Once the portfolio analysis is completed, the buyer must then dive into the category and evaluate individual suppliers as to their suitability, narrowing the list down to a critical few. The ultimate result of this step is to make supplier recommendations, so the buyer must first identify current and potential suppliers, determine any information technology requirements and identify opportunities to leverage the commodity expenditures with similar commodities. Show Most procurement experts will agree that there is no one best way to evaluate and select suppliers, and organisations use a variety of different approaches. Regardless of the approach employed, the overall objective of the evaluation process should be to reduce procurement risk and maximise overall value to the buying organisation. Figure 3.5 summarises all the critical steps involved in the supplier evaluation and  Figure 3.5 Supplier evaluation and selection process We shall now examine briefly some of the different criteria that an organisation may use to assess potential suppliers. Although it may not be possible to obtain all the relevant information, whatever data that can be obtained will definitely help the buying organisation assess the potential for a successful match. 1. Process and design capabilities: Suppliers should have up-to-date and capable products, as well as process technologies to produce the material needed. Because different manufacturing and service processes have various strengths and weaknesses, the buying organisation must be aware of these characteristics upfront. When the buying organisation expects suppliers to perform component design and production, it should also assess the supplier’s design capability. One way to reduce the time required to develop new products is to use qualified suppliers that are able to perform product design activities. 2. Quality and reliability: Quality levels of the procurement item should be a very important factor in supplier selection. Product quality should consistently meet specified requirements since it can directly affect the quality of the finished goods. Besides reliable quality levels, reliability also refers to other supplier characteristics. For example, is the supplier’s delivery lead-time reliable? Otherwise, production may have to be interrupted due to shortage of material. 3. Cost: While unit price of the material is not typically the sole criterion in supplier selection, total cost of ownership is an important factor. Total cost of ownership includes the unit price of the material, payment terms, cash discount, ordering cost, carrying cost, logistics costs, maintenance costs, and other more qualitative costs that may not be easy to assess. 4. Service: Suppliers must be able to back up their products by providing good services when needed. For example, when product information or warranty service is needed, suppliers must respond on a timely basis. 5. Capacity: The organisation may also need to consider whether the supplier has the capacity to fill orders to meet requirements and the ability to fill large orders if needed. 6. Location: Geographical location is another important factor in supplier selection, as it impacts delivery lead time, transportation, and logistics costs. Some organisations require their suppliers to be located within a certain distance from their facilities. 7. Management capability: Assessing a potential supplier’s management capability is a complicated, but important step. The different aspects of management capability include management’s commitment to continuous process and quality improvement, its overall professional ability and experience, its ability to maintain positive relationships with its workforce and its willingness to develop a closer working relationship with the buyer. 8. Financial condition and cost structure: An assessment of a potential partner’s financial condition usually occurs during the evaluation process. Evaluation teams will typically evaluate the different financial ratios that determine whether a supplier can invest in resources, pay its suppliers and its workforce, and continue to meet its debt and financial obligations. These elements are important in determining whether the supplier will continue to be a reliable source of supply, and that supply will not be disrupted. 9. Planning and control system: Planning and control systems include those systems that release, schedule and control the flow of work within an organisation and also with outside parties. The sophistication of such systems can have a major impact on supply chain performance. For example, how easy to use is a supplier’s ordering system, and what is the normal order cycle time? Placing orders with a supplier should be easy, quick and effective. Delivery lead time should be short, so that small lot sizes can be ordered on a more frequent basis to reduce inventory holding costs. 10. Environmental regulation compliance: The 1990s brought about a renewed awareness of the impact that industry has on the environment. As a result, a supplier’s ability to comply with environmental regulations is becoming an important criterion for supply chain alliances. This includes, but is not limited to, the proper disposal of hazardous waste. 11. Willingness to share technologies and information: With the current trend that favours outsourcing to exploit suppliers’ capabilities and to focus on core competencies, it is vital that organisations seek suppliers that are willing to share their technologies and information. Suppliers can assist in new product design and development through early supplier involvement to ensure cost-effective design choices, develop alternative conceptual solutions, select the best components and technologies, and help in design assessment. By increasing the involvement of the supplier in the design process, the buyer is free to focus more attention on core competencies. 12. Longer-term relationship potential: In some cases, an organisation may be looking to develop a long-term relationship with a potential supplier. This is particularly true if the supplier is in the ‘critical’ quadrant, and the category of spend is high volume and critical to the organisation’s business. This approach requires that the parties share their mutual goals, establish metrics to guide the relationship and develop a series of ongoing discussions on how issues and conflicts can be resolved in a mutually beneficial manner. These relationships may also involve joint cost-savings projects and new product-development efforts. 13. Supplier selection scorecards: During the selection stage, sometimes organisations need a structured way to evaluate alternative suppliers. This can be particularly hard when the criteria include not just quantitative measures (such as costs and on time delivery rates) but other, more qualitative factors, such as management stability or trustworthiness. A supplier selection scorecard may be used as a decision support tool. The evaluation team will assign a weight to the different categories and develop a numerical score for each supplier in each category, thereby developing a final performance score. It should be mentioned here that the need for assessment does not end with the selection decision, however. After the buyer-supplier relationship has been established, buyers also must track supplier performance over time. The ability to rank suppliers across multiple criteria can be especially helpful in identifying which suppliers are providing superior performance and which are in need of some improvement.
