Föreläsning 8 Flashcards
What are the goals of supplier evaluation and selection and how is time consuming is the process?
The goals with supplier evaluation and selection is to eliminate supply risk and maximize the value added. (JIT deliveries, innovation etc).
Could be a straightforward process (minutes hours) or take a longer period of time and investment (time, travel)
What is the supplier selection and evaluation process?
1.Recognize the need for supplier selection
2. Identify key sourcing requirements
3. Identify the potential suppliers
4.Determine the sourcing strategy
5.Limit suppliers in the selection pool
6.Determine the method of supplier evaluation and selection
7.Select supplier and reach agreement
When do we need to select a supplier? (1)
when you want to launch a new product. New product development. Especially a new product in your portfolio.
somebody in the company want to buy something, new equipment (new machinery etc)
when a current contract runs out (example: electricity)
when current supplier is not performing or goes bankrupt, or has insufficient capacity.
because of poor internal or external supplier performance
expanding into new markets or product lines
When performing market tests
when consolidating volumes across an organization (pooling, networks)
What requirements are important to a particular case? (2)
Some of these requirements are determined by internal and external customers in the value chain.
There are requirement that are tailored to the specific case, however some are included in all evaluations:
*supplier quality;
*cost;
*delivery performance.
What are two important factors to identify suppliers? And what matrix are they usually put in? (3)
importance of the items
current supplier capability
The matrix has importance of the items on the x-axis and current supplier capability on the y-axis. Four quadrants: Major information search (high ioi, low CSC), Minor/moderate information search (low ioi, low CSC) , Minor/moderate information search (high ioi, high CSC), minor information search (low ioi, high CSC),
What are some sources of information when seeking suppliers? (3)
- search on the internet & social media
- look at current suppliers (ideally, preferred suppliers in the industry)
- business trips to trade shows, conferences, sales representatives
- informational databas, trade journals
- organizational knowledge (more official), internal sources (more casual)
- second party or indirect information
How many sourcing alternatives are there? (4)
Generally there are 4 sourcing alternatives:
Manufacturer vs. distributor
Local, national or international supplier
Large or small supplier
Multiple, single or sole supplier for the item.
How do you make the choice Manufacturer vs. distributor?
- In theory, manufacturers should offer better prices. They’re usually known as OEM, original equipment manufacturer.
- Recent trends have contributed to distributors having an increased role. And OEMs are selling through distributors to lower their transaction costs.
- Distributors can offer additional services such as supplier managed inventory or integrated supply.
- Supplier managed inventory: distributor manages customers inventory. The supplier (distributor) has designated part of the warehouse that he manages. Formally, the items are in the ownership of the distributor until they‘re used in the manufacturing. Outsource the effort.
- Integrated supply: supplier is given access to the demand data and is expected to maintain a certain level of inventory without the need of orders. This makes the customers business easier, for example before christmas there might be a higher demand for a product.
What are the differences between Local, national or international supplier?
- local suppliers usually more flexible and capable of smaller and more frequent supplies (JIT principle)
- local supply chains: more sustainable and supportive of the local community. Theoretically less risk.
- National and international suppliers usually offer better prices (due to their relative advantages).
- The potential savings need to be compared with the need of having higher inventory levels, communication and logistic costs.
How to choose between Large or small supplier?
small supplier might not have required capacity, our lot size might not be attractive enough for larger suppliers. More of a transaction and not a relationship (not procurement).
Small suppliers often don‘t provide additional services and might have limited supply options (e. g. geographically).
Some companies limit their total expenditure with a supplier to a certain percent (35-45%) of their total spend. This can be risky if the supplier goes bankrupt.. Newer trend is that companies specifically allocate their money in smaller companies. They invest maybe 10 % of their budget locally for example office supplies, coffee machines etc. More sustainable.
Some strategies require diversifying the spend across several smaller suppliers.
What is a single and sole supplier?
Sole supplier: only one specific supplier for an item for a specific time period. Gives the supplier safety. Enables us to put requirements in the contract that for example this supplier can’t supply to another company in our field/products etc.
Single: same thing as sole but it is not put in the contract. This means you can at any time decide if you want more.
How to choose between Multiple, single or sole supplier for the item?
White list: a list of all prequalified and approved suppliers. The suppliers deemed worthy of being considered for business.
Black list: list of suppliers that were disqualified (bad performance, breaking the rules…)
Preferred supplier: consistently satisfies the performance and service standards.
Certified supplier: goes through supplier audit, has approved quality control systems. Their parts bypass the incoming inspection.
Partnered supplier: critical added value, long-term relationship.
Knowing the structure of suppliers for one category (number of suppliers on white/blacklist, preferred, partnered and certified suppliers), we can decide on the number of suppliers we select for the item.
If we have only one preferred supplier: sole or single supplier. (sole = long-term contract assuring that we won‘t seek another supplier for that item).
More suppliers: we chose single or multiple sourcing.
What are some critical issues to determine sourcing strategy?
- size relationship
2.Risk/reward issues (working with a start-up - high-risk/high reward issue) - Sustainability and diversity objective (companies being owned by minorities, issues with gender etc)
- competition as a supplier (quite often our competitor can be our supplier, need to consider this.
- International suppliers and countertrade (beyond the scope of this course)
How do we Limit suppliers in the selection pool? (5)
Usually using some cut-off criteria such as location, capacity etc.
Typical qualifiers:
financial strength;
proven manufacturing or service capability;
capable and supportive management;
adequate facilities;
skilled professional and technical staff.
Usually, we use information directly from the suppliers.
How do we Determine the method of supplier evaluation and selection? 6
Methods help when we don’t have a clear favorite after narrowing it down.
supplier provided information
supplier visits
third-party information
Leverage and non-critical and in the Kraljic matrix: 3 main set of criteria (more quantifiable):
Price or costs;
quality;
delivery performance (lead-time)
for strategic and bottleneck, we emplow wider set of criteria (mostly qualitative).
