Our people are often asked by our purchasing department whether a supplier is suitable for our company to use for a project. To try and help others in the same position as us, I have put together a quick run down of what we look for when selecting a supplier.
Selecting a supplier
Aside from the cost and delivery of the product, what criteria can be applied in the decision making process?
A technical appraisal of the particular product and company is an obvious first step:
- Has the supplier tested and independently certified the product?
- Does the product’s performance meet our requirements?
- What are the shortcomings of the product?
- What are the shortcomings of the supplier?
It is generally relatively straightforward to get answers to these questions, except for the last one. This is because, if a company is doing badly, the last thing it wants is for their customers to know about it. So if a company is in trouble, how can you tell?
How can you tell if a supplier is in trouble?
We at Colt ensure our supply chain is robust and our customers have the ability to pay their debts when they become due by using Credit Agencies to support our credit management systems. The Dun & Bradstreet credit rating system acts as a starting point to decide whether the organisation is suitable to do business with. It is important that a supplier, or a customer for that matter, is solvent and capable of meeting all of its obligations under the contract and that any warranties that have been provided on the product are worth the paper they are written on.
What do credit ratings mean?
In the words of Dun & Bradstreet, the credit rating is an insight into the failure risk of a company.
Financial strength and risk indicator. The credit rating is based on a company’s latest published accounts and comes in the form of a financial strength code and a risk indicator. This indicator will provide a rating of 1 to 4, whereby 1 is the lowest risk and 4 the highest. Companies with a 4 rating and a low level of financial strength carry a significant level of risk, and guidance should be sought regarding extending credit facilities.
Failure score. The report also provides a failure score out of 100, which measures the way a Company manages its debts and pays its suppliers. A score below 50 would suggest that the Company is experiencing financial difficulties and as such caution should be taken when extending credit facilities.
To learn more about D&B Scores and Ratings, visit their web page: http://www.dnb.co.uk/rating.asp
Interpreting D&B credit ratings: Colt
For example, Dun & Bradstreet’s Financial Strength indicator for Colt is 3A, which means that our tangible net worth is in the category from 7 to 15 million pounds; our Risk Indicator is 1, which is the best, as it indicates a minimum risk; and our Failure Score is 100 out of 100, indicating the lowest possible risk.
Related news: Excellent credit rating for Colt
Nick Buckingham is Managing Director of Colt International UK..
