Lecture 5 - Supplier Selection Flashcards
What constitutes the main cost of a product?
The cost of raw materials
What factors do firms select suppliers?
HARD - Cost, quality, delivery
SOFT - Capability, complementarity, culture
Explain the Rolls Royce case study with regard to suppliers selection
Rolls Royce are a supplier of full service integrated systems
- Stepping towards total service solutions to improve products and delivery
What is the supplier selection process?
Initial supplier qualification
Agreement measurement criteria
Obtain relevant information
Make selection
What occurs in the initial qualification process of supplier selection?
Limited resources reduce possibility of in depth analysis of all suppliers. Purchasers perform a first cut of suppliers based on:
Manufacturing capabilities
eg: use of standards, techniques and systems
eg: ISO 9001, ISO 14001, continuous improvement
Financial viability
eg Supplier qualifier report
What occurs in the agree measurement criteria stage of supplier selection?
Consider what factors are important
Cost - unit price, exchange rates, tax and culture
Quality - certifications, continuous improvement, ISO9000 series
Flexibility - Mix or volume
Delivery - Location, lead time, delivery frequency, minimum lot size
Others - Financial risk, ethical analysis, environmental analysis, regulation, innovation capability
What occurs when the buyer is obtaining relevant information about the supplier during supplier selection?
Evaluation of supplier information
Supplier visits
Use of preferred suppliers
Third party information (Dun and Bradstreet)
How do buyers make a selection over which supplier to use in the supplier selection process?
Use multi-criteria decision making models to weight selection criteria
TCO and AHP
What is total cost of ownership analysis?
Holistic view of all costs, indirect and direct, involved with an item over its useful life. Based on a transaction costs view
What are the advantages of using TCO in supplier selection?
Clear, quantitative evaluation
Focus on total cost not just purchase cost
Provides consistent message to supplier regarding requirements criteria
What are the disadvantages of using TCO in supplier selection?
Complex method
Requires tracking and maintenance of cost data
Requires cultural change
Often situation specific
What is Analytic Hierarchy Process analysis?
Ranks alternatives according to decision making judgements regarding the importance of criteria and the extent to which they are met by each alternative.
- Uses pair wise comparisons to express the relative importance of each criteria versus another
What are the goals, criteria and alternatives in AHP?
Goal - selecting the best supplier
Criteria - can be any from quality, price, service, delivery and beyond
Alternatives - supplier 1, supplier 2…. supplier x
What are the advantages of using AHP for supplier selection?
Most commonly used
Forces managers to make a trade off
Simple
What are the disadvantages of using AHP for supplier selection?
Forces managers to make a trade off
Requires intense management involvement
