How to Qualify a Supplier Before Your First Order

The most expensive purchase order a brand writes is the first one to a supplier it has not qualified. The sample was good. The price was good. The replies were fast. Then the production run arrives and half of it is a different product.

Qualification is a sequence: documents, then capacity, then consistency, then commercial protection. Run it in that order, because each stage costs less than the one after it.

Document checks you do before you visit

Every item below is verifiable online in an afternoon. Do not accept a PDF the supplier emails you. Verify at the source.

• GST registration. Check the GSTIN on the GST portal. Status must read Active. The legal name and principal place of business must match the entity you are contracting with and the address you will collect from.
• Factory registration under the Factories Act. This carries the licensed capacity and the permitted activity. If a supplier claims 50,000 units a month and the licence covers a workshop, you have your answer.
• Product specific licences. FSSAI for food and nutraceuticals, with the correct product category endorsed on the licence. BIS certification where the product falls under a mandatory Quality Control Order. A drug or cosmetic licence where one applies. Legal metrology packer registration for pre-packaged goods.
• IEC on the DGFT portal if the supplier imports raw material, or if you plan to export goods made by them.
• Entity basics. MCA filings for a private limited supplier, a bank account in the same legal name as the invoice, and a physical address you can find on a map.

The most common failure is subtle. The licence is genuine, but it sits in a different entity’s name or covers a different address than the unit that will make your goods. Match the names and the addresses. Every time.

Capacity verification

Capacity is the most inflated number in Indian sourcing. Verify it with arithmetic, not with a walkthrough.

Count the machines that make your product. Get the cycle time per unit on that machine. Multiply by working hours and shifts, then discount for changeover, maintenance and yield. Compare the result with the claim.

Then ask the question most brands skip. How much of that capacity is already committed. A factory with genuine capacity for 100,000 units a month that already sells 90,000 to two other clients has 10,000 units for you, and you are third in the queue when things get tight.

Ask for the last six months of dispatch volumes on the same process. Ask who the three largest customers are and what share of output they take. Look at raw material storage too, because a factory that cannot hold input inventory cannot absorb your festive peak.

Sample versus production consistency

A sample is made by the best operator, unhurried, from hand selected material. Production is made by whoever is on shift. The gap between the two is your actual risk.

Close it in three steps.

• Golden sample. Approve one physical sample, sign and date two copies, one held by each party. It becomes the reference for every future dispute.
• Pilot run. Order a small production batch on the real line, with real material, at real speed. Five to ten percent of the intended order size is usually enough. Inspect it against the same AQL plan you will use later.
• First article. When the full order starts, have the first cartons off the line checked and approved before the rest of the run proceeds.

Fix material traceability at the same time. Ask which vendor supplies the critical input and lock that into the purchase order. Factories substitute inputs quietly when a commodity price moves, and substitution is where consistency dies.

Second source and payment terms

Single sourcing a revenue-critical SKU is a decision to accept an outage. Fires, labour disputes, a compliance notice, a bigger client outbidding you for line time: all of these happen, and none of them announce themselves in advance.

A workable policy for a growing brand is this. No single supplier holds more than roughly 70 percent of volume on any SKU that contributes over 10 percent of revenue. Keep the second source live with a small recurring order rather than dormant. A qualified supplier who has never actually run your product is not a second source. It is a phone number.

Then the terms. On the first two or three orders you have no relationship equity, so structure has to protect you.

• Advance of 30 percent against a signed purchase order, and no more. A supplier asking for 70 or 100 percent upfront on order one is asking you to fund their working capital and carry their risk.
• Fifty to sixty percent against a passed pre-dispatch inspection report, released after the report lands, not after a verbal confirmation.
• Ten percent retained for 30 days after receipt, released once your own inbound QC clears.
• Named penalties for late dispatch and for lots that fail inspection twice, expressed as a percentage of order value.
• A purchase order that references the spec sheet, the golden sample date, the AQL plan and the packing specification by document number.

Move to better terms once the supplier has earned them. Three clean consecutive orders is a reasonable bar. After that, extend credit and reduce inspection frequency deliberately, one step at a time, and put the reduction in writing so it can be reversed without a negotiation.

None of this is adversarial. Good suppliers prefer it, because ambiguity is what creates disputes. A supplier who resists a written spec, an inspection clause and a retention is telling you exactly what the first production run will look like.