ASSESSMENT AND SELECTION OF SUPPLIERS

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/supplier

relationships

8 Rs of purchasing
The 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

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 purchase will be.

Environmental factors influencing supplier selection

Macro environment

Market structure
CUSTOMERS ENVIRONMENTAL

POLITICAL SUPPLIERS

MISSION & VISION RESOURCES Internal FUNCTIONS

environment

COMPETITORS

ECONOMIC AL INTERMEDIARIES

LEGAL

SOCIAL

TECHNOLOGICAL

SUPPLIER ASSESSMENT CRITERIA

A 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

 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

Quality and quality accreditations

Quality products or services influence the productivity of the organisation due to Fewer operational interruptions and better working conditions Quality of the final output of the organisation Better customer service and satisfaction Competitive advantage of the organisation Organisations require suppliers to be ISO 9000/14001 accredited

Price, cost and cost structure

Primary role of a purchasing professional is to defend the cost structure of the organisation without compromising quality and other key criteria.
Suppliers who achieve higher productivity reduce costs and are in the position to offer lower prices than their competitors. Such suppliers will enable the purchasing organisation to reduce prices, remain competitive and possibly increase market share.

The determination of a suppliers cost structure is a lengthy process and requires understanding of a suppliers material costs, direct and indirect labour costs, manufacturing costs and overheads.

Delivery
Organisations are moving towards demand-pull for products and services therefore on-time delivery is important. There is pressure to reduce inventories as a cost saving measure therefore suppliers are required to make smaller and more frequent deliveries Late delivery of the product or late performance of a service could have a disastrous effect in some organisations. Example-motor vehicle assemblers who are using the JIT system.

Time
Time-based competition-includes reducing lead time in order to gain an advantage. For example speed of response and the reduction in lead time. Reducing time means an improvement in productivity. the aim is to fulfil customer demand as quickly as possible in order to obtain competitive advantage. Suppliers should be actively involved in analysing and reducing cycle times through the use of cross-functional teams and techniques such as process/time mapping.

Flexibility
Flexibility is important when selecting a supplier. Purchasing organisations endeavour to determine how flexible the potential 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 products supplied. Variety-ability to offer a range of products Mix-ability to provide varying proportions of different products New products-ability to adapt and innovate new products

Service
Suppliers 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 delivery changes/disruptions Giving rapid response to customer queries This would also include the suppliers willingness or attitude towards SMI or providing stock facilities.

Financial status
It is important to determine the suppliers financial health, selecting financially healthy suppliers reduces risk. A supplier who is in difficult financial strains has an increased likelihood of an interruption in the supply of products or the performance of a service. Information regarding a suppliers financial position may be acquired from credit bureaus, financial ratios and debt judgement.

Systems: OPC and e-commerce

An assessment of the Operations Planning and Control(OPC) system used by the supplier is important.
The purchasing organisation needs to establish how the supplier plans, schedules and controls its operations which encompasses forecasting and demand management. Traditional forecasting using historical data is replaced by realtime demand planning systems which are based on what is currently happening and likely to happen. The ability to communicate electronically between customer and supplier is rapidly becoming a mandatory prerequisite for suppliers.

Technology and process capability

In considering the suppliers technology and process capability, a purchasing manager would look at the following: Will the suppliers equipment and processes meet more demanding specifications in the future Will the suppliers technological abilities meet future needs The suppliers design capability The suppliers ability to innovate products and services Will the suppliers available capacity meet future demands

Supply chain management

SCM has become so imperative that it should be considered as a separate criteria for supplier selection. The following should be taken into consideration:
The suppliers proposed position, role and importance in the

supply chain The suppliers appreciation and awareness of the concepts of SCM 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)

Environmental issues, ethics and social responsibility

The sensitivity of potential suppliers regarding the environment could include:
Adoption of environmental management systems auch

as ISO 14001 Environmentally friendly packaging Re-use, recycling and remanufacturing Waste disposal-hazardous materials and toxic waste

Ethics Purchasing management is under more pressure to behave ethically and this requires the selection of suppliers who are prepared to act in a responsible and ethical manner.
Do suppliers have a code of ethics?

Do they have a specific code of ethical requirements

for their purchasing staff?

