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6 essential supplier development skills for foreign trade people

(Supplier Development 001)

Hello, my name is Judy. when I searched in the foreign trade forum found: as a supplier management we are most concerned about the plate “supplier development” articles and dry goods are pitifully few, but the problem is a lot. The next I will be based on my past practical experience and a large number of practical operation of the case combined with the way, through nine chapters as much as possible to everyone, so as to easily grasp the essence.

1.Revisit and streamline the supplier development process

The habit of sharing my offline lectures is to open the mind first, then the ideas, and finally combined with the practical method to land, you have to adapt, slowly ~ ~.

Every enterprise has two very important systems: the process system and internal control system, the former is to improve efficiency as the goal, the latter is to improve efficiency, prevention of risk as the goal. Why is the bottom so hot? You don’t worry about customers coming in to spend money at almost every new store? The core is that the bottom of the sea has a strict set of processes and systems, detailing every work process and link, and even the frequency of services are clearly defined. Therefore, want to efficiently carry out the work of supplier development and get results, whether foreign trade SOHO or foreign trade company, even if the current scale is not large, must also pay attention to the process of sorting out, otherwise every day will waste a lot of energy, financial resources in the ineffective work.

The following I will give you a simple explanation of the supplier development process through the macro and micro aspects of the two.

2. Looking at the supplier development process at a macro level, the following description is more accurate.

1) Analysis of competition in the supply market

What are the current market trends and the positioning of major suppliers in the market, so as to have a general understanding of potential suppliers. Then the required products will be classified according to the ABC classification to find out the key materials, general supplies and general supplies, according to the importance of materials to determine the closeness of the supplier relationship.

2) Search for potential suppliers

After a careful analysis of the market, suppliers can be searched for through the sources of supplier information mentioned earlier. From these suppliers, after removing those that are clearly not suitable for further cooperation, a list of supplier visits can be derived.

3) Site visits to suppliers

For supplier site visits, you can read my previous article with details: How to make supplier management easy-002?

4) Request for quotations and quotations from suppliers

Quotations are issued to qualified suppliers, generally including details such as drawings and specifications, samples, quantities, approximate procurement cycle, required delivery dates, etc., and suppliers are asked to complete quotations within a specified date. Upon receipt of the quotation, its terms are carefully analyzed, and any doubts are thoroughly clarified and documented accordingly, including by fax, email, etc. Analyze the quotes based on the large amount of information in the quotes, compare the quotes of different suppliers and select the right supplier with the right quote.

5) Contract Negotiation

Negotiate price, volume products, lead times, quick responsiveness, supplier cost changes and liability compensation for suppliers who offer the right price. Each supplier is an expert in his or her field, and listening to suppliers’ suggestions often pays off in unexpected ways. There have been suppliers to take the initiative to recommend alternative raw materials, such as domestic white cardboard instead of imported white cardboard, cost savings of up to 20%, and paper bag printing effect and bearing gravity to fully meet the requirements, which is purely dependent on negotiations can not be achieved by the margin of price reduction.

6) Determine the supplier

Through strategic alliances and participation in design, suppliers can effectively help us reduce costs. There is also a very important aspect of hidden costs. The purchasing cycle, inventory, transportation, etc. are all invisible costs, and it is important to include qualified suppliers in the just-in-time delivery system to minimize inventory and reduce the total cost of ownership for the company.

The above six points are the six main steps of macro supplier development, applicable to most industries, but also for newcomers with little experience in supplier development is the easiest to get started, just follow the corresponding steps to do. If you already have some experience and foundation, may wish to see the following from the micro level combined with foreign trade industry to analyze the supplier development process.

3. A micro-level view of the supplier development process in the foreign trade industry, roughly as follows.

1).Supplier Classification

2). Collect supplier information

3). Vendor surveys

4). Establishment of assessment panels

5). Evaluation of vendor surveys

6). Quotation/comparison/bargaining

7). Sample/small batch testing

8). Vendor assessment

9). Supplier screening

The image above is a detailed supplier development of the main 9 steps, of which the 3rd, 4th, 5th, 7th, 8th and 9th steps have already been shared in my previous articles, so I will not repeat it here. The next section will focus on supplier categorization, supplier data collection and quote/comparison/bargaining.

4.How do you develop and manage supplier categories?

Foreign trade partners know that we will be classified/graded management of foreign customers so that we can reasonably arrange resources to better serve customers. In fact, for the management of suppliers, there are similarities and differences, after all, for different categories of suppliers, we have configured the resources can not be the same.

Here to you circle friends to share four different supplier classification method, I believe there is a can let you easily apply to the actual work.

1). An ABC classification method

It is important to note here that the ABC taxonomy classifies products based on what we purchase, not suppliers. However, by classifying these purchases, we naturally distinguish between the corresponding product suppliers. The core of the ABC classification is based on the Law of 28, which states that 20% of the value of key purchases accounts for 80% of the value of the products, while the remaining 80% of the value of ordinary purchases is only 20%.

Category A: Key Products

Category B: General products

Category C: supporting materials

Here’s a reminder: If a supplier provides products in two or more of the categories A, B, and C, the evaluation will be conducted in the high-level category.

