Supplier Selection Strategies and Criteria

Supplier selection criteria for a particular product or service category should be defined by a “cross-functional” team of representatives from different sectors of your organization. In a manufacturing company, for example, members of the team typically would include representatives from purchasing, quality, engineering and production. Team members should include personnel with technical/applications knowledge of the product or service to be purchased, as well as members of the department that uses the purchased item.

Common supplier selection criteria:

• Previous experience and past performance with the product/service to be purchased.

• Relative level of sophistication of the quality system, including meeting regulatory requirements or mandated quality system registration (for example, ISO 9001, QS-9000).

• Ability to meet current and potential capacity requirements, and do so on the desired delivery schedule.

• Financial stability.

• Technical support availability and willingness to participate as a partner in developing and optimizing design and a long-term relationship.

• Total cost of dealing with the supplier (including material cost, communications methods, inventory requirements and incoming verification required).

• The supplier's track record for business-performance improvement.

• Total cost assessment.

Methods for determining how well a potential supplier fits the criteria:

• Obtaining a Dun & Bradstreet or other publicly available financial report.

• Requesting a formal quote, which includes providing the supplier with specifications and other requirements (for example, testing).

• Visits to the supplier by management and/or the selection team.

• Confirmation of quality system status either by on-site assessment, a written survey or request for a certificate of quality system registration.

• Discussions with other customers served by the supplier.

• Review of databases or industry sources for the product line and supplier.

• Evaluation (SUCH AS prototyping, lab tests, OR validation testing) of samples obtained from the supplier.

The Supplier Selection Decision in Strategic Partnerships

The Supplier Selection Decision in Strategic Partnerships

The concept of partnerships between buyers and suppliers is receiving increasing attention in American industry. This article examines the issue of supplier selection in situations where the firm is considering a partnership type of relationship with potential suppliers. The argument is made that partnerships are different in nature than traditional buyer-supplier relationships, and thus require the consideration of additional factors in supplier selection.

This study combines a literature review with the use of case studies of firms involved in buyer-supplier partnerships to develop additional factors that should be considered in the selection of supply partners. Four categories of additional factors are developed:
(1) financial issues,
(2) organizational culture and strategy,
(3) technology, and
(4) a group of miscellaneous factors.
The issues included in these categories tend to be longer term and more qualitative than factors included in traditional supplier selection models.

The article suggests that these additional factors supplement, rather than replace, the more traditional factors in developing strategic partnerships with suppliers.

BACKGROUND

Most of the research in the area of supplier selection focuses on the quantifiable aspects of the supplier selection decision - issues such as cost, quality, delivery reliability, and other similar factors. These are important criteria that should be considered in virtually any supplier selection decision. However, firms are becoming increasingly involved in "evergreen" or "strategic partnership" type relationships with suppliers. The purchasing literature suggests that this trend toward partnership activity can benefit the firm and, in many cases, should be pursued. A strategic partnership between a buying and a supplying firm is defined here as a mutual, ongoing relationship involving a commitment over an extended time period, and a sharing of information and the risks and rewards of the relationship.

As firms become involved in strategic partnerships with their suppliers, a new set of supplier selection criteria comes into consideration, equally as important as the more traditional criteria mentioned above. This new set of criteria considers "soft" factors that are difficult to quantify. These soft factors include issues such as management compatibility, goal congruence, and strategic direction of the supplier firm.

With these issues in mind, the objective of this article is threefold. First, the article provides a brief review of the relevant literature and research in the area of supplier selection. Second, it discusses the difference in emphasis required in seeking a partnership type of buyer-supplier relationship, rather than a traditional, arms-length relationship. Third, through the use of an empirical case study of five manufacturing firms, the article explores the new, additional set of issues that becomes relevant to supplier selection when the firm seeks a "partnership" type of relationship with a supplier.

MANAGING SUPPLIER RELATIONSHIPS

1. Maintaining good relations with a supplier should be as important to a contract administrator/end user as getting the best price. A good buyer-seller relationship is a partnership, a win-win situation over the long run. A supplier who is treated with courtesy, honesty, and fairness will deliver a quality product at the best price, will provide good service, and will be responsive to emergency situations and special requests. A responsive supplier is an asset for the University community.


