As a buyer, sourcing and onboarding the best suppliers is a crucial part of every project, whether it’s updating your company’s IT hardware or finding a new vendor in your supply chain. One of the best ways of finding reliable vendors is to complete a pre-qualification questionnaire (PQQ.)
Put simply, a PQQ is a list of questions that are sent to vendors, which they must complete before they can work with you. These questionnaires are a great way of quickly sourcing a list of appropriate suppliers before you begin your detailed tendering process.
The difference between a PQQ and a tender can seem quite vague, but they work in tandem to ensure that you onboard the best merchant. So, in this blog post, we explain why you should use PQQ’s, what you need to ask vendors and what the next steps are once you’ve completed this process. This article is perfect for those with experience using PQQ’s previously and need reminding of the process, or if you’re a junior member of your buying team looking to expand your procurement knowledge.
Why use PQQ’S?
Conducting a PQQ is a crucial stage in the supplier onboarding process and can often be overlooked and seen as a pointless tick-box exercise. However, they are the best way of ensuring that every vendor you award a contract to meets the legal, financial and operational needs to supply what you need.
Designing an efficient PQQ process can be confusing – especially if you’re a large firm with numerous projects and who are regularly onboarding new suppliers – but this is all the more reason to have an effective process in place, as it can:
- Reduce your supplier onboarding time;
- Save your purchasing team time through having a structures PQQ process;
- Reduce supply chain risk;
- Leave the manual processes to the vendors.
What needs to go onto a PQQ?
Regardless of whether you’re in an industry with strict regulations and are required to learn more about vendors before they can begin working with them – there are eight areas that your PQQ document should always include:
#1 – General contact details
This is the fundamental information that you will need to know about the vendor, such as:
• Key contact names, address, email addresses and contact numbers
• Website address and other online platforms
• Company registration numbers and legal status
• Company ownership information, partners and names of directors
#2 – Financial information
Gathering information about a supplier’s financial situation is the best way of evaluating whether they have the appropriate resources and have the financial stability to meet the contract requirements.
The amount of detail that you request at this point can vary, but you want to be sure to get enough information to create a clear financial assessment. So, we advise asking for:
• Their previous three-year turnover figures
• Credit rating and cash flow forecast
• Bank references
#3 – Insurance
This is potentially the most important information that you need to know about a vendor; do they have the relevant insurance policies in place to cover any injuries, losses or damages?
If a vendor doesn’t have this cover, you run the risk of being liable for damages and issues in their supply chain. The key types of insurance that you’ll want to look out for are:
• Employer’s liability insurance;
• Public liability insurance;
• Product liability insurance.
#4 – Quality assurance policies
You want to be sure that the goods or services that you receive always meet the agreed standard, don’t you? Assessing whether your suppliers follow a quality assurance process is the best indicator that they will deliver to a consistent quality – so be sure to include a question about this in your PQQ.
#5 – Health & safety standards
This point is like point number three, but again, it is crucial that you check whether each supplier operates in conduct with current health and safety regulations– to avoid liability against accidents within the supply chain.
We’d recommend asking whether the vendor has a health and safety policy in place that conducts to the Health and Safety at Work Act (HSWA)
#6 – Environmental and equal opportunity goals
If your organisation is passionate about developing a diverse workforce and is driving towards a more sustainable future – onboarding suppliers who share the same beliefs is a crucial part of that. So, make sure you ask in your PQQ about the efforts that they are making to achieve this, such as:
• CO2 reduction targets;
• Plastic reduction measures;
• Paper consumption;
• Ride to work scheme.
#7 – Professional and business position
Be sure to ask if their organisation has any past convictions or certain offences that have been committed by key shareholders of the business, such as directors, partners or proprietors. If a supplier highlights a past conviction, you can choose whether or not to proceed.
#8 – Declaration
Now you need to add the declaration to your PQQ. This doesn’t require the person completing the questionnaire to supply any more information but ensures that the information they provide is correct and accurate.
Distributing and evaluating returned PQQ’S
Now, you need to distribute your PQQ. We recommend that you structure your questionnaire in a way that will easily identify key pieces of information that are important to you. By having a list of compulsory needs it’ll save your purchasing team time in reviewing each response and will simply pass or fail each vendor.
At this stage, you want to set what your mandatory exclusions will be, and this is completely up to you. Decide what regulations, agreements, and standards a vendor that you work with must comply with.
Usually, these exclusions are related to previous legal issues, but equal opportunity and sustainability agreements are becoming increasingly important.
Now, you need to distribute your PQQ, there are two ways of doing this:
- Email and phone campaign
If you have used PQQ’s in the past, you most likely sent it out via phone or emails to suppliers that you’ve worked with before.
Both methods require a member of your team to communicate directly with the supplier and they must assess their responses manually.
- Automated sourcing portal
Alternatively, you can use a sourcing platform such as web3, which will do all the hard graft for you.
By using eSourcing, you simply have to add your PQQ to the contract application process and it will be distributed around your client database. This means that all the vendors applying to work with you will complete the questionnaire themselves – and will be qualified or failed to go to the next stage automatically.
So, now you have a list of suppliers that fit your needs, it’s time to start a more rigorous tendering process or to select a vendor to begin work immediately. If you’re planning to use a tender and aren’t sure how they work or just need a quick refresher, we have this guide for you.