chapter 5-supplier selection[2]
TRANSCRIPT
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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.