2. There is also a public relations aspect to purchasing that should not be overlooked. An organization’s public image can be a valuable asset. A supplier who is treated equitably and professionally is likely to communicate his positive experiences with your organization to his associates.


3. Guidelines for Successful supplier Relationships:

• Use established supplier partnerships to best leverage the collective University volume, to consolidate orders, and to reduce administrative processing costs. You will receive outstanding prices and excellent service.

• Be fair. Give all qualified suppliers an equal opportunity to compete for business.

• Maintain integrity. A supplier’s pricing is confidential and should never be shared with another supplier for any reason.

• Be honest. Never inflate requirements to obtain better pricing. Negotiate in good faith. Don’t change the requirements and expect the supplier to hold his pricing.

• Be ethical. Procurement decisions should be made objectively, free from any personal considerations or benefits.

• Be courteous. A contract administrator/end user should make an effort to receive sales persons to the extent that his or her work schedule permits.

• Be reasonable. A supplier is entitled to a fair profit.

• Pay promptly. The purchase order you issue to the supplier is your promise to pay for the goods and services you buy in a timely manner (usually within 30 days).

RECEIVING PURCHASES

Deliveries can be made directly to the end user’s office, lab, receiving dock, or any other location specified on the purchase order. All packaging should be carefully examined for any visible evidence of damage, particularly if the purchase is fragile or costly. The person ‘receiving’ the purchase should make a note of the date the order was received, the name of the supplier, the quantity received, and the purchase order number. The receiving and purchase order information can be checked against the invoice to make sure that the quantities received are the same as the quantities being invoiced.

1. Damaged Shipments and Shortages

Under Interstate Commerce Commission regulations, damaged shipments cannot be refused unless totally destroyed or unless the broken contents would cause contamination. If the shipment is refused, the supplier or shipper could dispose of the shipment, making it very difficult for the buyer or end user to initiate a successful claim. Any damage to the package, no matter how slight, should be noted on the carrier’s and receiver’s delivery receipt. If the shipper is unwilling to wait while the contents of the package are inspected, the receiver should note on the delivery receipt that the condition of the contents is unknown. If concealed damage is discovered during unpacking, stop unpacking, notify the shipper, and request an immediate inspection. Save damaged packaging and cartons for the shipper’s claims inspector and, if possible, photograph the damaged shipment.

2. Initiating a Claim

The shipper’s main office should be notified in writing within 15 days of receipt of the damaged merchandise. The formal claim letter should :

• describe the damage

• give the date the shipment was received

• include a copy of the delivery receipt with the shipper’s signature and the receiver’s description of the damage

• provide the name of the supplier

• include a written estimate from the supplier of the costs to replace or repair the damaged items

• provide a copy of the supplier’s original invoice

• provide copies of all correspondence pertaining to the claim

The Interstate Commerce Commission requires the shipper to acknowledge the claim within 30 days and to offer a settlement within 120 days. When terms are F.O.B. Destination, the buyer or end user should notify the supplier immediately so that the supplier can file a claim.

3. Returning Goods to the supplier

Goods should not be returned without first notifying the supplier. Some suppliers require the buyer to obtain a return authorization number and have procedures as to how and when a return shipment should be made. Some suppliers may also charge a restocking fee to offset the cost of returning the item to inventory. The individual returning the goods should keep a record of the name of the individual authorizing the return, the authorization number and date, notes of any conversations with the supplier authorizing the return, the date the shipment was returned, the name of the carrier, and the supplier’s complete address and the name of the individual receiving the returned goods. If the item being returned is expensive or fragile, it should be insured.

Concept And Meaning Of Purchasing And Purchase Control

Concept And Meaning Of Purchasing

Purchasing involves acquiring materials of right quality, at the right quantity, at right time from a right source and at a reasonable price. A separate purchase department should be established to perform purchasing activities. The size of purchasing department depends upon the quantity to be purchased by the company. The purchase department determine the quality, quantity, items,price and time of purchase of materials. The function of purchase department is to purchase materials , supplies , machines and tools at the most favorable terms and conditions in a way that helps maintain the quality. It is an important function of material management and control .

