Diversifying your vendor network is a smart strategy to reduce risks, increase resilience, and optimize costs in your supply chain. But how can you find and evaluate new suppliers, especially in times of disruption and uncertainty? In this article, we'll share some tips and best practices to help you diversify your vendor network for contingency planning.
The first step to diversify your vendor network is to identify your critical suppliers, or those that provide essential goods or services that are hard to replace or have a high impact on your operations. You can use criteria such as volume, value, quality, lead time, availability, and reliability to rank your suppliers and prioritize the ones that pose the most risk. You should also consider the geographic location, political stability, environmental factors, and regulatory compliance of your suppliers, as these can affect their performance and continuity.
You can diversify your vendor network to reduce risk and achieve maximum benefit for the organization, by identifying your critical suppliers a vendor analysis must be performed in order to categorise your top to bottom suppliers or critical ones. You can also include a criteria to identify suppliers with maximum or better payment terms in order to spread the financial burden of the organization and improving cashflow.
The next step is to assess your supply chain gaps, or the areas where you lack sufficient or suitable alternatives to your critical suppliers. You can use tools such as SWOT analysis, gap analysis, or risk matrix to identify and evaluate your supply chain vulnerabilities and opportunities. For example, you may find that you have a single source of supply for a key component, or that you rely on a supplier that has a low quality rating or a high delivery failure rate. These gaps can expose you to disruptions, delays, or losses in your supply chain.
Once you have identified your supply chain gaps, you can start researching potential vendors that can fill them. You can use various sources of information, such as online databases, trade associations, industry publications, referrals, or social media, to find and shortlist potential vendors that match your requirements and expectations. You should also verify the credibility, reputation, and financial stability of the potential vendors, as well as their compliance with relevant standards and regulations. You can use tools such as credit reports, certifications, audits, or testimonials to check their background and performance.
After you have shortlisted potential vendors, you need to evaluate and select the ones that offer the best value and fit for your supply chain. You can use criteria such as price, quality, delivery, service, innovation, and flexibility to compare and rank the potential vendors. You should also consider the compatibility, communication, and collaboration of the potential vendors with your existing suppliers and customers. You can use tools such as scorecards, surveys, or interviews to measure and compare the potential vendors' capabilities and performance.
The final step is to negotiate and establish contracts with the selected vendors. You should aim to create mutually beneficial and long-term relationships with your new vendors, while ensuring that your terms and conditions are clear and fair. You should also include clauses that address issues such as contingency plans, force majeure, dispute resolution, termination, and renewal. You can use tools such as contract templates, checklists, or legal advisors to draft and review your contracts.
In negotiating a contract, you should also have a deep insight of what pertains in such industry in terms of pricing, and also have in place terms that will create a win-win situation for both parties to avert any future dispute. Contracts must duly signed and sealed before execution of projects to also prevent internal and external queries.
Diversifying your vendor network is not a one-time activity, but an ongoing process that requires constant monitoring and review. You should track and measure the performance and satisfaction of your new vendors, as well as your existing ones, using key performance indicators (KPIs) and feedback mechanisms. You should also review and update your vendor network regularly, based on changes in your business needs, market conditions, or supplier performance. You can use tools such as dashboards, reports, or audits to monitor and review your vendor network.