1December 14, 2006Identifying Preferred Suppliers A Training Tool on Supplier Selection By Kira...

December 14, 2006 Identifying Preferred Suppliers 1

Identifying Preferred SuppliersA Training Tool on Supplier Selection

By

Kira ConnellBus M 361


What Will Be Covered

1. Supplier Selection Defined2. Brainstorming Exercise: How Can This

Tool be Used in Your Organization?3. Important Criteria in Supplier Selection4. Application: Supply Base Reduction5. Example and Exercise for Supplier

Selection


Supplier Selection Defined• Supply chain: “a network of manufacturers and

service providers that work together to convert goods from the raw materials stage to the end user” (Bozarth and Handfield, 4)

• Supplier: an entity that supplies goods or services ; network of suppliers combine to form a supply chain

• Supplier selection: the process of identifying and choosing an appropriate supplier


Brainstorming Exercise

• Why is a reliable and quality supplier important to your organization?

• What are the major effects of a poor supplier on your business?

• How does this affect the final customer?


Ray Carter’s 10 C’s to Supplier Selection

• Competency• Capacity• Consistency• Control of process• Cost/price

• Commitment to quality• Cash/finances• Clean• Culture and relationship• Communication


Competency

• Supplier must have core skills associated with the goods or services they are providing

• Look for the following:– Internal systems to ensure competence/effectiveness

– Appropriate number of staff in each skill area

– Adequate supervision ratio of managers to employees


Capacity

• Supplier must have sufficient resources to provide adequate amount of goods or services

• Look for:– Flexibility in volume changes

– Percent of annual turnover your contracts comprise

– Subcontracting


Consistency

• Supplier should consistently provide accurate, timely, and quality products

• Consider the following:– Does the supplier have adequate facilities and updated

technology?

– Does the vendor frequently ask for concessions or require rework?

– Is the supplier ISO 9000 certified?


Control of Process

• Supplier must have control over the systems and people that control resources, inventory, budgets, and processes

• Assess whether:– The vendor can adapt these systems when necessary

– The supplier monitors actual performance against the process

– The vendor has a corrective program in place


Cost/Price

• Supplier should provide their goods or services at a competitive and reasonable price

• Also consider:– Payment and interest terms

– Additional costs

– An unusually low price which may indicate a misunderstanding of the scope of the work or an intention to cut corners on quality or safety


Commitment to Quality

• Supplier should be committed to providing a quality product

• Also look for:– Management inspections, quality control standards,

evaluation mechanisms

– Operating and maintenance instructions, quality plans, certificates of conformity

– Service record with other buyers


Cash/Finances

• Supplier should have sufficient cash funds to ensure that it will remain in business

• Look for:– A company’s financial records and ratios– Evidence of having “a challenging year” or “a

year of consolidation”– Willingness to provide a financial guarantee


Clean

• A supplier should be environmentally sound and a safe workplace

• Look for evidence of:– Compliance with government regulations– Accident statistics– Regular safety inspections– Safety awards


Culture and Relationship• Supplier should be able to match the requirements

of your contract• Consider:

– Is the supplier committed to an open working relationship built on trust?

– Does the contractor understand what benefits you are seeking and what value they can add?

– Is the contractor able to work within your cultural barriers?


Communication

• Supplier should be fully integrated with information and communication technology

• Look for:– Whether the company has the technology to

immediately receive information regarding changes in an order


Supply Base Reduction

• Defined as “the process of and activities associated with reducing the number of suppliers that an organization utilizes” (Odgen, 30)

• Many companies now using supply base reduction as a method to improving supplier selection


Pros/Cons of Supply Base Reduction

• Pros– Closer relationship with supplier– Easier to communicate– More reliable

• Cons– Prevents competition which may raise prices– Less flexibility in volume


Real World Example: Harley-Davidson

• Example of effectiveness of supply base reduction– Reduced its less-than-truckload (LTL) carrier

base from 68 to 7– Trimmed $1.5 million in transportation costs– On time performance up 2.5 percent– Service failures substantially reduced


Practical Exercise• Assignment: break up into groups of 4-5 students and rank

the four suppliers you are given, identifying the preferred supplier

• Instructions:– Consider the following five suppliers– Identify most important criteria for supplier selection– Rank each of the five suppliers based on criteria and justify

reasons for preferred supplier

Note: you manufacture wooden tables and chairs and are looking for a vendor to supply wood


Suppliers for Practical Exercise• Supplier #1: good cost and quality; bad

consistency and control• Supplier #2: good consistency and capacity; bad

quality• Supplier#3: good competency and cash; bad cost

and culture• Supplier #4: good clean and communications; bad

cash


Discussion Q’s for Exercise• Which supplier is preferred and why?• Should your organization consider using more

than one of the suppliers?• What effect does the industry have on which

criteria you consider most important?• What are the pros and cons of having a limited

number of suppliers? Of having multiple suppliers?


Summary

• Identifying and selecting preferred suppliers is an objective process– There is no formal solution or process– There are important criteria that can be used to

help identify the best supplier– Using these criteria still involves value

judgment


Readings• Introduction to Operations and Supply Chain Management, by Cecil C.

Bozarth and Robert B. Handfield, Pearson Prentice Hall, 2006

• Making the Right Choice, by Alan Oxenbury, Supply Management, July 2006

• The Final Countdown, by Alan Oxenbury, Supply Management, August 2006

• How Many ‘C’s in Partner?, by Neil Fuller, Supply Management, September 2005.

• Supply Base Reduction: An Empirical Study of Critical Success Factors, by Jeffrey A. Ogden, Journal of Supply Chain Management: A Global Review of Purchasing & Supply, November 2006.

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