Improve your business efficiency by selecting the right external supplier

17/07/2015

External Supplier

External SupplierIn choosing what to outsource, a good first step is to undertake a cost-benefit analysis of what it would take to perform various export-related tasks in-house or by using the services of external suppliers.

This analysis should be carried out in all of the company’s main functional areas: production, marketing, logistics and finance.

Each of these areas must consider its tasks in the export process, the associated resource demands upon the company, opportunity costs, and the estimated costs of performing those tasks using external suppliers.

The costs of using external suppliers may be lower or they may be higher (as can happen when using specialist skills).

Find and keep the core of your business

At this point, the analysis is only partially complete. Managers also need to consider costs and benefits in other terms. Improvements (or deterioration) in the performance of tasks need to be identified.

For example, using a foreign market research firm may offer the benefit of greater sensitivity to local market influences. Conversely, use of a trading company would result in a loss of market intelligence.

These benefits and costs are admittedly hard to quantify, but nevertheless need to be taken into account.

The strategic dimension must also enter the analysis. The firm must not lose sight of what business it is in and what tasks are considered core to that business. It may then focus on what tasks may or may not be outsourced, depending on the supply of services and the results of analysis.

For example, if a firm is a leader in the design and marketing of shoes and seeks a global presence, it may want to devote its limited resources to investing in world class designers, tools and advertising.

The logistical infrastructure to deliver product, and the manufacturing capacity required in various parts of the world, can be supplied externally.

Selecting external suppliers

In selecting suppliers, it is always a good idea to develop a short list of potential candidates. Then evaluate their services according to established performance criteria.

The supplier that provides the best added value should be selected. Value provided by the supplier can be measured by a ratio of price and quality. As price increases, quality should increase at a faster rate.

These price and quality criteria should be both qualitative and quantitative and the supplier selected for overall fit and not just for price.

Perform background checks on the company (of credit and reputation) in order to minimize company risk. Then select the supplier that represents the best value package to the firm. However appealing a supplier, the manager should ensure that core competencies remain inside the company.

Use these tips when selecting your external supplier

Some of the desirable qualities to look for in selecting external suppliers include:

  • a desire to learn about the factors that affect the exporter’s business, priorities, etc.;
  • efforts to improve service, with the goal of creating a seamless relationship between exporter and supplier;
  • depth of knowledge in dealing with the industry (e.g. a customs broker experienced in dealing with perishable goods) and the experience to anticipate problems before they occur (e.g. an experienced market researcher would know that respondents in certain countries answer questions in the way that they think the researcher wants, which skews results);
  • investment in technologies and personnel to facilitate the transmission of information, whether it be documentation, research results or market reports;
  • ability to grow with the client, whether in a large target country, region or globally;
  • not dealing with competing products or services: in the case of freight forwarders and logistical firms this may not be such an issue, but it most definitely would be for trading houses, distributors and agents; and
  • readiness, interest and ability to feedback information on target countries; without such feedback the firm is isolated from its international business.

Supplier selection is a two-way activity and both parties have to be comfortable to make a collaborative relationship work.

What element of your business could become more efficient if you partnered with an external supplier? What criteria would be most important to you when looking for one?

This content is an excerpt from the FITTskills International Trade Management textbook. Enhance your knowledge and credibility with the leading international trade training and certification experts.

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About the author

Ewan Roy

Author: Ewan Roy

I'm a Digital Marketing Specialist for the Forum for International Trade Training (FITT). My background is in writing and research, and I am passionate about communicating new ideas and telling stories that matter to you.

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