Preferred Supplier
Definition:
A preferred supplier is a vendor that has been identified by an organization as a top choice for certain categories of goods or services based on their demonstrated ability to meet or exceed expectations in areas such as quality, delivery, cost, and customer service. Preferred suppliers often receive a larger share of an organization's business and may be given priority in new procurement opportunities.
Example:
Acme Corporation evaluates its suppliers annually based on key performance indicators (KPIs) such as on-time delivery, product quality, responsiveness, and total cost of ownership. Suppliers that consistently score high on these KPIs and demonstrate a commitment to continuous improvement are designated as preferred suppliers. When Acme Corporation has a new procurement need, it first considers its preferred suppliers before exploring other options in the market.
Why are Preferred Suppliers important to Procurement teams?
Preferred supplier programs are valuable for procurement teams to build strong, strategic relationships with top-performing suppliers. By focusing on a smaller number of preferred suppliers, organizations can streamline their supply base, reduce administrative costs, and leverage their buying power to negotiate better terms and prices. Preferred suppliers are often more willing to invest in innovation, share risk, and adapt to the changing needs of the organization, as they have a vested interest in maintaining the relationship. Procurement teams can work closely with preferred suppliers to drive continuous improvement, implement joint cost reduction initiatives, and collaborate on new product development. However, it is important for procurement teams to regularly review and update their preferred supplier list to ensure that it remains aligned with the organization's evolving needs and market conditions.