Supplier Selection Process
Supplier selection is the broad process then simple flowchart is provided as below,
At first, company searches for potential suppliers (pre-transaction). After than, a handful of suppliers will be compared against each other based on how each supplier can meet target cost, quality, delivery and service. When supplier is selected, order will be issued to them (transaction). Finally, purchasing professionals will monitor performance based on set of KPIs (post-transaction).
The real problem with supplier selection process is "supplier screening". At this stage, purchasing professionals try to find "clues" about how good/bad potential suppliers are. Methods are something like to visit website of suppliers, read blog post, read news release, ask recommendation from professional networks, verify if suppliers have quality certificate and so on. Each company tends to develop the list of known good data source to help them determine the credibility of each supplier. This process may continue until the time supplier comparison has to be made.
More advanced purchasing professionals use D&B business report which includes lots of insights about company's background and financial standing. Credit rating will be used to determine if particular supplier is good enough for company. This is definitely the best available practice because data is very solid. But, it costs you about $350 for one report. If you have 5 suppliers to compare, this cost is kind of significant. Is there any alternative, low cost data to aid purchasing professionals?
Most Trusted 3PL Companies
If you are in North America, the best alternative data source is Better Business Bureau (BBB). BBB is not profit organization with mission to foster trust in market place. BBB gathers and reviews more than 4 million businesses. They also act as intermediary between companies and customers in case of dispute resolutions. More importantly, access to BBB database is free! To show you how to use BBB data, screening of 3PL companies will be conduct with process steps as below,
- Gather the list of potential 3PL companies. Under this study, lists of Top 100 3PL 2012 from Inboundlogistics and Food Logistics serve as vetting method.
- After that, each company name was entered into BBB search form.
- Company name and address was verified.
- Only rating of corporate headquarter was retrieved. Rating of subsidiary companies/branches/agents were not considered under this study.
- BBB deploys rating system A+ - F like school rating system. Then, names of companies with A+ rating were collected and presented as below,
 |
| Most Trusted 3PL companies by ALPHABETICAL ORDER |
Some Interesting Information
Does company have to register with BBB to get rating?
There are about 600,00 companies not registered with BBB but got rating. From the above example, BBB has sufficient background about this company so rating is available. This is the screenshot of "A+" company. Main reason is that they showed good faith by resolving complaints against them (through BBB) even though they didn't have to. This is the strong sign of "trustworthiness".
What does company with rating "F" look like?
To my surprise, there are 2 companies from TOP 100 3PL lists got rating "F" under BBB's review. Lack of background information seems to be the biggest factor contributing to poor rating.
Concluding Remark
Supplier selection is not just about "price comparison". This article has demonstrated the usefulness of open data like BBB as the potential method for supplier screening. Incorporating this data together with other information will definitely help company to select the right supply chain partners.