Some questions about finding (reliable) new suppliers

Finding credible, reliable new suppliers remains one of the major unsolved issues in the e-sourcing space.

Take Alibaba, for instance. They provide a massive supplier list, but with essentially zero quality control. Suppliers can pay to improve their kudos in the system with services such as TrustPass: but this seems to amount to little more than validating that the company really exists. In fact  – do a google search on “Alibaba TrustPass” and you get as many hits raising concerns about its value (like this and this), as you get hits explaining its benefits. 

MFG.com have taken some steps to address this issue. Buyers can provide star ratings on suppliers. This is an improvement but is still not perfect. For one thing, suppliers pay an annual license for unlimited access to MFG.com while the service is free to buyers. So, in theory at least, a supplier could create some bogus buyers, set up some bogus RFQs, award themselves some bogus contracts, and give themselves bogus high scores. OK, so that might be a bit far-fetched for real life but there are three more practical issues with the value of these star ratings.

• Star ratings are not particularly reliable
• Good feedback doesn’t make someone honest
• Confidentiality

Star ratings are not particularly reliable

Star ratings are not all that reliable. A major proponent of star ratings for buyers and sellers is eBay. Though even they have recently wised up to the over-simplification of star ratings. They have changed the way star ratings for sellers work.  The change itself is not as important as the reason for the change. They changed the feedback system because buyers and sellers were, in effect trading positive feedback: sellers would not leave feedback to a buyer until they had already received positive feedback from that buyer. Even where the star ratings are only applied by buyers, they are still visible and so, in effect, tradeable commodities.

And buyers know this. On a random day I picked up the following two posts from MFGx.com’s forums: this and this. Both were high traffic threads raising questions of how to know that a supplier you are going to work with is reliable. All this despite the existence of a star rating system.

Good feedback doesn’t make someone honest

Even worse than this, regular readers of this blog might recall one of my early postings commenting on an eBay power seller who had his eBay account shut down when it was discovered he was shill bidding (i.e. artificially driving up the price of his wares). His customers were evidently happy, as evidenced by his high positive feedback scores. But this didn’t stop him ripping them off.

Confidentiality

I recall talking to a major retailer about their experiences in one of the early exchanges. The plan had been that aggregated information from all the participants would be shared to give all participants in the exchange in order to deliver useful market information to everyone. In practice this retailer believed they were putting more in than they were getting out and so stopped information sharing.

When I step back and try to be objective I have to say that I don’t blame them. Who would want to share key information like this with their competitors? Would I share  information with David Bush about where I am finding the best developers these days?. No. So if I had found a great supplier of certain services, what would be my incentive to publicise that company on a public site for all my competitors to see?

This is also one of the stories why Covisint, a grand-daddy of internet B2B marketplaces, fell to pieces: Suppliers resisted putting information onto a site that they felt would be shared amongst multiple automotive companies.

True, there are some stories about competitive companies being open with each other about certain sub sets of their spends. Such as this story from Supply Management about hotels collaborating in the purchase of indirects. But this kind of activity is limited to only a subset of non-core spend.

There is no magic bullet that guarantees a supplier is going to be reliable – despite the wealth of information that is available (in theory at least) on the web. The rather unsatisfying answer all too often comes down to little more than “do your homework, and buyer beware”. Even credit ratings will not necessarily give you the full information you need on all potential suppliers. Is there a better solution for supply chain professionals that produces information by inferring what suppliers are really up to, rather than relying on manual feedback systems? Will this webinar that Jason Busch/Aravo are hosting next week  present any insights? Might we need to wait for a semantic web solution ?

Like I said – I only have questions at this stage. If anyone has any answers I’d love to hear them.

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2 thoughts on “Some questions about finding (reliable) new suppliers

  1. Great post Alan. Surely part of the answer lies in working with experienced sourcing specialists like TradingPartners! You’re too modest — with an office in China you guys have the capacity to qualify suppliers on the ground, which is invaluable to Western customers sourcing from there.

  2. Yes, you’re right Max.

    I am thinking out loud about whether there will (ever) be a technological solution to the problem. So far the technological solutions I have seen fall short to some degree or other – this goes also for DnB, Hoovers, OneSource etc as well as for Alibaba and MFG.com. I am not aware to date of any viable supplier vetting technology that can substitute for having people on the ground to actually do the work of checking out suppliers.

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