Example: a trading company that makes paper bags

Suppliers in category A: paper, etc.

Suppliers in category B: printing ink, etc.

Suppliers of category C: OPP bags, PP handles, labels, etc.

2). scale variety classification

We classify suppliers according to their size and the type of business they operate, which is also a knowledge point on the logistician qualification exam, as follows.

① Industry leaders:

suppliers with a large production scale and a wide range of quality operations, which are in a relatively good financial position and aim to establish a foothold in the local market and actively expand into international markets.

② Industry experts:

refers to those with large production scale, experienced, technologically mature, but relatively small business varieties of suppliers, often focusing on one or a few varieties, the goal of such suppliers is to occupy a large market through competition.

③ low production and small scale:

refers to those operating on a small scale, operating varieties are also fewer suppliers. These suppliers are more flexible in production and operation, but limited growth potential, often only focuses on local market development.

④ small volume and variety:

refers to that small-scale production, but more varieties of business suppliers. This kind of suppliers often the financial situation is not very good, but the potential can be cultivated.

My “supply chain + foreign trade” in the three benchmark projects, is to choose the corresponding industry “industry leaders” as partners and partners, such a joint often builds up the competitive barriers for ordinary SMEs and SOHO is to reduce the dimensional blow.

I believe there are still opportunities for you to find such industry leaders in many industries. If you are unable to work with industry leaders at the moment, then the two categories of “industry experts” and “small volume, large variety of” suppliers are also very good. Companies at different stages of development, you need suppliers that match with them; not industry leaders are the best partners, especially if you are not strong enough to match with them.

In this particular to remind you is, never and “low production and small scale” supplier cooperation, are pits, just as do not and foolish reasoning is the same thing.

3).Modular classification

The modular classification of suppliers is based on an analysis matrix constructed from the mutual importance of the buyer and the supplier:

① Partner suppliers:

Suppliers believe that the procurement business of the buyer is very important to them, and they have strong research and development capabilities; at the same time, this procurement business is also very important to the buyer, such a supplier is a “partner supplier”.

② Focused suppliers:

suppliers think that the procurement business of the buyer is not important to them, but the procurement business is very important to the buyer, such suppliers are “focused suppliers”.

③ Commercial suppliers:

a simple overview is that the buyer and the supplier do not consider each other important.

④ Preferred suppliers:

Suppliers who consider the buyer’s business to be very important to them, but not so important to the buyer, which is advantageous to the buyer, i.e. “preferred suppliers”.

5. Procurement volume and risk classification.

The last classification is based on the dimensions of the purchase amount and supply risk, as follows.

1) Strategic (partnerships):

Suppliers with high purchase amounts and high supply risks. This type of supplier usually provides strategic goods, which are important for the quality, cost and delivery security of the product. In general, purchasers are often willing to sacrifice short-term benefits and make little or no money to obtain a long-term partnership with such suppliers, which we often refer to as strategic partners.

2) Leveraged (transactional relationship):

i.e. suppliers with large purchase amounts and low supply risk. This type of supplier has several distinguishing characteristics (standard parts, homogeneity, competition), they usually offer standard parts, so their products are more homogeneous, which also makes them face more competition in the market. Buyers who can effectively reduce their purchasing costs can significantly reduce the company’s production costs and thus play a significant leverage role. Therefore, the relationship between the buyer and the “leveraged” supplier is often a transactional one, in which the lower the price, the better the quality of the product.

3) General (simplified relationship):

Suppliers with small purchase amounts and low supply risk. This type of supplier usually provides MRO (Maintenance, Repair & Operations), refers to the actual production process does not directly constitute a product, refers to the maintenance, repair and operation of equipment used to maintain, repair materials and services, such as office supplies, labor supplies, wear and tear consumable parts and so on. For the procurement side, for this type of material procurement, is to do as much as possible to simplify the procurement, to reduce unnecessary costs as far as possible.

4) Bottleneck (dependency):

i.e., suppliers with small purchases and high supply risk. These suppliers also have several distinguishing characteristics (non-standard parts, customization, monopoly), they usually provide non-standard parts, have low product homogeneity, are difficult to be imitated by their peers, and are often completed according to the specific requirements of the purchaser’s customization. This also makes the procurement of materials with “monopolistic” characteristics, the buyer needs to pay attention to how to reduce the risk of supply, to ensure normal supply (how to reduce risk, refer to my previous write about the supplier performance evaluation and promotion of the content).

6.Once categorized, we need to note the following.

1) For “general” suppliers:

we need to simplify the procurement process, reduce transaction activities and lower transaction costs.

2) For “leveraged” suppliers:

we need to centralize purchasing and bulk purchasing to maximize the leverage and ultimately reduce the purchasing cost (e.g., join with industry associations to centralize purchasing with upstream raw material suppliers).

3) For “bottleneck” suppliers:

we need to develop “spare tires” to find alternative new suppliers to break this monopoly.

4)For “strategic” suppliers:

we need to give the maximum degree of trust, support, encouragement, and help them and with them from good to excellent.

We hope that you will classify your suppliers according to the above four types of supplier classification, and then make effective adjustments to the different categories of suppliers, and promptly develop new suppliers as back-ups for those with supply risks and potential problems. 

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