12 May 2011 | Adviser Q&A

I'm running a number of supplier appraisals and have hit a snag in that a few of our critical vendors are distributors. Which areas should I focus on in an assessment since they do not manufacture or own the design? Category manager, Oxford

Eamonn Phillipson, procurement director at Sequans Communications

You should first ask “what do I need from these suppliers/products?” and “what does the ideal supplier have to
do to ensure I get what I need?”. The answers will guide you in structuring your appraisal and help you manage potential risks.
Do you need added value or are you just buying branded products that are already “quality assured”?

Consider a formal audit of their quality system and supply chain. An ISO or UL certification may not be enough. You need to know your supplier has processes to ensure you don’t have distribution related quality/service issues. Include their ordering, handling and distribution, stock management processes and financials in your assessment.

If you need more, you might seek a good value-added reseller who will have quality assurance and in-house technical expertise, allowing you to assess more deeply.

Consider “transparency” in your assessment. If the supplier won’t or can’t tell you what he does with the products, find another source. And is there a reason you can’t appraise the original manufacturers?

Tony Underwood, independent consultant

Key measurements are the relationship with their supplier and how close they match your requirements as a provider. But first check if you need them – the manufacturer may offer to deal direct if the business is of sufficient interest.

Questions to ask are:

• Is the relationship exclusive? Long term? Limited to certain localities?

• How important are the two parties to each other? How did their relationship develop? Are their business strategies compatible?

• How much authority do they have to act on issues such as warranty, repairs, installations, modifications, replacements and spares?

• Are they included in talks on innovations and new products with the manufacturer?

Visit both parties and discuss both individually and jointly. Trained buyers will quickly identify strengths and weaknesses.

You also need to match your own requirements, which will vary. What facilities do they have and where are they located? Will you need direct access in an emergency? Do you want direct price negotiations or with the third party?

David Read, chief executive at Prestige Purchasing

Normally agents and distributors are required to meet the same standards of operating as a manufacturer, although they have delegated responsibility for some or all operational requirements. They should have procedures to ensure any third party they buy from or act on behalf of is compliant with the supplier appraisal policy in situ.
Even if they rely on the manufacturer to have these in place, they still need to ensure they are appropriate and up-to-date. Check which legal entity you are contracting with – with some agencies you may be contracting with the manufacturer directly.

A risk assessment should form part of the process, and in the case of agencies and distributors special risks emerge. The validity and tenure of agencies should be considered: if the agency is underfunded or has break clauses in their agreement this could be a significant risk to your business.
You should also understand at what point the distributor takes title to goods. It may be that they do not own stock in their distribution network until it is shipped or sold.

Key Facts

1. Check which legal entity you are dealing with – you may already be contracting directly with the manufacturer

2. Visit both parties and discuss both individually and jointly

3. Consider a formal audit of their quality system and supply chain

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Please note: Responses can only be given on this page, represent writers’ personal views and should be regarded as general guidance only.