Concept And Meaning Of Purchase Control

A manufacturing company is required to invest a huge amount of money in purchasing materials. It is, therefore, essential to exercise a proper material and purchase control. Purchase control refers to the purchase of materials of right quality in a right quantity at a reasonable price and at a right time. It requires a good amount of attention to the purchasing procedures of materials relating to cost, quality, volume, time, and delivery of materials. Purchase control starts with the issue of materials requisition and ends with the receipt of materials and payment of the cost of the materials.

All you ever needed to know about Purchasing !

Pur­chas­ing as a Function


Pur­chas­ing within a busi­ness can be seen as a spe­cial­ized task per­formed by indi­vid­u­als with a par­tic­u­lar role. The pur­chas­ing func­tion within a busi­ness is intended to acquire sup­plies, nec­es­sary wid­gets, ser­vices or other busi­ness related items. The more effi­cient this process becomes the eas­ier it is for a com­pany to obtain the parts, includ­ing ser­vices and labor, nec­es­sary to carry out their oper­a­tions. You might be able to get away with­out pick­les but you can’t make a ham­burger with­out the bread and meat.


Some­one with the title of pur­chaser, pro­cure­ment offi­cer, buyer or even a pur­chas­ing depart­ment would be respon­si­ble for car­ry­ing out pur­chas­ing within a com­pany. Depend­ing on the size of the com­pany it might even be the owner. The main chal­lenge that orga­ni­za­tions face is under­stand­ing and prop­erly inte­grat­ing pur­chas­ing with the sup­ply chain man­age­ment or logis­tics func­tions of the busi­ness. Suc­cess­fully inte­grat­ing and mea­sur­ing pur­chas­ing within a com­pany will allow for more insight into com­pany spend­ing. You’ll be able to have a bet­ter under­stand­ing how many pick­les you need, or bet­ter yet, how much bread and meat you should have stocked up.






Pur­chas­ing as a whole can be boiled down to answer two main questions.


Ques­tion 1) What do we need to obtain ?


Depend­ing on how effec­tively you can prop­erly answer this ques­tion you can move onto answer ques­tion 2. Many com­pa­nies have major prob­lems in Ques­tion 1. Do you really need the pickle? What kind of bread should you be buy­ing? What about meat?


Ques­tion 2) How and who should we go to obtain what we need?


This ques­tion is a lot more dynamic because it has a lot more mov­ing parts. If you choose to buy a pickle do you go direct to a farm and make the pick­les? Do you buy from a store? Direct to man­u­fac­turer? How will the pick­les get to you?



A major con­cern with the sup­ply chain is actu­ally com­mu­ni­ca­tion between each of the links on the chain. Get­ting infor­ma­tion from one link to the other with­out a prop­erly inte­grated sys­tem usu­ally requires a cost of time or money. Pos­si­bly both.


The impos­si­ble tri­an­gle sug­gests you can only exist at one point within the tri­an­gle. You can have fast and cheap but it won’t be good. Fast and good but it won’t be cheap. Good and cheap but it won’t be fast. Or a com­bi­na­tion of medi­oc­rity between all three.



What is your solu­tion to a prob­lem like this?






The trick to solv­ing the tri­an­gle is not to actu­ally solve the tri­an­gle. The trick is actu­ally to find a new tri­an­gle or cre­ate a new shape or way of doing things entirely. (Star Trek fans this is called the Kobayashi Maru)


How does this apply to purchasing?


Typ­i­cally some­one in a com­pany will real­ize that they need to order some­thing. Or even expense some­thing. They’ll make a request to order or go through a req­ui­si­tion process. If an order is approved, the pur­chaser will nor­mally have a sup­plier in mind and will need to obtain a quote. This takes time. Then there might be a period of nego­ti­a­tion. This takes time. The order then needs to be placed and even­tu­ally received. This takes time and com­mu­ni­ca­tion. Finally a pay­ment needs to be made. This takes com­mu­ni­ca­tion and pos­si­bly time.