Social responsibility It is important to select suppliers who have social awareness and are socially responsible. This may cover: Diversity in the workplace Testing products on animals The use of slaves/ child labour

Broad-Based Black Economic Empowerment

BBBEE Act 53 of 2003 involves the steps taken by the government to support disadvantaged purchasing programmes.
It is a core requirement of the South African business requirement in which organisations operate. (Chapter 17)

Capabilities, responsiveness and motivation

These 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 organisational requirements

Geographic location
Under normal circumstances, a supplier should be located near the purchasing organisation in order to manage the supply chain easier. The more geographically dispersed the supply base, the more complex the supply chain leading to: Longer lead times Increased stock Increased ICC

THE SUPPLIER SELECTION PROCESS

The supplier selection process is a three-stage process with seven steps. The first two stages are carried out consecutively 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 and the in-depth study and evaluation of shortlisted suppliers against the key criteria.

The three stages are:

STAGE 1: EXPLORATORY/ PRE-ASSESSMENT PHASE Step1- Identify possible suppliers Step 2-Prescreen to reject unsuitable suppliers STAGE 2: SELECTION/ ASSESSMENT PHASE Step 3-Conduct research on suitable suppliers Step 4-Choose the assessment method and analyse the suppliers Step 5- Select supplier STAGE 3: SUPPLIER MANAGEMENT/ POST-ASSESSMENT PHASE Step 6-Ongoing measurement of supplier performance Step 7- Supplier accreditation

STAGE 1: EXPLORATORY/ PREASSESSMENT PHASE

Step 1: Identification of potential suppliers
There 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

Step 2: Pre-screening to reject unsuitable suppliers It is important to perform an initial screening operation to eliminate unsuitable suppliers. The grounds for supplier elimination at this early stage may be: Suppliers that dont meet quality requirements-ISO 9000 Suppliers that are in poor financial position Suppliers that are experiencing labour problems and strikes Previously rejected suppliers When there is a possible risk of interruption in supply

STAGE 2: SELECTION/ ASSESSMENT PHASE

Step 3: Conduct research on potentially suitable suppliers
Information sources for supplier research include: Supplier visits A supplier visit may elicit information about a supplier that cannot be obtained from a questionnaire-worker attitudes, safety consciousness, state and age of equipment and efficiency of operations. A cross-functional team may visit a potential supplier to obtain first-hand information and carry out an extensive audit.
Supplier surveys or questionnaires

A questionnaire can be given to a supplier to complete and extract information if a supplier visit is not feasible. The selection criteria could be used to formulate the questionnaire.

Step 4: Choose the assessment method and analyse the suppliers

Assessment methods range from informal to formal Informal techniques Includes the purchasing managers judgement for low-value, noncritical products and a panel which discusses merits for each supplier before making a decision. Semi-formal techniques Involves a purchasing team that delivers a presentation to the board of directors in order for them to make a decision. Formal techniques Includes the weighted-point supplier performance rating where criteria are weighted according to their importance and suppliers scored against them. Figure 5.3 : weighted point supplier performance evaluation

Step 5: select the supplier or suppliers After assessing the criteria, the purchasing manager or cross functional team will be in a position to approve a supplier or suppliers.
This will be carried out within the framework of the organisations purchasing policy guidelines.

STAGE 3: SUPPLIER MANAGEMENT/ POST-ASSESSMENT PHASE

Step 6: Ongoing measurement of supplier performance Supplier performance may be measured by using the weighted-point evaluation method- Figure 5.3 Ongoing measurements may be based on: Quality Cost reduction On-time deliveries Technology Service

Step 7: Supplier accreditation Suppliers 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 selection process. (step 1-6) Preferred suppliers Suppliers whose past performance consistently meets and exceeds the organisations required levels for criterion such as quality, delivery and service. Certified suppliers Suppliers whom the organisation can present an award to after an in-depth assessment that revolves around quality management and continuous improvement.

SUPPLIER RELATIONSHIP MANAGEMENT

What 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 lowvalue, transaction-based interactions to partnerships that are of strategic and financial importance to the business.

Types of buyer-supplier relationships There are 3 (three) principal classes of relationships: Transactional Collaborative Alliance

SUPPLIER RELATIONSHIP MANAGEMENT

Supplier relationship management (SRM) can be regarded as a buying organisations strategic management philosophy for interacting with its supply base with the objective of sustaining superior performance throughout the span of their association.
SRM includes those processes focused on the interaction between the enterprise and suppliers that are upstream in the supply chain. These processes are design collaboration, sourcing, negotiation, and buy and supply collaboration.