Navigating Around the Supplier Selection Land Mine

1. Years in business, sustainability, and financial stability. Your organization needs to ensure that the company you are considering is established and can fulfill your requirements. Request a copy of their business license, tax ID number, Dun & Bradstreet number, Cage Code number, etc. The last thing you want to do is scramble to find a new supplier because your source just went out of business. Check to see if there are or have been any indications of financial issues. Once you receive the requested documentation, verify that the information is correct. The Internet is a readily available source you can use to verify ISO certificates, VAT Licenses and company registrations. Many countries and most of the US States have listings of registered companies and their corporate documentation.
2. Ability to constantly supply products or services. This is particularly important when dealing with long term projects that may contain multiple reorders. Search out and review the company’s reliability and their history of delivering the goods you require in a timely manner. A vendor with supply issues will affect your ability to supply product to your customers.
3. Ability to supply all the products required. Is this an authorized source for the product you are ordering? Where are they getting the goods – an authorized source, a distributor, a third-party marketplace (e.g. Amazon, OEMS Trade)? If placing multiple orders, are all of the parts coming from the same source? Will the supplier guarantee that this is the case throughout the transaction? Is the product accompanied by documentation that can be verified?
4. Flexibility to allow changes in orders. In this industry, changes happen on a fairly regular basis. Will your vendor be flexible or stringent when this happens? Will there be and what are the restocking charges? Will they issue cash refunds or house credit in the event of changes? A supplier who heavily penalizes your company for changes may not be the right choice for you.
5. Appropriate supply of internal experts to answer your questions. Does your supplier have engineers or others who can answer any questions you may have about your product or are they strictly providers? Having experts available can minimize your risk, particularly in instances involving new or new-to-you products.
6. Quality assurance processes. Does the organization have a documented quality management system and a counterfeit parts control plan? Is the organization ISO 9001 compliant or certified? Is the organization certified to recognized industry counterfeit avoidance standards such as SAE AS6081, AS5553, AS6496, etc.? If certified, request a copy of their certificate and then make sure it is valid. Many of the registrars will publish a list of their certificate holders on their websites. Recently, ERAI has seen an increase in the number of companies falsely claiming to be ISO certified. If you have difficulty verifying the authenticity of an ISO certificate, please contact ERAI and we will assist you in doing so.
   
   Suppliers should maintain clear and updated quality records (one of the key tenets of ISO 9001 certification). It is, however, your responsibility to also clearly outline your and your customer’s requirements to your suppliers. Important information your suppliers should keep organized and updated includes:
   • quality standards, including known quality issues, defect classifications and performance standards;
   • product specifications and requirements including dimensions, colors and materials;
   • packaging requirements including labels, shipping markings and retail printing files;
   • Regulatory requirements including any changes in legislation and standards.
   Review supplier quality data in industry product alert sources such as ERAI and GIDEP. Does the supplier have a history of supplying counterfeit or nonconforming parts?
7. Accountability for quality issues. A reputable supplier will take responsibility for a quality problem and will address it quickly. They will offer to correct the issue and/or take whatever measures are necessary to prevent the same defect from occurring. A supplier without accountability is more likely to deflect responsibility to someone else and your company may be left holding the bag. Look for signs of accountability as a key characteristic of a good supplier. The best way to verify a supplier’s product capabilities and quality process is to visit the supplier, either personally or through a third-party agent. You can learn a lot about a supplier by verifying areas such as their raw materials and finished product inventory, their incoming quality control process, their machine and equipment maintenance and calibration, and by verifying their business and export licenses. Do your due diligence.
8. Testimonials and references from customers and contactable references. When you receive a list of references, CONTACT them and ensure that the references are from genuine companies. If they cannot be reached or are unwilling to provide information, this should raise a red flag. Ask the references about prior successful and unsuccessful sales. If successful, was the product delivered on time and in good condition? Were there any issues at all? If they were unsuccessful, what were the issues? Were they resolved and, if so, how quickly?
9. Location, Facility, Warehouse. This is often a key “red flag” that can easily be uncovered using publicly-available data. All potential supplier’s addresses and business registrations should be verified prior to adding a company to your organization’s approved vendor list (AVL). If you cannot physically inspect the facilities or have a third party do it for you, do some digging. Use Google and Google Maps to find out where the property is located: does the address actually exist; is it an industrial area, residential area, etc.? If the location is in an office building, see if you can find out who the managing company is and then call and ask them about the supplier. If the building has a security officer, speak with him or her to see what you can learn. Are you able to find the name of another tenant in the building? Call and ask them if they see a sign on the door, people entering and exiting, and if they receive regular mail and/or deliveries?
   
   You may be asking yourself: What if the company is in another country? ERAI members can check the ERAI database to see if there is another member who may be located in the same city whom you can contact and ask if they are familiar with the company or if it would be possible for them to physically check out the location and let you know what they learn. At ERAI, we occasionally ask members to visit physical addresses either during an investigation or when we verify membership applications. Use the information provided by ERAI and our members to help in the decision-making process.
   
   ERAI has discovered over the past 20 years that a number of companies advertise corporate addresses that are virtual offices, registered agent facilities and/or shipping services. While some companies may have a legitimate reason for doing so, you might want to consider some of the other reasons for choosing to remain anonymous. Companies may be using these addresses for illicit purposes such as evading taxes, importing or exporting counterfeit goods, or circumventing authorities for illegally importing or exporting goods that require a license. ERAI recently reported on the arrest of a California man who used multiple business names and addresses, as well as virtual offices and post office boxes in at least three US states in order to evade the authorities for his purchase and sale of counterfeit cell phone parts. Organizations not operating from a verifiable, brick and mortar location whereby they can be audited on site should be treated as a higher risk.
   
   Storage and handling facilities – In addition to the concerns above, depending on the type of product you are purchasing, you may want to know if the facilities are suitable – temperature controlled, static controlled, etc.
   
   ERAI has identified several addresses below that warrant special attention.
10. Prices. Are their prices comparable with others for the same goods? Are their prices “too good to be true” or are they the sole source of a product?
11. Terms of business, including minimum and maximum order quantities, lead times, delivery times, methods of delivery; return policies and payment terms all have an impact on your business and must be discussed and agreed upon up front.
12. Customer Service. Is the staff professional, cordial and easy to work with? More importantly, are they available and responsive during your business hours to help with ordering and any issues that may crop up? All too often organizations find that suppliers have excellent customer service until the moment a problem arises.

The Advanced Company Search is a great resource for members to benefit from ERAI’s 20+ years of data collection. After logging in to the website, select the “Company Search” subtab from the Search area. Then open the advanced search interface.

Entering data into the fields will perform a search for any of the entered criteria. Addresses, bank account and bank beneficiary names are helpful in uncovering relationships between different organizations. For example, a search for bank account number 561780677838 results in two companies, Components Mart and Infinite Electronic, both of whom have used the same account on Proforma Invoices.