Working closely with each supplier and being as transparent as possible during the sourcing process can mean the difference between a successful initiative and running around in circles.

Depending on the commodity group in question a simple request for quotation (RFQ) can be very successful. We've often seen that for off-the-shelf components suppliers actually prefer this approach. But, any time manufacturing services are concerned or the spend is high in the commodity group a closely managed request for proposal (RFP) has proven to be key.

Working closely with the suppliers means capturing both quality and value added services in a questionnaire and line item pricing in a costed bill of materials. By conducting telephone and in person conversations along with an online platform to distribute documentation a holistic picture of each supplier's offering can be brought into focus. Then, by weighing both service and price in this manner, you can be confident that a long term mutually beneficial relationship can be established between the suppliers and the client. After all it's year over year sustainable cost savings that's the reward you're seeking for your efforts.

In order to capture the true service offering of each supplier during the RFP open communications and transparency has proven to be critical. An NDA between the supplier and client will help alleviate tension and allow the sharing of the technical drawings driving manufacturing projects. In this way, the supplier can understand the full scope of the initiative and feel more comfortable sharing information concerning their supply chain optimization efforts during the RFP.

By not beginning openly and developing a relationship the process can turn quickly into a pricing exercises or reach a point of mutual standoff.

As a result, you may still identify which supplier has the best pricing, but will be unable to qualify the supplier. In other words, is the pricing sustainable, or is there underbidding because there is an eagerness to initially secure the business, with a sharp increase in cost after the initial agreed upon period? More importantly, does the supplier even have the capability to produce a quality product at the necessary volumes?

For Contract Manufacturers (CMs) there is the larger question of who is actually producing the products. Is it the CM contacted, or is it an offshore partner performing the actual manufacturing with the domestic company simply inspecting the products and passing on the costs with a markup.

These concerns will certainly become clear during the implementation phase of the process, but then the initiative will have to be restarted from step one.

Even when conducting an RFP, expectations have to be set up front by being clear about what information is expected. But, expectations should be balanced with an understand that not all suppliers are able to provide a complete set of information initially. And, these incomplete initial responses may have to be weighed before a final and complete costed bill of materials, labor, OH, and markup structure can be considered.

Although, most suppliers will understand that the client will not be able to make a final decision unless all information is shared.

Therefore, the success of the initiative rests on setting expectations at the beginning of the sourcing process, working closely with the supplier that are willing to work with you, and managing to a project plan while being flexible with requirements.
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