to create a
solution that is fair and honest. This would serve as a deposit in your trust
account.
Pricing, Fees, and Freight: Mark up, mark up, mark up…
Red Flags to Be Mindfull of
We all know a supplier needs to price their parts and services to make a profit. This is expected as they are a business, but a trustworthy supplier will have transparency and reasonably consistent pricing. They should be able to explain any price increase in detail. This can happen from time to time but suppliers are informed about this, and a trustworthy supplier will keep you informed as well. Rapidly fluctuating prices, especially in an emergency on parts that you already know the general price of, is a warning sign.
Suppliers should be able to explain any fees in detail such as cancelation fees. Often parts made to order will carry a cancelation fee to cover or deter the cancelation of the order. After all just because you no longer need it does not mean the manufacturer did not already invest time, material, and labor. This is reasonable but also easily explained by your supplier. Some suppliers will mark up a cancelation fee from the manufacturer, another example of the price gauging opportunistic sales path. Cancelation fees should be passed through from the manufacturer to you. A transparent process stated upfront about cancelation fees can alleviate predatory markups.
Freight is another opportunity for markups. Sometimes, to win the order a supplier will drop their bid price on the material with the intent of making up for it in the markup on freight. If a supplier has fluctuating freight costs that are not easily explained, this could be a red flag. Freight does change but your supplier should be shopping around with freight providers for the best service and rates possible. A trustworthy supplier's goal is to gain your long-term trust and not to take advantage of you at every turn.
I would be willing to bet that most purchasing managers and buyers who are good at what they do and care about the company they work for have a way of ranking suppliers based on key performance indicators that are important to them. These could be pricing consistency, material availability, technical knowledge, error rates, or a whole host of other metrics. It may be time to consider adding a trust scale to your evaluation and ranking of your suppliers.