Purchasing (BMK3748) Diploma in Business Management

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Chapter 8: Sourcing for Consumables, Capital Goods, Good for Resale

Key Supplier Performance Indicators
Direct measures quantify supplier performance at the time work is completed.
Examples: on time delivery, number of rejects, and cycle time to develop a specific product/
service/ technology in a development stage.
Automation of real time metrics such as quality, quantity, price, and on-time delivery
measures and careful selection of more time consuming data collection activities help to
reduce the time spent measuring results.

Supplier score card
Summary statement of the suppliers cost, quality, and timeliness performance and a
compilation of satisfaction surveys, real time metrics, variance of invoice amounts to
estimates or contract negotiated rates and other contract related terms.

Categories of Supplier

a) New supplier
Is one about no track record is yet available.
A supplier new to the buying organization and in the process of attempting to meet its
obligations under its first contract.
Can be considered probationary and will normally be watched closely to ascertain
whatever pre selection expectations warranted awarding the business.

b) Current/long-term supplier
Already proven in the past that their performance meets minimum expectations.
The evaluation of their performance may be more routine.


1. Sole Source
A situation whereby only one source is capable of meeting the buyers need - then, you have
a sole source situation.
The exact opposite of open competition.
A result of a government-created monopoly, such as local utility, and there is little the buyer
can do to gain concession.
In this kind of situation, there is formal oversight by some governing body to ensure
customer get fair treatment.


2. Single Source
Similar to the sole source but is a condition created by the buying organization, either trough
product customization where only one supplier is capable of producing the product or
through some predefined collaborative relationship that by its nature excludes competition.
The supplier may be the exclusive owner or certain essential patents or processes and,
therefore, be the only possible source.

Purchasing (BMK3748) Diploma in Business Management

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Why buyers prefer Single Sourcing?
Prior commitments, a successful past relationship, or ongoing long-term contract with a
preferred supplier might prevent even the possibility of splitting the orders.
The order may be so small, so not worthwhile to divide it.
Concentrating purchases may make possible certain discounts or lower freight rates.
The supplier will be more cooperative, more interested, and more willing to please if it has
the entire buyers business.
The use of just-in-time production, stockless buying, or systems contracting.
Single sourcing is prerequisite to partnering.


3. Multiple Source
Sometimes used by the same organization, either to foster competition or because no single
supplier is capable of fulfilling 100 percent of the requirements.

Why buyers prefer Multiple Sourcing?
Knowing that competitors are getting some of the business may keep the supplier more alert
to the need for giving good value.
Strategic reasons, such as military preparedness and supply security, may require multiple
sourcing.
Multiple sourcing will be maintained to reduce the risk of interrupted supply.
Assurance of supply is increased. Should fire, strikes, breakdowns, or accident occur to any
one supplier, deliveries can still be obtained from the others for at least part of the needs.
Even in situation involving close and cooperative supplier relationship, it is possible to make
backup arrangements.