Supplier Selection & Evaluation: BPT3133 - Procurement in Industrial Management

Supplier Selection &
Evaluation
BPT3133 – Procurement in Industrial Management
Chapter Outline
• Supplier Evaluation and Selection
• Supplier Quality Management
• Supplier Management and Development
• Global Sourcing
Learning Objective
• Identify the 7 step supplier selection process as
an enabler to world-class supplier selection
• Link the principles of total quality management
to supply management practices
• Recognize that supplier management and
development includes a variety of activities
intended to improve supplier performance
• Understand the reasons why firms pursue
international purchasing
Supplier Evaluation & Selection
Recognize the need for supplier selection
Identify key sourcing requirements
Determine sourcing strategy
Identify potential supply sources
Limit suppliers in selection pool
Determine method of supplier evaluation and selection
Select supplier and reach agreement

When do supplier evaluation and selection decisions arise?
• During new product development
• Due to poor internal or external supplier performance
• At the end of a contract
• When buying new equipment
• When expanding into new markets or product lines
• When performing market tests
• When current suppliers have insufficient capacity
• When reducing the size of the supply base
• During outsourcing analyses
• When consolidating volumes across a business
Determine sourcing strategy
• No single sourcing strategy approach will satisfy the
requirements of all purchases
• Purchasing strategy adopted will influence the
approach taken during evaluation and selection process
• Key decisions include:
 Single vs. multiple supply sources
 Short term vs. long term purchase contracts
 Selecting suppliers that provide design support vs. those that
lack design capability
 Full-service vs. non full-service suppliers
 Domestic vs. foreign suppliers
 Expectation of a close working relationship vs. arm’s-length
purchasing
Identify potential supply sources:
• Current suppliers
• Sales representatives
• Information database
• Experience
• Trade journals / directories / shows
• Second-party / indirect information
• Internal sources
• Internet searches
Sourcing alternatives:
• Manufacturer vs. Distributor
• Local / National / International Suppliers
• Large or Small Suppliers
• Multiple or Single Sourcing
Key Supplier Evaluation Criteria:
• Management capability
• Employee capabilities
• Cost structure
• Total quality performance, systems and philosophy
• Process and technological capability
• Environmental regulation compliance
• Financial stability
• Production scheduling and control systems
• E-commerce capability
• Supplier’s sourcing strategies, policies and techniques
• Longer-term relationship potential
Supplier Quality Management
Supplier Quality
Ability to meet or exceed

current and future
customer expectations or
requirements within
critical performance
areas on a consistent
basis
Importance of Supplier Quality
a. Supplier Impact on Quality
• supplier responsible for 50% of firm’s product-related quality
problem
• company focuses only its own internal quality issues will usually fail
to recognize and take action on quality-related problems
b. Continuous-Improvement Requirements
• continuous quality improvements in all aspects; one way to do this is
through effective management of supplier quality
c. Outsourcing of Purchase Requirements
• no longer an advantage in some industries to make most of the
components of a product
• therefore, progressive buyers are relying on suppliers that
demonstrate significant capabilities
Factors affecting supply management’s role in managing
supplier quality:
i. The ability of a supplier to affect a buyer’s total quality
ii. The resources available to support supplier quality
management and improvement
iii. The ability of a buying firm to practice world class quality
iv. A supplier’s willingness to work jointly to improve quality
v. A supplier’s current quality levels
8 Key Principles of TQM
1. Define quality in terms of customers and their
requirements
2. Pursue quality source
3. Stress objective rather than subjective analysis
4. Emphasize prevention rather than detection of defects
5. Focus on process rather than output
6. Strive for zero defects
7. Establish continuous improvement as a way of life
8. Make quality everyone’s responsibility
Supplier Management &
Development
• Important part of supplier management involves the
continuous measurement, evaluation and analysis of
supplier performance.
• What to measure?
– Delivery performance
– Quality performance
– Cost reduction
• Types of Supplier Measurement Techniques
– Categorical System
– Weighted-Point System
– Cost-Based System
Development
Categorical System
Development
Weighted-Point System
Development
Cost-Based System
* Supplier Performance Index (SPI) = (Total Purchases + Nonperformance Costs) / Total Purchases
Development
Global Sourcing
• Definitions of globalization – ‘interdependence’,
‘connectivity’ and ‘integration of economies’ in social,
technical and political spheres
• International Purchasing relates to a commercial
purchase transaction between a buyer and a supplier
located in different countries.
• Global (worldwide) sourcing involves proactively
integrating and coordinating common items and
materials, processes, designs, technologies and suppliers
across worldwide purchasing, engineering and
operating locations.
Global Sourcing
Why Source Worldwide?
• Cost / Price Benefits
• Access to Product and Process Technology
• Quality
• Access to the Only Source Available
• Introduce Competition to Domestic Suppliers
• React to Buying Patterns of Competitors
• Establish a Presence in a Foreign Market
Global Sourcing
Barriers to Worldwide Sourcing:
• Lack of knowledge and skills concerning global sourcing
• Resistance to change
• Longer lead times
• Different business customs, language and culture
• Currency fluctuations
Global Sourcing
Benefits:
• Lower purchase price or cost
• Greater supplier responsiveness
• Greater sourcing process consistency
• Improved supplier relationships
• Improved sharing of information with suppliers
Summary
• Suppliers evaluation and selection will establish the
foundation to develop & improve supplier performance.
• Improving supplier quality involves much more than
providing clear specifications and maintaining open
communication.
• An effective supplier management program helps
maximize the contribution received from suppliers,
lowering costs, increasing quality and developing future
capabilities.
• Firms operating in competitive industries must purchase
from the best available sources worldwide.

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Supplier Selection &

Identify key sourcing requirements

Determine sourcing strategy

Identify potential supply sources

Limit suppliers in selection pool

Determine method of supplier evaluation and selection

Select supplier and reach agreement

Ability to meet or exceed

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