The Importance of Supplier Selection Presented by: Deborah Anderson Danaillie Woodfine.
-
Upload
anabel-wilcox -
Category
Documents
-
view
214 -
download
0
Transcript of The Importance of Supplier Selection Presented by: Deborah Anderson Danaillie Woodfine.
The Importance ofSupplier Selection
Presented by:Deborah AndersonDanaillie Woodfine
Evolution of the Supply FunctionEvolution of the Supply Function The Handling of Railway Supplies – Their Purchase and DispositionThe Handling of Railway Supplies – Their Purchase and Disposition
– Published in 1887– Published in 1887
Attention in the first half of 1900’s to reliable access to supply of Attention in the first half of 1900’s to reliable access to supply of raw materials, supplies, and serviceraw materials, supplies, and service
Two problems arise in the 1970’s that puts senior managements Two problems arise in the 1970’s that puts senior managements attention on the supply function:attention on the supply function:• International shortage of basic raw materialsInternational shortage of basic raw materials• Price inflationPrice inflation
1990’s, firms are faced with challenges of global supply chains and 1990’s, firms are faced with challenges of global supply chains and increased reliance on suppliersincreased reliance on suppliers
Technological developments in the early 21Technological developments in the early 21stst century provides century provides expectations for supply chain integration, lower transaction costs, expectations for supply chain integration, lower transaction costs, and faster response times.and faster response times.
Supplier Selection CriteriaSupplier Selection Criteria
1.1. PricePrice
2.2. QualityQuality
3.3. DeliveryDelivery
4.4. ServiceService
Four Product CategoriesFour Product Categories Routine Order ProductsRoutine Order Products – no problems associated with – no problems associated with
learning to use the productlearning to use the product
Procedural Problem ProductsProcedural Problem Products – no question about the – no question about the capability of the product, but problems in learning to use capability of the product, but problems in learning to use the productthe product
Performance Problem ProductsPerformance Problem Products – some doubt as to – some doubt as to whether the product will perform satisfactorily in the whether the product will perform satisfactorily in the application for which it is being consideredapplication for which it is being considered
Political Problem ProductsPolitical Problem Products – require large capital – require large capital outlays, and the buying decision will likely involve people outlays, and the buying decision will likely involve people from several functional areas within the organization.from several functional areas within the organization.
Buyer-Supplier Relationship:Buyer-Supplier Relationship:Investment Versus Rewards ObtainedInvestment Versus Rewards Obtained
Supply Risks and DollarsSupply Risks and Dollars
Source: Peter Kraljic, Purchasing Must Become Supply Management,” Harvard Business Review, September-October, 1983
Bottleneck• Unique specification• Supplier technology
important• Production-based scarcity• Substitution difficult• Usage fluctuates• Potential storage risk
Strategic• Continuous availability essential• Custom design or unique
specifications• Supplier technology important• Few adequate suppliers• Changing source of supply difficult• Substitution difficult
Non-Critical• Standard or commodity type • Substitute products available• Competitive supply market
Leverage• Unique cost management important• Substitution possible• Competitive supply market
Low
Low
High
High
Value
View of Buyer-Supplier Relationship:View of Buyer-Supplier Relationship:A Paradigm ShiftA Paradigm Shift
TraditionalTraditional Lowest priceLowest price Specification-drivenSpecification-driven Short-term, reacts to marketShort-term, reacts to market Trouble avoidanceTrouble avoidance Purchasing’s responsibilityPurchasing’s responsibility TacticalTactical Little sharing of informationLittle sharing of information
PartnershipPartnership Total cost of ownershipTotal cost of ownership End-customer drivenEnd-customer driven Long-termLong-term Opportunity maximizationOpportunity maximization Cross-functional teams and top Cross-functional teams and top
management involvementmanagement involvement StrategicStrategic Both supplier and buyer on Both supplier and buyer on
both sides share short- and both sides share short- and long-term planslong-term plans
Shared risk and opportunityShared risk and opportunity StandardizationStandardization Joint venturesJoint ventures Share dataShare data