Delays in this process will eat at effi­ciency and cre­ate bot­tle­necks. It might even cost you very real dol­lars. You can’t have upper man­age­ment just sit­ting around wait­ing for requests and you shouldn’t really skip steps or it’ll cre­ate mon­ster prob­lems later. The solu­tion will be to find a solu­tion that suits your organization’s requirements.


You wouldn’t get a Fer­rari to drag a trailer. If you need to move that trailer you can’t really ignore it either. It’s really just comes down to find­ing out your options.







Pur­chas­ing as a busi­ness func­tion can be a com­pet­i­tive advan­tage for your orga­ni­za­tion. In fact every busi­ness will have expenses, pur­chases or orders they need to make so in the grand scheme of things if your com­pany doesn’t have proper con­trol of it’s pur­chas­ing it is most likely hurt­ing your orga­ni­za­tion.

Supply Chain Has Larger Choice

I like to write about corporate social responsibility issues and on more than one occasion I have signaled out UPS for the work they are doing in greening their fleet. Operationally they are a continuous case study in efficiency and process improvement. Locally, our neighborhood UPS driver is as nice as they get and my wife often exchanges a cookie or a cold can of seltzer when he delivers our seemingly endless flow of Web-purchased dog food.

That is why it pained me to see that this same company is forcing spouses of its non-union employees to obtain healthcare from their own companies if available, as UPS is worried about the impending changes of the Affordable Care Act. While I can certainly make the business case for this policy shift, I think it will no doubt impact the healthcare of children and families. I don’t think this has anything to do with protecting customers. I think it all has to do with protecting profits.

As a consumer, I sometimes have a choice of how my packages are shipped and I think I might think twice before I check the UPS radio button. As supply chain professionals we have a larger choice and perhaps you might express your dismay to the UPS rep the next time they knock on your door.

But, don’t be too angry. Those are the very ones who have had their benefits impacted.

Supplier Relationship Management : Where are we now ? Where are we going ?

By Jonathan Hughes, Partner; Jessica Wadd, Senior Consultant and Ashley Hatcher, Senior Consultant, Vantage Partners  - See more at: http://www.mypurchasingcenter.com/office-products/articles/supplier-relationship-management-where-are-we-now-where-are-we-going/#sthash.BkoJ2JOh.dpuf

Supplier relationship management (SRM) continues to be a major focus within the procurement and supply chain community and on the strategic agenda of many C-suite executives. As companies refine their plans for 2014 (and beyond), many are grappling with whether to expand SRM efforts and investment, and, if so, how. To provide further clarity regarding which specific SRM practices deliver the greatest value and enable organizations to benchmark themselves against peers and cross-industry leaders, this article shares preliminary results from an ongoing global study conducted by Vantage Partners (comprising 669 responses from more than 330 companies to date)

SRM will be critical over the next 3-5 years, and many companies have significant room for improvement

While 78% of respondents indicate that their company has some form of SRM program, fewer than 10% of these individuals rate their company’s approach to SRM as “mature and highly effective”. At the same time, the survey results highlight an overwhelming belief that SRM will be important or very important to a company’s success over the next 3-5 years, suggesting that many companies should make considerable investments in SRM in the near future (figure 1).



When asked to estimate the percentage of the potential value of supplier relationships that is actually realized today, respondents indicate that, on average, they are only realizing 44% of the potential available value, which means they could be realizing 1.5 times more value from their supplier relationships (figure 2).

 






Companies who realize the most value from SRM make considerable investments – particularly in focus, governance and business processes, and skill building

Not surprisingly, the data indicate a direct causal relationship between the investment made in SRM (e.g., dedicated headcount, staff time, software tools) and results achieved. While companies who have made only minor investments in SRM (e.g., implementing only a few SRM processes or tools, defining SRM activities and adding them to existing roles rather than increasing headcount or reallocating responsibilities to enable a significant degree of focus) often realize limited value from their SRM efforts, organizations that invest heavily in SRM report realizing considerable, measurable benefits (figure 3). On average, study participants estimate the value generated by their SRM programs total approximately $40.7M per year.






