Chapter 5-Supplier Selection[2]

7/30/2019 Chapter 5-Supplier Selection[2]

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ASSESSMENT AND

SELECTION OF SUPPLIERS


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Learning outcomes Understand the complexity of the sourcing decision

List the characteristics of a good supplier

Identify the key criteria for supplier selection Describe methods used in supplier evaluation

Recognise the need for supplier certification

Describe the nature of purchaser/supplierrelationships


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8 Rs of purchasingThe objective is to purchase:

The right product

Of the right quality From the right supplier

At the right price

In the right quality

Delivered to the right place

At the right time

Using the right supply chain


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Important aspects Choosing the right supplier

Managing relationships with current and potential

suppliers Making decisions about how much business to allocate

to a particular supplier and what the terms of purchasewill be.


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Environmental factors influencing

supplier selection

Macro environment

Market structure

Internalenvironment

POLITICAL

ECONOMICAL

SOCIAL

TECHNOLOGICAL

LEGAL

ENVIRONMENTALSUPPLIERSCUSTOMERS

COMPETITORS INTERMEDIARIES

MISSION & VISIONFUNCTIONSRESOURCES


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SUPPLIER ASSESSMENT CRITERIAA possible set of criteria to use in the selection of

suppliers would include:

Quality and quality accreditation Price, cost and cost structure

Delivery

Time

Flexibility

Service

Financial status


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Systems: operations planning and control(OPC) and e-commerce

Technology and process capability Supply chain management

Environmental issues, ethics and social responsibility

BBBEE

Capabilities, responsiveness and motivation

Geographic location


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Quality and quality accreditations

Quality products or services influence the productivityof the organisation due to

Fewer operational interruptions and better workingconditions

Quality of the final output of the organisation

Better customer service and satisfaction

Competitive advantage of the organisationOrganisations require suppliers to be ISO 9000/14001

accredited


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Price, cost and cost structurePrimary role of a purchasing professional is to defend the coststructure of the organisation without compromising quality andother key criteria.

Suppliers who achieve higher productivity reduce costs and are inthe position to offer lower prices than their competitors.

Such suppliers will enable the purchasing organisation to reduceprices, remain competitive and possibly increase market share.

The determination of a suppliers cost structure is a lengthy processand requires understanding of a suppliers material costs, directand indirect labour costs, manufacturing costs and overheads.


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DeliveryOrganisations are moving towards demand-pull for

products and services therefore on-time delivery isimportant.

There is pressure to reduce inventories as a cost savingmeasure therefore suppliers are required to makesmaller and more frequent deliveries

Late delivery of the product or late performance of a

service could have a disastrous effect in someorganisations.

Example-motor vehicle assemblers who are using the JITsystem.


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TimeTime-based competition-includes reducing lead time in

order to gain an advantage. For example speed of responseand the reduction in lead time.

Reducing time means an improvement in productivity. theaim is to fulfil customer demand as quickly as possible inorder to obtain competitive advantage.

Suppliers should be actively involved in analysing andreducing cycle times through the use of cross-functionalteams and techniques such as process/time mapping.


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FlexibilityFlexibility is important when selecting a supplier. Purchasing

organisations endeavour to determine how flexible thepotential supplier is or how quickly can they adapt to

changing business conditions.A supplier can be flexible with regard to:

Volume- ability to change the number of productssupplied.

Variety-ability to offer a range of products

Mix-ability to provide varying proportions of differentproducts

New products-ability to adapt and innovate new products


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ServiceSuppliers need to win orders so that they can become

preferred suppliers.

To achieve this, they need to excel in all aspects of

customer service including: Quick resolution of claims and complaints

Providing early warnings in deliverychanges/disruptions

Giving rapid response to customer queriesThis would also include the suppliers willingness or

attitude towards SMI or providing stock facilities.


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Financial statusIt is important to determine the suppliers financial

health, selecting financially healthy suppliers reducesrisk.

A supplier who is in difficult financial strains has anincreased likelihood of an interruption in the supply ofproducts or the performance of a service.

Information regarding a suppliers financial positionmay be acquired from credit bureaus, financial ratiosand debt judgement.


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Systems: OPC and e-commerceAn assessment of the Operations Planning and Control(OPC)system used by the supplier is important.

The purchasing organisation needs to establish how the supplierplans, schedules and controls its operations which encompassesforecasting and demand management.

Traditional forecasting using historical data is replaced by real-time demand planning systems which are based on what is

currently happening and likely to happen.

The ability to communicate electronically between customer andsupplier is rapidly becoming a mandatory prerequisite forsuppliers.


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Technology and process capabilityIn considering the suppliers technology and process

capability, a purchasing manager would look at thefollowing:

Will the suppliers equipment and processes meet moredemanding specifications in the future

Will the suppliers technological abilities meet futureneeds

The suppliers design capability

The suppliers ability to innovate products and services

Will the suppliers available capacity meet future demands


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Supply chain managementSCM has become so imperative that it should be considered as aseparate criteria for supplier selection. The following should betaken into consideration:

The suppliers proposed position, role and importance in thesupply chain

The suppliers appreciation and awareness of the concepts ofSCM

The suppliers sourcing policies and criteria

The effectiveness of the suppliers transport and distribution The suppliers potential with regard to lean manufacturing The suppliers long-term relationship potential(possibility of

partnership)


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Environmental issues, ethics and

social responsibilityThe sensitivity of potential suppliers regarding the

environment could include:

Adoption of environmental management systems auchas ISO 14001

Environmentally friendly packaging

Re-use, recycling and remanufacturing

Waste disposal-hazardous materials and toxic waste


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Ethics

Purchasing management is under more pressure tobehave ethically and this requires the selection ofsuppliers who are prepared to act in a responsible andethical manner.

