When it comes to sourcing products, parts, or materials, some companies choose their suppliers strictly on one basis: price. Given the current flat economy, that's probably no surprise. These companies are likely under enormous pressure to hold down supply chain operating expenses, and that starts with procurement.
But for many other buyers, price is not the sole concern. "I would say in most cases, cost is a very important consideration, but it's not the only consideration in picking suppliers," says Kumar Venkataraman, a consultant with the firm A.T. Kearney.
As for what other factors might come into play, that varies all over the map. Sometimes, it's the availability of value-added "extras," Venkataraman says. But often as not, one of the biggest considerations will be the supplier's logistics capabilities-that is, its ability to get the product into the hands of the buyer at the agreed-upon time.
"Where you don't have buffer inventory, delivery is important," says Simon Ellis, a practice director for global supply chain strategies at the firm IDC Manufacturing Insights. "If being late with a delivery causes the downstream process to completely stop, then evaluation of the supplier on this basis [takes on enormous importance]." In those cases, delivery capabilities will rank right up there with price in determining which supplier gets the contract.
The extent to which logistics factors into the supplier selection decision has a lot to do with the buyer's type of business. Among consumer goods manufacturers, where it's common practice for customers to take control of their shipments at the seller's dock, buyers won't be too concerned about delivery capabilities. But in other types of businesses, it's critically important, industry experts say. Here's a look at some of those industries:
At the moment, delivery capabilities are less a concern for traditional brick-and-mortar retailers than for those engaged in e-commerce. But that could soon change. Many experts believe that traditional retailers will start offering home deliveries as a way to defend their turf from online merchants. If that happens, they too will likely begin factoring suppliers' delivery capabilities into their sourcing decisions. "We see tremendous growth in home delivery for retailing," says Venkataraman. "And when it comes to home delivery, logistics capability can make a difference."