The process of choosing a supplier overseas is similar to the process of choosing a supplier within your home country. You should prioritise getting the right price and quality while making sure that the supplier can meet high standards and delivery dates consistently.
Competitive price is important, but the reliability of your supplier is crucial. If you're looking to work with a supplier on a tight budget, make sure that cost savings don't come with unacceptable compromises on quality or service you'll receive.
Stages in the supplier selection process
The main stages in the supplier selection process are:
- shortlisting potential suppliers
- assessing shortlisted suppliers against value for money, reliability and solvency
- visiting the suppliers, if possible, to see their operations
- deciding which of the suppliers to work with
Once you shortlist potential suppliers, you may want to ask them for a written quotation.
A supplier quotation is a formal statement of promise by a potential supplier to supply the required goods or services at specified prices, and within a specified period. A quotation should also clearly state the warranties, and terms of sale and payment, including who will be liable for the shipping, insurance and transportation costs, and any duty to be paid. For more information on the terms of sale, see International Commercial Contracts - Incoterms.
When you're happy with the price, quality and terms of service that the supplier is offering, you can ask them for a demonstration or a sample product based on your specification to make sure that they are capable of producing what you need.
Supplier evaluation due diligence
Due diligence is a must when choosing suppliers, whether at home or overseas. Carry out rigorous inquiries into their manufacturing practices, compliance, commitment to quality and reliability.
If possible, visit the supplier. Look at their work and their production system. Find out as much as you can about the supplier by talking to:
- any UK references the supplier can give you
- UK importers with experience in the market
- trade associations and other importers in your sector
- member organisations for UK businesses trading with the market
You should also check the reliability of any sub-contractors to which your supplier may be outsourcing work. See how to run checks on your supplier.
Supplier financial risk assessment
Financial checks of overseas suppliers can be difficult due to a lack of accessible financial information. Try to validate information on the supplier's financial stability so that you can assess the potential risks to your business.
Your bank's international trade team may be able to carry out a status query - ie look into the company's financial standing on your behalf. Until you trust the supplier, avoid advance payment or long-term contracts. See paying overseas suppliers.
Once you enter into an agreement, remember to review your suppliers' performance regularly.