Why companies should pre-qualify their suppliers.

Thanks to our years of experience in the procurement industry, we understand how important it is to pre-qualify a supplier before committing to a contract. However, we know that it might not be clear to all companies why this is such an important point. But pre-qualifying your supplier is something that can save you a lot of trouble down the road.

If your company isn’t following this practice, or you don’t have a clear grasp of its importance, this article will be your guide as well as teach how to pre-qualify a supplier.

Why do you need to pre-qualify your suppliers?

Right out of the gate, the question of why you should pre-qualify suppliers has a very simple answer: because it will reduce the risk of supplier failure.

And the importance of reducing this risk cannot be understated. A supplier failing to deliver is the worst outcome possible. Not to mention that it has a domino effect on your operations.

If you don’t receive the products or services you agreed on, you can’t in turn provide your own products or services to your customers. This could end up damaging your reputation with your customers.

That’s why it’s so important to know that the supplier you are choosing is reliable.

How to pre-qualify your suppliers

There are many factors that you should consider when screening your list of potential suppliers. We suggest that you use the following points for your qualification criteria:

Competence

First and foremost, you need to know that the supplier can do the job. You can get a good idea of their competence by taking a look at their relationship with previous and current customers. Reviews, client references, and who they work with are great places to start, as well as how long they’ve been around.

Furthermore, you can ask for product samples or service demonstrations to get a first-hand look at their work. And don’t forget to verify they have the necessary licenses and certifications.

Financial stability

You need to know that the supplier won’t buckle under financial pressure in the middle of your contract. A good way to gauge their financial health is to have a look at their financial accounts, or to discuss the company’s record with credit reference agencies. It’s important to note that this isn’t something you check once before awarding a contract. You need to keep an eye on their financial stability for the duration of the contract to avoid unwanted surprises. 

Quality control

Another factor to consider is the level of quality your supplier will offer. You want to know that the products or services you receive will always remain at the same level, and not downgrade as time goes by. A good way to do that is by checking their quality assurance policies, as well as any accreditations they have in regards to QA.

Cost control

Quality isn’t the only thing that you need to remain stable, you also want a price that doesn’t vary during the contract. You want a supplier that has control over their costs, because if they don’t then they’ll pass those differences to you. Check their pricing history to see if there have been irregular shifts in their record.

Insurance and Indemnity

Lastly, you’ll want a supplier with adequate insurance and indemnification provisions. You’ll want to know the level of coverage you would have in the event of any issues. That’s not something you want to wait to find out when a problem occurs.

Conclusion

At the end of the day, you should pre-qualify your suppliers to ensure you are getting exactly the right level of service, and to reduce the risks of potential problems. At procurement express, we provide you with the tools you need to make this process simpler.

If you are interested in learning more, review our education resources. And if you want to talk with us directly, reach out today.

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