Archer Smith, Supply Chain Associate at Stimulus, Inc.
If you are like me, you have rarely put any thought into your employer’s buying process. When you were at the workplace you printed documents on company-owned paper, sat in an office with company-provided furnishings, which were cleaned by a company-selected contractor. These days you might be working from home on a company laptop. But, like me, you probably hadn’t considered that each of these items or services was the result of highly intentional purchasing processes. That specific laptop model on your desk, for example, was chosen from dozens or hundreds of others before being provided to you. If your company produces a physical product, every component within it down to the raw material was chosen in the same way from one or several suppliers. So how exactly does this happen?
The answer can be complicated. Practices vary between industries, with some relying on traditional trade shows and conventions while others have moved on to higher tech matching methods. The size of a company can come into play as well; larger companies have more complex needs compared to smaller companies, but also have more resources to bring to bear. Even the terms used can change. Procurement and Purchasing may sound very similar, but one involves strategic decisions while the other describes only the day-to-day, transactional activities involved in buying. Ultimately however, all buyers follow the same basic steps. And by all buyers I mean all, from B2B buyers to consumers — you already intuitively follow these steps in your personal life when choosing anything from a barber or hair stylist to dry cleaners, streaming services, or mechanics.
The basic buying process can be boiled down into five stages: Definition, Search, Evaluation, Selection, and Management.
The first step in finding a supplier is to define what is needed from them. This includes not only the physical good purchased, but also attributes such as service reliability, risk, or responsiveness. Input from many stakeholders probably is required, who need to provide their priorities, goals, and concerns to the buying team. It may also be necessary to solve internal communication issues — departments such as Marketing, R&D, or Quality Assurance may use different software or have data storage siloed from one another, which will need to be resolved to create a comprehensive view of the business need. In larger companies, it is possible for one department to have contracted with a supplier that another department is entirely unaware of, despite requiring the same product.
This stage appears organically in everyday life when your pantry runs empty and your family creates a shopping list; when you move to a new area and need to get a haircut; or maybe when your car has gone as far as it can and you need a new one. You are put in a situation where you need to become someone’s customer. In the grocery example, the foods on your shopping list would need to take into account your family’s basic needs, as well as any allergies or food preferences within the household. Similarly, company buying teams need accurate “shopping lists” to find the right suppliers.
Once the parameters of the need are set, it is time to find a supplier that fits them. Sometimes this can be fulfilled within an existing partnership, but often a new supplier is needed. To do this, buying teams will use online discovery platforms, internal vendor selection tools, and sometimes even simple google searches to create a list of candidate firms. Many companies have invested in vendor registration portals, which passively capture information from interested suppliers for their eventual inclusion in procurement searches. Despite all of these tools, vendor discovery remains a time-intensive and fallible process, particularly when searching for smaller suppliers that may not have extensive ability for outreach or a significant web presence.
In your life, this stage probably takes the form of a google search. If you need to find a new place to get your haircut, your search stage will most likely be a quick entry of ‘barber’ or ‘hair salon’ into a search bar after which you will be able to review all of the results in your vicinity. Consumer services such as that are often location-dependent, which makes the process much simpler.
Now that a list of potential candidates has been created, they must be measured for the attributes defined earlier. Attributes might need to be weighed among each other; a nearby supplier with a slightly higher cost could be more attractive than a cheaper, but farther afield competitor who would be more prone to delivery delays. In addition, the suppliers are contacted and asked to provide more documentation of their services, RFQ’s/RFP’s, and other details about how they would meet the need of the procuring business. The most attractive of these are placed on a shortlist for the next step.
To continue with the haircut analogy, this stage is now also often within an internet search. You know what your options are from the search, and now you will read reviews, check business hours and visit different shops’ websites to learn about pricing and services offered. Not all salons offer thermal reconditioning or natural hair work, while beard trims at barbershops might vary in price for a similar result. You whittle down the list until you have only the shops that are within your budget and offer what you need.
With the final few candidate suppliers chosen, it is time for a more personal touch. Site visits are arranged to view the operation first-hand, meet key staff, and see procedures that were reviewed in the last step. Ideally such a site visit will be the start of a relationship with the supplier, and the personal experience is key to forming the connections that will make it successful. If the vendor is offering a physical product, they might send samples or prototypes to the buying business. Financial information will most likely also be requested and reviewed for stability. At the end of this stage, a single vendor is chosen and signs a contract to provide the required goods or services.
In your life, Selection is usually as simple as choosing a store from a list and heading off. It is a bit rarer to have an extended Selection stage in daily life, but it can come into play when hiring services such as lawyers, real estate agents, or home contractors. If you wanted to add a deck to the back of your house, for example, you would invite a few contractors to inspect the job site and provide quotes in person, getting a feel for their knowledge, integrity, and skill first-hand before deciding who to entrust with the project.
Even though a supplier has been chosen and on-boarded, the end of the selection process isn’t the end of the buying process. In fact, despite the importance of the steps above, the majority of a buying department’s attention is spent on management of their current supplier relationships. Annual reviews; monthly, bi-weekly, or weekly check-in calls; on-time delivery tracking; quality monitoring; and communication back to suppliers about production schedules or other changing circumstances all need to be performed for each vendor within a company’s network. Maintaining real-time performance information for vendors is critical to a firm’s success, particularly in times of extreme market movement, but it can be one of the more difficult tasks asked of buying teams. As a former service supplier in a competitive industry, I can attest that due to the time investment required for each of the above tasks I was sometimes starved of time to talk with the procurement teams I sold to, despite how much both sides wanted to get in contact.
There are many business connections in your life that you manage without even noticing. Think of how you interact with your daycare, family doctor, landlord, or mechanic — through a number of personal interactions over time you form relationships with each of these ‘vendors’, noting any changes in quality or price. And ideally they have also gotten better at meeting your needs; your barber knows what ‘the usual’ means, your doctor knows what treatments you respond well to, and your mechanic keeps track of the repair history of your car and can suggest future maintenance. Unlike a business you don’t give your ‘suppliers’ formal annual reviews, but your continued patronage has the same effect.
The vendor selection process is lengthy, work-intensive, and often opaque. Even as a service provider myself, I had little idea of the complexities my customers dealt with daily that impacted what they asked of me. And as an employee, I rarely looked at procurement beyond whether the office coffee supply was refilled or how long it took to replace my broken desk chair. But supplier choice can be a key competitive attribute of modern businesses, and overcoming its challenges is important for a firm’s continued success. If any of the hurdles in the steps above sound familiar, feel free to reach out to Stimulus regarding our relationship intelligence platform focused on helping companies build more valuable relationships with their vendors and suppliers — our product will help close the gaps for companies of all sizes by streamlining the search → evaluation → selection → and management process.