Do suppliers have a code of ethics? Do they have a specific code of ethical requirements

for their purchasing staff?


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Social responsibility

It is important to select suppliers who have socialawareness and are socially responsible. This may cover:

Diversity in the workplace

Testing products on animals

The use of slaves/ child labour


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Broad-Based Black Economic

EmpowermentBBBEE Act 53 of 2003 involves the steps taken by the

government to support disadvantaged purchasingprogrammes.

It is a core requirement of the South African businessrequirement in which organisations operate.

(Chapter 17)


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Capabilities, responsiveness and

motivationThese criteria consider several desirable supplier traits,

examples may include:

Organisational capability

Employer /employee relationships

Staff morale

Ongoing education and training of suppliers staff

Supplier responsiveness

Suppliers motivation to meet organisationalrequirements


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Geographic locationUnder normal circumstances, a supplier should be

located near the purchasing organisation in order tomanage the supply chain easier.

The more geographically dispersed the supply base, themore complex the supply chain leading to:

Longer lead times

Increased stock

Increased ICC


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THE SUPPLIER SELECTION PROCESSThe supplier selection process is a three-stage process

with seven steps. The first two stages are carried outconsecutively and the third is performed after a

suitable period of time has elapsed.

This entails the search and identification of possible

suppliers, the elimination of unsuitable suppliers andthe in-depth study and evaluation of shortlistedsuppliers against the key criteria.


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The three stages are:STAGE 1: EXPLORATORY/ PRE-ASSESSMENT PHASE

Step1- Identify possible suppliers

Step 2-Prescreen to reject unsuitable suppliersSTAGE 2: SELECTION/ ASSESSMENT PHASE

Step 3-Conduct research on suitable suppliers

Step 4-Choose the assessment method and analyse the suppliers

Step 5- Select supplierSTAGE 3: SUPPLIER MANAGEMENT/ POST-ASSESSMENT PHASE

Step 6-Ongoing measurement of supplier performance

Step 7- Supplier accreditation


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: -ASSESSMENT PHASE

Step 1: Identification of potential suppliersThere are a variety of sources available to identify suppliers:

Internet search engines-not only identify potential suppliers but

also provide important information about them. Chambers of commerce or business-local, regional and

international suppliers

Embassies and general officers

National associations

Trade directories, trade journals and business directories Industrial trade affairs

Credit bureaus

Reputation


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Step 2: Pre-screening to reject unsuitable suppliers

It is important to perform an initial screening operation toeliminate unsuitable suppliers.

The grounds for supplier elimination at this early stage maybe:

Suppliers that dont meet quality requirements-ISO 9000

Suppliers that are in poor financial position

Suppliers that are experiencing labour problems andstrikes

Previously rejected suppliers

When there is a possible risk of interruption in supply

:


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:PHASE

Step 3: Conduct research on potentially suitable suppliersInformation sources for supplier research include: Supplier visits

A supplier visit may elicit information about a supplier that cannotbe obtained from a questionnaire-worker attitudes, safetyconsciousness, state and age of equipment and efficiency ofoperations.

A cross-functional team may visit a potential supplier to obtainfirst-hand information and carry out an extensive audit.

Supplier surveys or questionnairesA questionnaire can be given to a supplier to complete and extract

information if a supplier visit is not feasible. The selectioncriteria could be used to formulate the questionnaire.


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Step 4: Choose the assessment method and analyse the suppliers

Assessment methods range from informal to formal Informal techniquesIncludes the purchasing managers judgement for low-value, non-

critical products and a panel which discusses merits for eachsupplier before making a decision.

Semi-formal techniquesInvolves a purchasing team that delivers a presentation to the

board of directors in order for them to make a decision.

Formal techniquesIncludes the weighted-point supplier performance rating where

criteria are weighted according to their importance and suppliersscored against them.

Figure 5.3 : weighted point supplier performance evaluation


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Step 5: select the supplier or suppliers

After assessing the criteria, the purchasing manager or crossfunctional team will be in a position to approve a supplier

or suppliers.

This will be carried out within the framework of theorganisations purchasing policy guidelines.

:


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:POST-ASSESSMENT PHASE

Step 6: Ongoing measurement of supplier performance

Supplier performance may be measured by using theweighted-point evaluation method- Figure 5.3

Ongoing measurements may be based on:

Quality

Cost reduction

On-time deliveries Technology

Service


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Step 7: Supplier accreditationSuppliers which have gone through the assessment selection and

evaluation process can be classified in 3 (three) groups: Approved suppliers

Suppliers that have met the requirements of the supplier selectionprocess. (step 1-6)

Preferred suppliersSuppliers whose past performance consistently meets and exceeds

the organisations required levels for criterion such as quality,

delivery and service. Certified suppliersSuppliers whom the organisation can present an award to after an

in-depth assessment that revolves around quality managementand continuous improvement.


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SUPPLIER RELATIONSHIP

MANAGEMENTWhat constitutes a buyer-supplier relationship?A relationship is a connection or association. Relationships apply

when individuals, organisations or groups within and external

to an enterprise interact.

Relationships between suppliers and buyers may range from low-value, transaction-based interactions to partnerships that are of

strategic and financial importance to the business.


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Types of buyer-supplier relationships

There are 3 (three) principal classes of relationships:

Transactional Collaborative

Alliance


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SUPPLIER RELATIONSHIP

MANAGEMENTSupplier relationship management (SRM) can be

regarded as a buying organisations strategicmanagement philosophy for interacting with its supply

base with the objective of sustaining superiorperformance throughout the span of their association.

SRM includes those processes focused on the interaction

between the enterprise and suppliers that areupstream in the supply chain. These processes aredesign collaboration, sourcing, negotiation, and buyand supply collaboration.

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Chapter 5-Supplier Selection[2]