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Copy of SUPPLIER EVALUATION AND SELECTION

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Mohamed Nassef

on 1 July 2013

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Transcript of Copy of SUPPLIER EVALUATION AND SELECTION

LA CONSOLACION COLLEGE PASIG
CHAPTER 7
SUPPLIER EVALUATION AND SELECTION

Reporter:
Mikki Morales
Professor:
Mr. Abelito Quiwa, MBA
Understand how a comprehensive supplier evaluation and selection process supports an organization’s total quality objectives
Design a process that leads to world-class supplier selection
Appreciate the many areas that supply professionals consider when evaluating potential suppliers
Understand how to develop tools to assess supplier capabilities
Identify ways to reduce the time associated with supplier evaluation and selection
One of the most important processes that organizations perform is the evaluation, selection, and continuous measurement of suppliers. Traditionally, competitive bidding was the primary method for awarding purchase contracts. In the past, it was sufficient to obtain three bids and award the contract to the supplier offering the lowest price. Enlightened purchasers now commit major resources to evaluate a supplier’s performance and capability across many different areas. The supplier selection process has become so important that teams of cross-functional personnel are often responsible for visiting and evaluating suppliers. A sound selection decision can reduce or prevent a host of problems.
Supplier evaluation and selection decisions are taking on increased importance today. If a firm has reduced its supply base considerably, and if remaining suppliers usually receive longer-term agreements, the willingness or ability to switch suppliers is diminished. This makes selecting the right suppliers an important business decision.

The Supplier Evaluation and Selection Process
• Recognize the Need for Supplier Selection
• Identify Key Sourcing Requirements
• Determine Sourcing Strategy
• Identify Potential Supply Sources
• Limit Suppliers in Selection Pool
• Determine the Method of Supplier Evaluation and Selection
• Select Supplier and Reach Agreement

Most purchasing experts will agree that there is no one best way to evaluate and select suppliers; organizations use a variety of different approaches. The overall objective of the evaluation process should be to reduce purchase risk and maximize overall value to the purchaser.
Recognize the Need for Supplier Selection
The first step of the evaluation and selection process usually involves recognizing there is a requirement to evaluate and select a supplier for an item or service.
Identify Key Sourcing Requirements
Throughout the supplier evaluation and selection process, it is important to understand the requirements that are important to that purchase.
Determine Sourcing Strategy
Single versus multiple supply sources
Short-term versus long-term purchase contracts
Selecting suppliers that provide design support versus those that lack design capability
Full service versus non-full service suppliers
Domestic versus foreign suppliers
Expectation of a close working relationship versus arms-length purchasing
Identify Potential Supply Sources
High capability of current suppliers—High strategic importance of requirement
High capability of current suppliers—Low strategic importance of requirement
Low capability of current suppliers—High strategic importance of requirement
Low capability of current suppliers—Low strategic importance of requirement
Current Suppliers
Sales Representatives
Information Databases
Experience
Trade Journals
Trade Directories
Trade Shows
Second-Party or Indirect Information
Internal Sources
Internet Searches
Limit Suppliers in Selection Pool
Financial Risk Analysis
Evaluation of Supplier Performance
Evaluation of Supplier-provided Information
Determine the Method of Supplier Evaluation and Selection
Evaluation from Supplier-provided Information
Supplier Visits
Use of preferred suppliers
External or Third-Party Information
The final step of the evaluation and selection process is to select the supplier(s) and reach a contract agreement
Selelect Supplier and Reach Agreement
Carter's 10 Cs of Supplier Selection
Competency
Capacity
Commitment
Control
Cash
Cost
Consistency
Culture
Clean
Communication
KEY SUPPLIER EVALUATION CRITERIA
1. Management Capability
2. Employee Capabilities
3. Cost Structure
4. Total Quality Performance, Systems and Philosophy
5. Process and Technological Capability
6. Environmental Capability Compliance
7. Financial Stability
8. Production Scheduling and Control Systems
9. E-Commerce Capability
10. Supplier’s Sourcing Strategies, Policies, and Techniques
11. Longer-Term Relationship Potential

Asking questions can help the purchasing manager to develop a feeling for the professional capabilities of the managers in the supplying organization.
Management Capability
Employee Capabilities

A purchaser should consider these points:
• The degree to which employees are combined to quality and continuous improvement
• The overall skills and abilities of the workforce
• Employee-Management Relations
• Worker Flexibility
• Employee Morale
• Workforce turnover
• Willingness of employees to contribute to improved operations

COST STRUCTURE

Understanding a supplier’s cost structure helps a buyer determine how efficiently a supplier can produce an item or provide a service.
Total Quality Performance, Systems, and Philosophy

A major part of the evaluation process addresses a supplier’s quality management process, systems, and philosophy
Process and Technological Capability

This information will indicate the emphasis that a supplier places on future process and technological improvement.
Environmental Regulation Compliance

Purchasers certainly do not want to be associated with known environmental polluters from a public relations or potential liability standpoint.
Financial Stability

Procurement specialists should become familiar with financial ratios because they can provide quick and valuable insights into a supplier’s financial health.
Porduction Scheduling and Control Systems

Production scheduling includes those systems that release, schedule, and control a supplier’s production process
e-Commerce Capability
Developing a Supplier Evaluation and Selection Survey
Step 2: Assign a Weight to Each Evaluation Category
Step 1: Identify Supplier Evaluation Categories
Step 3: Identify and Weigh Subcategories
Step 4: Define Scoring System for Categories and Subcategories
Step 5: Evaluate Supplier Directly
Step 6: Review Evaluation Results and Make Selection Decision
Step 7: Review and Improve Supplier Performance Continuously
Countertrade Requirements
Member
Social Objectives
Member
Critical Supplier Selection Issues
Size Relationship
Use of International Suppliers
Competitors as Suppliers
REDUCING SUPPLIER EVALUATION AND SELECTION CYCLE TIME
Map the Current Supplier Evaluation and Selection Process

Integrate with Internal Customers
Preferred Supplier List

Electronic Tools

Predefined Contract Language and Shorter Contracts
Data Warehouse with Supplier Information

New Organizational Design Features
CONCLUSION

Some of the most important functions of business: the evaluation and selection of suppliers. When a purchaser performs these activities well, it establishes the foundation upon which to further development and improve supplier performance. A buyer should look for certain characteristics when evaluating and selecting suppliers. A good supplier:
•Builds quality into the product, aiming for a zero-defect production
•Makes delivery performance a priority, including a willingness to make short and frequent deliveries to point-of-use areas at a purchaser’s facility.
•Demonstrates responsiveness to a purchaser’s needs by ensuring that qualified and accessible people are in charge of servicing the purchaser’s account
•Works with a purchaser to reduce lead times as much as possible; long lead times make it difficult to plan and drive up supply chain costs
•Provides a purchaser with information regarding capability and workload
•Creates the future rather than the fears the future
•Reinvents part of its profits in R&D, takes a long-term view, and is willing to spend for tomorrow
•Meets the stringent financial stability criteria used when evaluating potential new customers for credit
A focus on selecting only the best suppliers possible will make a major contribution to the competitiveness of the entire organization. The ability to make this contribution requires careful evaluation and selection of the suppliers that provide the goods and services that help satisfy the needs of an organization’s final customers.
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