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Supplier selection criteria in the automotive industry

17 August 2021

Selecting the right suppliers is one of the most important aspects for the success of a given process. Whether for body components, engine parts or other elements, it is important to have the right supplier selection criteria in place to determine which companies are worth cooperating with.

The right choice of a supplier in the automotive industry translates into increased efficiency and, consequently, higher profits. What criteria should be taken into account to minimize the risk of potential losses?

The risks of choosing the wrong supplier

The choice of component or technology suppliers is extremely important in the automotive industry. The entire production process – from the first concepts all the way to the final sale to the customer – consists of many interrelated stages. If one of them performs inadequately, it can affect the overall outcome. It is therefore definitely worth considering the risks associated with this choice in order to be prepared to use appropriate supplier selection criteria.

This decision requires detailed analysis – too frequent changes or abandoning cooperation with a given supplier at a later stage of production may significantly reduce the company's efficiency due to a break in the supply chain. This, in turn, is likely to affect the profitability of processes and product availability, as well as leading to problems with the stability of the company itself.

For this reason, it is worth devoting some time and resources to defining the appropriate criteria for selecting a supplier at the outset. You should be guided by specific data, while constantly verifying the quality of the services provided by individual companies. Such an approach translates into greater work efficiency, as well as optimisation of costs related to the supply chain. The financial aspect is extremely important here – investing in cooperation with an entity which does not perform its tasks in a satisfactory manner may lead to the loss of a considerable amount of resources, as might excessively frequently changing suppliers.

Finding the most appropriate company in the automotive industry. The supplier selection process

The first step to take before starting negotiations with potential suppliers is to identify available companies. Before making an offer, it is necessary to identify the scope of activity of a given company, as well as verifying the compatibility of one's expectations with the capabilities of candidates for cooperation. In addition, you should thoroughly familiarize yourself with the supplier's business policy, as well as the level of customer service offered.

It is important to check whether the supplier in question is experiencing performance problems in its operations. Another important step is the detailed definition of the financial plan related to supplies. An in-depth analysis of financial factors is a key part of this process – a way to establish satisfactory terms of cooperation as well as identifying potential risk factors.

Environmental factors also play an increasingly important role. Reducing the environmental impact of car traffic currently has a significant influence on the development of the automotive industry, as well as on the decisions of individual companies. This is important not only in terms of the desire for more environmentally friendly transport, but also in terms of regulatory compliance and even in terms of public perception of a company's activities.

Supplier evaluation system

The evaluation of suppliers, which enables the selection of a suitable partner for long-term cooperation, must take into account several key elements. These include, above all, punctuality, average lead time, quality of the products delivered (relevant quality certificates like IATF) and payment terms, which should be favourable for the company placing the order. The overall evaluation of a potential collaboration must be based on all of these factors, as well as other aspects relevant to the company in question.

On the basis of the above-mentioned criteria, it is possible to prepare a complex system for evaluating suppliers, which will make it feasible to select the most suitable companies. A thorough analysis of all the indicators will mitigate the risk of unsuccessful cooperation which could lead to a drop in productivity due to missed delivery deadlines.

The outcome of the supplier selection process should be an appropriate contract, which clearly and specifically defines the principles of cooperation between both parties. In many situations, the exact picture of cooperation is determined at this very stage; therefore, companies usually negotiate with several suppliers at the same time. The form and scope of cooperation may vary significantly depending on the needs and capabilities of both parties.

Knauf Industries as an example of effective cooperation with suppliers

The selection and ongoing evaluation of suppliers is a complex process that requires constant monitoring, but it is absolutely possible to make the right choice. It is also worth noting that in the automotive industry, the profile of the supplier companies selected should be taken into account. This is how Knauf Industries operates – a company that is primarily involved in manufacturing injection moulded and EPP and EPS automotive components. The right supplier is selected during an initial analysis of the production process among the enterprises working with the company. This approach allows us to continually maintain the high quality of our components which we supply to automotive manufacturers.

The top priority of any project carried out by companies associated with the automotive industry should be customer satisfaction. Therefore, the chosen supplier must meet the required criteria, including economic ones. Conducting this process well enables efficient work and delivery of products to customers within the specified time, while maintaining the appropriate quality.

Please do not hesitate to contact us for more details about tailor-made solutions for your project.

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