Week 3 - TCO and supplier Selection

Question 1

What is supplier selection?

Answer 1

Is the process of revenues, selection and evaluation of companies composing a supply chain

Question 2

Why is supplier selection important?

Answer 2

Due to its direct impact within the configuration and operational performance of a supply chain

Question 3

11 step process of sourcing

Answer 3

1 - Identify or reevaluate needs
2 - Define and evaluate requirements
3 - Decide to make or buy
4 - Identify type of purchase
5 - Conduct market analysis
6 - Identify possible suppliers
7 - Pre-screen possible suppliers
8 - Evaluate the remaining supply base
9 - choose supplier
10 - Product or services is delivered or performed
11 - Post purchase evaluation

Question 4

4 main activities of the supplier selection process

Answer 4

• Initial supplier qualification
• Agree measurement criteria
• Obtain relevant information
• Make selection

Question 5

What is initial supplier qualification? (Supplier selection process) (3)

Answer 5

• Has the aim to identify suppliers who meet the requisite product and process standards and are capable of supporting the buyer long-term objectives
• Reduces the pool of potential suppliers to a more manageable number for evaluation and eventually selection
• Manufacturing capabilities and financial capabilities are usually assessed

Question 6

What is meant by ‘manufacturing capabilities’?

Answer 6

• Are best conceived as stocks of strategic assets that are accumulated through a pattern of investments overtime and cannot be easily imitated, acquired by trade, or substituted (Dierickx and Cool, 1989)
• Capabilities can be: low cost, quality, flexibility and delivery performance

Question 7

Which manufacturing capabilities do buyers analyse? (3)

Answer 7

• Standards (such as ISO 9000 and 14000)
• Techniques (such as continuous improvement, statistical process control and vendor managed inventory)
• Systems (such as electronic data interchange (EDI or MRP)

Question 8

Importance of assessing financial capabilities

Answer 8

Important for strategic items where the development of long-term relationships and investment in relationship-specific assets can make switching suppliers problematic

Question 9

Explain Agree measurement criteria (2)

Answer 9

• Involves identifying relevant and appropriate selection
• Price v total cost (iceberg model)

Question 10

Name Two quantifiable measurements in agree measurement criteria

Answer 10

• Key performance indicators (KPIs)
• Service level agreements (SLAs)

Question 11

Sources of information that can help obtain relevant information about suppliers (4)

Answer 11

• Supplier websites
• Supplier information files (delivery history, quality record, overall desirability, list of materials)
• Supplier catalogues
• Trade registers and directories

Question 12

Name selection methods (4)

Answer 12

• Fuzzy set theory (highly quantitative)
• Categorical methods (highly qualitative)
• Eyeballing RFQ data (simple)
• Artificial intelligence based models (Very complex)

Question 13

Selection methods best suited for low-value products

Answer 13

Comparing information contained within responses to the RFQ and RFP

Question 14

Selection method best suited for high value strategic products

Answer 14

More complex involving the use of multi-criteria decision-making models

Question 15

Selection method best suited for products with few alternative sources of supply

Answer 15

Selection should be comprehensive because the possibility of substitution is low

Question 16

Selection method best suited for products with many alternative sources of supply

Answer 16

Selection can be less comprehensive

Question 17

What is Analytic hierarchy process (AHP)?

Answer 17

Enables decision makers to weight criteria according to their importance to the decision and the extent to which each alternative meets the criteria using a hierarchical structure

Question 18

Analytic hierarchy process (AHP) method (2)

Answer 18

• Provide judgements about the relative importance of each criterion and then specifying a preference for each alternative with respect to each criterion
• Prioritised ranking which indicates the overall preference for each of the alternatives (though comparing the the different criterion)

Question 19

Importance of Analytic hierarchy process (3)

Answer 19

• Designed to handle tangible as well as intangible criteria especially subjective decisions where individual opinions make an important part of the decision making
• Forces supply strategists to think seriously about the criteria used to select suppliers
• Cross functional teams can be used to bring together the disparate views of individuals within the team

Question 20

Benefits of Analytic hierarchy process (AHP) (3)

Answer 20

• Allows multi criteria decision making
• Applicable when it’s difficult to formulate criteria evaluations (allows qualitative and quantitative evaluations)
• Applicable for group decision making environments

Question 21

Cons of Analytic hierarchy process (AHP) (3)

Answer 21

• There are hidden assumptions like consistency - repeating the evaluation is cumbersome
• Difficult to use when the number of criteria is high, I.e over 7
• Difficult to add a new criteria or alternative

Question 22

What is total cost ownership (TCO)

Answer 22

Is an estimation of the expenses associated with purchasing, deploying, using and retiring a product or piece of equipment

Question 23

What is the benefit of total cost ownership analysis?

Answer 23

Helps businesses to determine the difference between short-term (purchase price) and long term (TCO) costs of a product or system

Question 24

What decision can TCO help with? (2)

Answer 24

• If we should buy or make
• Selecting the right vendor from multiple alternatives

Question 25

Which costs are considered in TCO? (5)

Answer 25

• Pre-Acquisition costs
• Acquisition costs
• Operating costs
• Maintenance costs
• Disposal costs