Newsletter Julio 2023:
By: Sindy Pei
Purchasing in China: Supplier relationship management
Search and selection of suitable suppliers for customers – from a technical view
Suppliers are the source of products in the procurement of goods for foreign enterprises in China. The quality, stability, delivery, scheduling, coordination, and product investment are all closely related to the suppliers. Thus, managing and maintaining good relationships with suppliers is particularly important.
In maintaining the relationship between procurement and supply, the allocation of benefits plays a significant role. Good long-term procurement cooperation should be based on equality and mutual benefits.
To maintain this relationship and create a win-win situation, it is of particular importance to offer the supplier a reasonable level of profit while at the same time maintaining one’s own competitiveness. If the interests of the suppliers are not guaranteed, there will be many difficulties for future cooperation because coordinating, engagement, and management all require investment which means more costs. It’s a very practical problem.
Before cooperation starts, necessary’s such as non-disclosure agreements, procurement contracts, and quality agreements should be signed with the suppliers. Besides, suppliers should be informed about relevant procedures, and an agreement needs to be reached. This will provide evidence for future cooperation, reduce disputes, and prevent deteriorating relationships. When there is a new supplier, both parties shall agree on price adjustment mechanisms, delivery conditions, delivery location, payment method, quality requirements, etc. For suppliers who have not been contacted for a long time, it is advisable to reiterate the previous contracts and processes before making inquiries or placing new orders.
Use contracts and agreements to ensure the common interests of both parties: ensuring quality and quantity, delivery, and payment terms
1. Reduce the number of suppliers:
Maximizing procurement quantity is often the most critical factor in reducing procurement costs. When a company obtains products or services from selected suppliers, rather than dividing orders among multiple suppliers, it disperses potential quantity efficiency, which often leads to more profits at lower prices. Of course, relying solely on one or two suppliers also increases the risk for the enterprise, especially when the company makes poor choices in terms of picking a supplier. So, at the start of the project, it is necessary to conduct a comprehensive and detailed assessment of suppliers. For example, is this supplier competitive? Can they meet our requirements? How is the quality of the management team, and so on? So that we can select strategic suppliers that have good performance.
2. Clear rewards and punishments:
If the supplier can deliver according to the quality and quantity of the procurement contract, the purchaser can agree on some incentives to encourage the supplier’s enthusiasm, such as increasing the procurement quantity and offering new projects. By actually fulfilling mutual promises, you can establish long-term partnerships.
At bdp Mechanical Components, quality is always the top priority. If any discrepancies with the drawings are found during the inspection before delivery, the severity of the problem will determine whether rework, repair or even scrapping is necessary. If the supplier fails to deliver according to the quality and quantity specified in the procurement contract, the corresponding purchaser needs to take certain punitive measures, such as reducing the procurement quantity or switching suppliers.
3. Proactive cooperation:
A good supplier can cooperate well with the requirements raised by the purchaser, such as quality improvement, on-site management improvement, new equipment, new venues, and personnel investment. At the same time, suppliers must also promote the research and development of new processes and technologies, provide good suggestions for product design, and continuously optimize product costs to create higher customer value. Both parties must actively cooperate to expand the cooperation and mutual assistance, jointly explore and expand market share, and achieve a win-win situation.
4. Increase effective communication channels:
In China, relationships matter a lot. That makes it so important to connect with suppliers, e.g., by inviting suppliers to participate in procurement conferences to increase opportunities for high-level or bilateral personnel meetings. Face-to-face visits aim to accurately understand the core issues of concern to both parties so you can work together to find the best solution. Maintaining smooth communication through multiple channels (such as email, phone, WeChat, etc.) helps you and your suppliers maintain consistency in terms of ideology, which can reduce the cost of repeated communication. To establish trust and understanding in cooperation, both parties must maintain a certain level of transparency in their operations without disclosing important information to avoid communication failures. Pay attention to communication, do not mindlessly suppress suppliers’ quotations, and adhere to the attitude of integrity, truth, politeness, and cooperation.
5. Supplier performance evaluation:
Set quality goals for all suppliers and sign quality agreements. At the same time, conduct a comprehensive evaluation of supplier quality, project development, delivery, and timely problem-solving cooperation regularly (such as every quarter). If the evaluation does not meet the standards or if a supplier is one of the three worst-rated suppliers, then this supplier should first be classified in the «problem suppliers» category. Suppliers are required to assess and correct general quality control. If the suppliers do not manage to get off the list of «problem suppliers» in the allotted time, they will be held for new business development. If they still cannot withdraw from the top list in the future, resourcing will be carried out on their existing businesses. Regular performance evaluations should also be conducted for strategic suppliers. If the evaluation scores are not satisfactory for a long time, their strategic position should also be adjusted.
bdp Mechanical Components has 40 years of experience in the automotive and mechanical components industry. With our expertise in Chinese and European procurement markets, we can help you to search for the right suppliers and achieve fair market prices.
We are pleased to offer you our full range of services, including purchasing, supplier audit, process audit, product inspection, and logistics.
Feel free to contact us at purchase@bdp-mc.com with any further questions you may have regarding appropriate supplier selection.
Our bdp Mechanical Components team will be happy to advise and support you.
