How to allocate orders to multiple suppliers?

By justchinait
 / 
January 4, 2021
 / 

The buyer’s goal is to meet the demand for the product, reduce costs, and quality. Quality is a prerequisite for the procurement business to happen, and it must be met.

There is another important management content in procurement management, that is, how to do internal control? Because procurement is often the most expensive link, poor control will eventually affect product cost and quality.

Order allocation is a core issue of procurement management, and it is also a difficult problem because order splitting requires a comprehensive balance of internal and external relationships

In order to achieve the procurement business objectives, it is necessary to strengthen internal control. Assuming that N tons of material are purchased, there are three suppliers ABC,

How to divide the purchase amount among the three suppliers? Here are some methods worthy of reference.

Strategy Method 1: 80/20 Method

Most of the orders are given to supplier A (for example, 80%), and a small part is given to other suppliers B, or suppliers B and C;

The advantage of doing this is that most of the orders are given to A, and you can get volume economic discounts and get lower costs. B and C as training

Relational suppliers can quickly replenish when there is a problem with supplier A, which is equivalent to a backup supplier and can avoid supplying

Risk of failure.

There is another problem with this method of operation, which is to give 80% of the orders to? Face to

Solution: Determine the priority and backup suppliers by evaluating the price, quality, capacity, coordination, delivery cycle, etc. of each supplier. However, this requires regular evaluation, which is also a way to motivate suppliers.

Because the quantity is different, the purchase price will definitely be different, which is normal. It is acceptable as long as the purchase price is not higher than the average market price.

Tactic Method 2: Evenly Split Method

Some companies’ order splitting strategy is to split evenly: the purchase order is split equally among the three suppliers, which is a very simple point.

The principle of management is easy to operate and easy to check.

Operation process: evenly distribute the order to the three suppliers. On the basis of understanding the market price, negotiate with three suppliers

price. Take the lowest price from the three suppliers and ask the other two to reach the lowest price (because other suppliers can reach,

It is reasonable to ask you to reach this price)

The strategy in the negotiation is: “Supplier A has already made 10 yuan, and B you should be able to make 10 yuan.” When the negotiation with B is proper, the three suppliers sign the contract together, and the price of the three suppliers is everyone. It can be seen that there is a certain degree of transparency, which proves that it is not a price reduction strategy. This kind of negotiation will be done at most one round and will not be repeated. If supplier B does not reduce prices, it is possible to lose orders.

Strategic analysis: The very important reason for this is to strengthen internal control. There are two main points in purchasing internal control: one is to decide which

One supplier can be shortlisted as a qualified supplier, and the other is how to allocate orders.

Shortlisting qualified suppliers is a one-time job, and allocating orders is a regular job, and it is also the focus of buyers’ work. Adopting the principle of equal splitting means that the splitting of orders is transparent, and suppliers do not need public relations, which can reduce public relations costs and eliminate an internal control problem in the distribution of order quantities. Secondly, the three suppliers are required to achieve the lowest price to eliminate internal control problems in price.

One thing to note is that allocating orders is more suitable for buyers with larger orders. If your order volume is small, there will be fewer orders allocated to each supplier. This will cause you not to be valued by your suppliers, your orders will not be prioritized for production, and it will increase your procurement costs.

Partners

Build your own business to provide China-First Made in China services to businesses around the globe - all while growing your knowledge and have a happy win-win life.
Be our Partners

Grab the best Opportunity!

Get posts by email

Be the first to see when we publish a new blog post!

We've delivered over 21,776 cheaper for clients. Find how we can help your business growing.

Ready to speak with an importing expert?
Please give us a call or e-mail.

+86-150-1926-7452

info@justchinait.com

156 Serving Countries Around The World

11 Years of Experience Purchasing and Exporting

900+ Trusted and Satisfied Clients With Profit Growth

90,000+ Verified Manufacturers, Wholesalers, and Traders

View 300+ Client Reviews