Quality Glossary Definition: Supplier quality Supplier quality is a supplier’s ability to deliver goods or services that will satisfy customers’ needs. Supplier quality management is defined as the system in which supplier quality is managed by using a proactive and collaborative approach. It's in an organization’s best interest to ensure that its service or material suppliers are providing the highest quality products and services while also conforming to pre-established requirements. This is often accomplished through the use of supplier quality management systems (QMS), which allow companies to monitor supply chains and inspect or audit materials and services at regular intervals. Supplier quality management begins early in the product design and supplier selection process. It continues through the entire life cycle of a product and for the duration of the relationship with that particular supplier. Proper supplier quality management tactics include taking inputs (such as employee work, marketplace requirements, operating funds, raw materials, and supplies) and effectively and efficiently converting them to outputs deemed valuable by customers. Supplier performance and quality management go beyond securing a low purchase price or getting the best deal on bulk materials. It also includes:
The Benefits of a Proper Supplier Quality Management ProcessAt one time, it was not uncommon to line up multiple suppliers for the same raw material, usually due to concerns about running out of stock or a desire to play suppliers against one another for price reductions. This has given way to working more closely with a smaller number of suppliers in longer-term, partnership-oriented arrangements. The benefits of supplier partnerships include:
Establishing an effective supplier management process requires:
Supplier Selection Criteria and StrategiesSupplier selection criteria for a particular product or service category should be defined by a cross-functional team of representatives from different sectors of an organization. In a manufacturing company, for example, members of the team typically would include representatives from purchasing, quality, engineering, and production. Team members should include personnel with technical/applications knowledge of the product or service to be purchased, as well as members of the department that uses the purchased item. Common vendor and supplier selection criteria includes:
Methods for determining how well a potential supplier fits the selected criteria:
Supplier Quality CertificationsAdvance your career and your organization with an ASQ certification. These certifications emphasize supplier quality in their bodies of knowledge. Managing Supplier/Buyer RelationshipsQuality, cost, and delivery have long been considered key indicators of supplier quality management and performance. The arrival of lean methodology has added another beneficial aspect to the quality supplier network, and more recently another indicator has emerged in today’s environment: connectedness. This is a measure of how well an organization is connected to and integrated with its supply chain. To create a lean but integrated value supply chain, a strong relationship and collaboration needs to exist between both supplier and buyer. This partnership includes:
Developing and implementing a wide range of communication initiatives must be aimed at improving the responsiveness of the supply chain may include:
E-Business in a Lean Supplier NetworkA critical component of creating a lean supplier network is the implementation of an e-business strategy. Technology should be used to enhance communication and move an organization and its entire supplier network toward paperless transactions. This can help improve efficiency in data transformation and information flow without unnecessary costs. Electronic commerce can also help increase access to a larger number of global suppliers that may be strategically aligned with your organization. Collaboration is critical for just-in-time (JIT) production of the right amount of product exactly when it is needed, which can serve as a mechanism to avoid lead time issues. Collaborative supply chain solutions function as a broker between customer and supplier by communicating supply-and-demand needs and issues across the supply chain via visual signals. Collaborative commerce (c-commerce) allows cyber communities to share intellectual capital, integrate diverse business processes, and increase corporate innovation, market reach, productivity, and profitability. The technology must provide a means for understanding the entire supply chain, encompassing what the roles, policies, and processes that define its personality are and how business transactions are handled, to encourage optimal efficiency across the supply chain. “Cost Out” vs. “Price Down” StrategiesIn the past, when there were material price increases, the increased cost was passed up to the customer. Today’s increasingly competitive climate often leads to costs being passed down the supply chain instead. Likewise, the introduction of technology and methodologies that can lead to increased productivity have prevented labor costs from impacting on product costs, making price differentiation within market segments less likely. This requires the entire chain to continually adapt and respond to ongoing changes in cost. Pressure to reduce costs has forced companies to find innovative ways to offer high-performance products at a low cost. This has prompted organizations to assess the role of their suppliers and the supply chain as a source of increased profitability and cost reduction. However, as cost pressures are passed down the supply chain, cost reduction and the overall enhancement of value cannot be viewed as an isolated initiative. Price reduction is only a tactical short-term solution and organizations must understand that there is a limit to how much a supplier can reduce its price and still remain viable. Instead of focusing on a "price down" strategy, organizations need to employ a "cost out" strategy. This requires a holistic view of the supply chain whereby an organization works with its supply base to achieve the removal of waste through joint initiatives aimed at value creation. Value creation requires:
To create value, greater collaboration is required by organizations up to the customer, down to suppliers, and across the entire supply chain. These improvements in communication, information sharing, and relationships can not only create value, but establish stronger, more efficient supply chain management processes. Supplier Quality resourcesYou can also search articles, case studies, and publications for supplier quality resources. BooksThe Certified Supplier Quality Professional Handbook Managing Organizational Risk Using The Supplier Audit Program ASQ Certified Supplier Quality Professional (CSQP) Study Guide The ASQ Supply Chain Management Primer ArticlesBeyond Tried and True (Quality Progress) With much of an organization's value dependent on its product suppliers, a strong supplier audit program is essential. Organizational risk can be reduced or eliminated by effective management of suppliers, based on a systematic analysis of their delivery, response and rating. Quality In The First Person: Supplier Hugger Or Engineer? (Quality Progress) The important dual role of supplier quality engineers is explained. They monitor the supply base, ensure suppliers are providing quality products, monitor supplier performance, evaluate corrective and preventive action responses, and perform audits. Supplier Selection And Maintenance (Quality Progress) All suppliers are not equally important to your company’s success. The extent you go to depends on the associated cost, production and risk. Adapted from The Certified Manager of Quality/Organizational Excellence Handbook, ASQ Quality Press. |
Which of the following is not a method or criteria for supplier development project selection?
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