Photo by Piermanuele Sberni on Unsplash
The COVID-19 pandemic is challenging procurement teams to rethink the whole onboarding process, with active suppliers adjusting how they work, and new suppliers bypassing the qualification process for initial onboarding to keep operation flowing.
However, the Supplier Qualification Management (SQM) is essential to mitigate all the risks connected to the onboarding process, which can seriously affect your business. That’s why in this article we are going to define what is Supplier Qualification and why you need to implement it.
What is Supplier Qualification?
We can define the Supplier Qualification as the netting set provided by your company to make a list of potential suppliers (pre-qualification) and active and verified suppliers (re-qualification) which are able to supply consistent quality of materials, components and services in compliance with regulatory requirements. During this process you will assign your suppliers a risk class, evaluate their compliance against your company’s standards and monitor the quality of products and services delivered over the time.
Procurement managers implementing Supplier Qualification strategies are more likely to create value for their company and – most of all – keep Supplier Risk Management under control. In particular, during the pre-qualification step it is possible to create a shortlist based on risk, by simply rating and comparing candidates’ capabilities. Only in the event that the level of the risk of a potential supplier is significantly high, you will need to perform a qualification audit.
Moreover, since the procurement costs as a percentage of total cost is 50-80% for companies that develop, manufacture, trade and/or distribute goods, it is not surprising that more and more procurement teams are investing in the qualification for initial onboarding!
Source: Supplier Relationship Management by PwC
The Supplier Qualification in the Procurement Process Flow
Ok, now you all know it is important to take the qualification for initial onboarding into account, but at what stage of the Procurement Process Flow it occurs? Let’s see.
Firstly, there are three types of procurement:
- direct (acquisition of goods, materials, and/or services manufacturing purposes),
- indirect (sourcing and purchasing materials, goods, or services for internal use),
- service (procuring and managing contingent workforce and consulting services).
Direct procurement usually brings to long-term collaborative supplier relationships, and it is related to concrete items (i.e. machinery). Indirect procurement has to do with utilities, facility management, and travel and establishes a short-term transactional relationship with suppliers. The last one, service procurement concerns operations such as professional services or software subscriptions, and requires a one-off contact.
The difference between these three types of onboarding is important to determine the effort in terms of Supplier Qualification Management. Indeed, after having determined which suppliers fulfil the best company’s requests and having signed the contract, the supplier qualification management goes on!
The whole process should be recorded and the supplier’s performance monitored regularly to report any issues related to the products or services provided. Of course, the frequency of monitoring will depend on the vendor’s risk level, but also on the kind of the contract and its length.
Let’s streamline the supplier qualification and onboarding process with Trakti!
Next time we will talk about how to do the qualification for initial onboarding in an efficient way and how to improve it. Click here if you want to accelerate onboarding and reduce counter-party risk. Otherwise, discover Trakti’s features and start building your own supplier qualification strategy!