A Preferred Supplier List (PSL) is a list of suppliers that a buyer prefers to do business with. It is a pre-selected list of suppliers who meet specific criteria such as quality, compliance, price, availability, and other relevant factors. PSLs are typically used by large organisations or companies with a high volume of purchases.
How does a Preferred Supplier List work?
A PSL is usually created based on an organisation's business needs, goals, and budget. The buyer's procurement department evaluates potential suppliers based on their performance history, quality of products/services, price, reliability, delivery times, and other relevant factors. The suppliers that meet these criteria are then added to the PSL.
Once a PSL is established, it provides a framework for carrying out purchases. By only dealing with preferred suppliers, companies can streamline their purchasing processes, ensuring they are getting the best value for their money. A well-established PSL in place educates purchasers and their customers on how the organisation gets products and/or services and what factors it considers vital when acquiring services or goods.
Benefits of having a Preferred Supplier List:
Consistency
One of the biggest benefits of having a PSL is consistency in quality and delivery time. A PSL ensures that all the preferred suppliers have met the organisation's criteria and have a proven track record of providing high-quality goods or services. By working with pre-approved suppliers, buyers can be confident that the products or services they receive will meet expectations.
Cost Savings
Another main benefit of a PSL is cost savings. When a buyer can channel a high volume of purchases towards preferred suppliers, they are more likely to receive discounts or volume rebates on prices. By establishing a PSL, the organisation can negotiate better prices and take advantage of supplier discounts, ensuring optimum value for their spend.
Reduced Risk
A PSL can also reduce risk related to suppliers. By having pre-selected suppliers, the organisation can prevent the use of “cowboy” suppliers who may be untested or lack proper standards. With pre-approved suppliers, the buyer can be sure they are dealing with companies compliant with industry standards and regulations.
Time savings
A PSL helps to save time. In many cases, the entire procurement process can be time-consuming, particularly for larger firms. By having a pre-approved PSL of suppliers, organisations can minimise the need to review new suppliers and focus on building relationships with existing suppliers, which ultimately saves time.
Challenges of implementing a Preferred Supplier List
Although having a PSL has many advantages, there are some challenges associated with its implementation, which include:
Supplier Competition
Creating a PSL may eliminate supplier competition as buyers only work with preferred suppliers. This can lead to a lack of competitive bidding, which could lead to higher costs.
Limited supplier diversity
Having a PSL may lead buyers to depend only on preferred suppliers. This could limit supplier diversity and innovation within an organisation.
Supplier Performance
Over time, suppliers may fail to deliver on their promises or maintain their level of service. When this happens, the buyer must decide whether to remove them from the PSL or continue working with them.
Conclusion
In conclusion, a Preferred Supplier List is an excellent tool that can trigger many benefits for an organisation. It can make procurement processes simpler, more efficient, time and cost-effective, and reduce risks associated with suppliers. It can also drive consistency in quality and delivery of products and services. However, it is essential to ensure that a PSL's implementation is transparent and fair, and aims also to foster innovation and diversity in supplier selection.