Supply Strategy QuestionsSupply Strategy Questions
WhereWhere• Local, regionalLocal, regional• Domestic, internationalDomestic, international• Large versus smallLarge versus small• Multiple versus sole sourceMultiple versus sole source• High versus low supplier turnoverHigh versus low supplier turnover• Supplier relationsSupplier relations• Supplier certificationSupplier certification• Supplier ownershipSupplier ownership
Supply Strategy QuestionsSupply Strategy Questions HowHow
• Systems and Systems and proceduresprocedures
• ComputerizationComputerization• NegotiationsNegotiations• Competitive bidsCompetitive bids• Fixed bidsFixed bids• Blanket orders/open Blanket orders/open
ordersorders
• Blank check systemBlank check system
• Group buyingGroup buying
• MRPMRP
• Long-term contractsLong-term contracts
• EthicsEthics
• Aggressive or Aggressive or passivepassive
• Purchasing researchPurchasing research
• Value analysisValue analysis
Formal Supplier EvaluationsFormal Supplier Evaluations
QualityQuality
PricePrice
DeliveryDelivery
ServiceService
Good Performance
Fair Performance
Unsatisfactory Performance
Weighted Point Evaluation SystemsWeighted Point Evaluation Systems
Identify suppliersIdentify suppliers• Important suppliers and/or critical goods and Important suppliers and/or critical goods and
servicesservices
Identify factors or criteria for evaluationIdentify factors or criteria for evaluation
Determine the importance of each factorDetermine the importance of each factor
Establish a system for rating each supplier on Establish a system for rating each supplier on each factoreach factor
Evaluation of Potential Sources: Evaluation of Potential Sources: Two Key QuestionsTwo Key Questions
1.1. Is this supplier capable of supplying our Is this supplier capable of supplying our requirements satisfactorily in both the requirements satisfactorily in both the short- and long-term?short- and long-term?
2.2. Is this supplier motivated to supply these Is this supplier motivated to supply these requirements in the way we expect in the requirements in the way we expect in the short- and long-term? short- and long-term?
Arguments in Favor of Multiple Arguments in Favor of Multiple SourcingSourcing
Traditional practiceTraditional practice Keep suppliers “on their toes”Keep suppliers “on their toes” Assurance of supplyAssurance of supply Capable of dealing with multiple suppliers efficientlyCapable of dealing with multiple suppliers efficiently Avoid supplier dependence on one customerAvoid supplier dependence on one customer Obtain a greater degree of volume flexibilityObtain a greater degree of volume flexibility Strategic considerationsStrategic considerations Government regulationsGovernment regulations Limited supplier capacityLimited supplier capacity Opportunity to test a new supplierOpportunity to test a new supplier Supply market volatilitySupply market volatility
Arguments in Favor of Single SourcingArguments in Favor of Single Sourcing Exclusivity: The supplier may be only available sourceExclusivity: The supplier may be only available source
• patent protection, exclusive distributorshippatent protection, exclusive distributorship
Outstanding quality or service Outstanding quality or service value value
Order too small to splitOrder too small to split
Opportunities for discounts or lower freight costsOpportunities for discounts or lower freight costs
More important customer More important customer more attention from supplier more attention from supplier
Cost of duplication prohibitiveCost of duplication prohibitive
Easier to schedule deliveriesEasier to schedule deliveries
JIT, stockless buying or EDI arrangementsJIT, stockless buying or EDI arrangements
Easier to manage one supplierEasier to manage one supplier
Prerequisite to partneringPrerequisite to partnering
The customer’s point of view
The suppliers’ point of view
Helpful WebsitesHelpful Websites International Federation of Purchasing and Supply International Federation of Purchasing and Supply
Management (IFPSM)Management (IFPSM)http://http://www.ifpmm.org//
Purchasing and Supply Management Certificate ProgramPurchasing and Supply Management Certificate Program
Louisiana State University (LSU) http://www.is.lsu.edu/newDOCE/Professional/certificate.asp?Home=1
Institute of Supply Management (ISM)Institute of Supply Management (ISM)http://www.ism.ws/
Questions?Questions?
Works Cited:
Purchasing and Supply Management, McGraw Hill Companies
ProQuest – The Relative Importance of Supplier Selection Criteria: A Review and Update