Current Event Assignments 2

3

©2020 McGraw-Hill Education.

3

Potential Sources of Information

Trade directories and online resources

Catalogs (online and hard copy)

Trade journals

Sales representatives

Supplier and commodity databases

Visits to suppliers

Samples

Colleagues, networking, professional contacts

Your own records

4

©2020 McGraw-Hill Education.

4

Standard Information Requests

Requests for information (RFI)

Signals the supplier as a potential source of supply

Does not commit either party to future business

Request for quotation (RFQ) or request for bid (RFB) or invitation to bid

A serious inquiry on a specific requirement or variety of requirements

Asks the supplier to declare price and terms

Requests for proposal (RFP)

Allow more latitude to the supplier than RFQ

Used with requirement is difficult to describe or the purchaser expects innovation or creativity

5

©2020 McGraw-Hill Education.

5

Supplier Selection Decisions

Should we use a single source, dual sources, or more than two?

Should we buy from a manufacturer or a distributor?

Where should the supplier be located?

Relative to our organization, should the supplier be small, medium, or large?

If no supplier can be found, should we use supplier development?

6

©2020 McGraw-Hill Education.

6

Arguments in Favor of Single Sourcing

Prior commitments

Exclusivity: Supplier may be the only available source

Outstanding quality or service  value

Order too small to split

Opportunities for discounts or lower freight costs

More important customer  more attention from supplier

Cost of duplication prohibitive (e.g., tools and dies)

Easier to schedule deliveries

JIT, stockless buying or systems contracting

Resources required for supplier relationship management

Prerequisite to partnering

7

©2020 McGraw-Hill Education.

7

Arguments in Favor of Multiple Sourcing

Traditional practice

Keep suppliers “on their toes”

Assurance of supply

Capable of dealing with multiple suppliers efficiently

Avoid supplier dependence on one customer

Obtain a greater degree of volume flexibility

Back-up arrangements

Strategic considerations; e.g., military preparedness

Government regulations

Limited supplier capacity

Opportunity to test a new supplier

Supply market volatility

8

©2020 McGraw-Hill Education.

8

Supplier Development Initiative

Supplier

Purchaser

Supplier

Purchaser

The Sales Context

Sales Initiative

Supply Response

The Supplier Development Context

Sales Response

Supply Initiative

9

©2020 McGraw-Hill Education.

9

Key Supplier Evaluation Question

Is this supplier able to supply the purchaser’s requirements satisfactorily?

strategically and operationally

in the short and long term

10

©2020 McGraw-Hill Education.

10

Three Levels of Supplier Evaluation

Level 1 – Strategic

Level 2 – Traditional: quality, quantity, delivery, price and service

Technical, engineering, manufacturing and logistics strengths

Service design, operations and delivery

Management and financial evaluation

Level 3 – Current Additional

financial, sustainability (environmental and social), innovation, regulatory, and political

11

©2020 McGraw-Hill Education.

11

Level 1: Strategic Evaluation

Sourcing strategy directly linked to organizational strategy, goals, and objectives drives effective sourcing decisions

Strategic sourcing: captures the linkage between sourcing strategy and organizational strategy

considers suppliers and the supply base integral to an organization’s competitive advantage

12

©2020 McGraw-Hill Education.

12

Define Strategic Purchases

What makes a purchase or a supplier strategically important to the organization?

Mission critical - may help or hinder attainment of the organization’s mission

First step in the strategic sourcing process

Drives decisions in sourcing and selection process

Drives allocation of resources to any specific buy

Without categorizing, may overinvest resources in tactical or operational purchases and under-invest in strategic ones

13

©2020 McGraw-Hill Education.

13

Risk Assessment

Management makes decisions about the risks it is willing to take in light of the expected returns

Takes actions to avoid, mitigate, transfer, insure against, limit, or explicitly assume risk

Supply decisions must be made in the context of the organization’s risk profile

14

©2020 McGraw-Hill Education.

14

Level 2 – Traditional

Technical, Engineering and Operations

Quality systems and performance

Engineering and technical strengths

Capacity and flexibility to meet demand (lead time)

Process capabilities

15

©2020 McGraw-Hill Education.

15

Level 2 – Traditional (cont’d)

Service design, operations and delivery

Quality systems and ability to meet standards based on statement of work (SOW)

Capacity and flexibility of service delivery system

16

©2020 McGraw-Hill Education.

16

Level 2 – Traditional (cont’d)

Management and Financial

Mission, corporate culture, values and goals

Organization structure and decision-making

Management controls, information systems, policies and procedures

Qualifications and background of managers

Financial analysis; e.g., profit, inventory turns, receivables, current ratio

Procurement systems

17

©2020 McGraw-Hill Education.

17

Level 3 – Current Additional

Financial Considerations

Financial Health of the Supplier

Sustainability

Triple Bottom Line: Balances financial, environmental, and social performance of the organization

Annual sustainability or corporate citizenship reports provided in addition to financial reports

Environmental Sustainability

Minimize the environmental footprint to protect the natural environment

Reduce, reuse, recycle

Social Sustainability

Issues that affect human safety and welfare, community development, and protection from harm

Supplier labor and human rights practices

18

©2020 McGraw-Hill Education.

18

Level 3 – Current Additional (cont’d)

Innovation

Evidence of continuous improvement

Evidence of continuing managerial and technical competence

Regulatory Compliance

Lack of citations or speed of correction in case of citations

Political Factors

19

©2020 McGraw-Hill Education.

19

Formal Supplier Evaluations

Quality

Quantity

Delivery

Price

Service

Good Performance

Fair Performance

Unsatisfactory Performance

20

©2020 McGraw-Hill Education.

20

Weighted Point Evaluation Systems

Identify suppliers

Important suppliers and/or critical goods and services

Identify factors or criteria for evaluation

Determine the importance of each factor

Establish a system to rate each supplier on each factor

21

©2020 McGraw-Hill Education.

21

Evaluation of Potential Sources: Two Key Questions

Is this supplier capable of supplying our requirements satisfactorily in both the short- and long-term?

Is this supplier motivated to supply these requirements in the way we expect in the short- and long-term?

22

©2020 McGraw-Hill Education.

22