Which investments will yield the highest returns depends in part on the current maturity level of a company’s approach to SRM. Still, a few options stand out a most likely to deliver results:

Time: The amount of time individuals spend focused on SRM activities matters far more than the number of tools available to them. If the people responsible for managing critical supplier relationships cannot focus at least one third of their time on SRM, they will struggle to gain traction.

Skill building: While today, companies allocate less money toward individual SRM skill development (training, coaching) for staff who have significant interactions with suppliers than any other form of investment in SRM, study participants note such investments are critical and recommend increasing investment in skill development more so than any other area.

Governance and business processes: Investments in formal SRM governance mechanisms and business processes (including joint strategic planning, performance reviews, etc.) yield large payoffs – on average, more than $1M of return on even minimal incremental investment, holding all other investments constant.

Many SRM practices generate returns, though some stand out as being most crucial

Looking more closely at the investments organizations have made in governance and business processes, nearly every practice tested in the study is correlated with realizing more value from supplier relationships. That said, comparing top performers (both in terms of SRM maturity and value realized from SRM) to those in the bottom quartile, there are a number of practices that stand out as most likely to yield positive, measureable results. However, these practices are among the least likely to be employed by companies with less mature SRM programs. 

• Aligning and integrating SRM with strategic account management (SAM) programs at key suppliers

• Tracking and measuring the total financial & strategic value delivered by SRM

• Aligning and integrating strategic sourcing, category management, contracting and contract management, and SRM

• Focusing on both individual relationships with suppliers, as well as systematic engagement with multiple suppliers

• Developing multi-year strategic plans with the most important suppliers

Some of these practices may be difficult to implement in the early stages of SRM (e.g., systematic engagement with multiple suppliers). Our experience suggests, however, that many could be adopted by companies with the least mature programs, if they underwent a shift in organizational mindset.

Each of the practices listed requires a strategic, rather than tactical approach to managing critical suppliers. To implement these practices effectively, companies must think about suppliers not just in terms of spend, but also in terms of the degree and specific nature of opportunities (potential for new value) and risk (potential for loss of value). And, the organization would have to empower those responsible for managing supplier relationships to sit side-by-side with stakeholders in the business to set and execute strategies, rather than acting as an order-taker from the business, which, in our experience, is often the most difficult shift for many companies.

Conclusion
Given the scope of opportunity for SRM indicated by the data, it is not surprising that the vast majority of study participants report their company would need to undergo significant changes to realize the full potential of their relationships with suppliers (52% call for a major change or total transformation, and another 38% suggest moderate change is required). Despite this challenge, many responses indicate that with the continued focus on SRM and the value it generates, additional investment will be made over the next 3-5 years – and that both customers and their suppliers can expect to continue to realize significantly more value from their relationships over time as they increase their SRM maturity.



 

Supplier relationship management (SRM) continues to be a major focus within the procurement and supply chain community and on the strategic agenda of many C-suite executives. As companies refine their plans for 2014 (and beyond), many are grappling with whether to expand SRM efforts and investment, and, if so, how. To provide further clarity regarding which specific SRM practices deliver the greatest value and enable organizations to benchmark themselves against peers and cross-industry leaders, this article shares preliminary results from an ongoing global study conducted by Vantage Partners (comprising 669 responses from more than 330 companies to date). - See more at: http://www.mypurchasingcenter.com/office-products/articles/supplier-relationship-management-where-are-we-now-where-are-we-going/#sthash.BkoJ2JOh.dpuf

By Jonathan Hughes, Partner; Jessica Wadd, Senior Consultant and Ashley Hatcher, Senior Consultant, Vantage Partners  - See more at: http://www.mypurchasingcenter.com/office-products/articles/supplier-relationship-management-where-are-we-now-where-are-we-going/#sthash.BkoJ2JOh.dpuf

njgghjjBy Jonathan Hughes, Partner; Jessica Wadd, Senior Consultant and Ashley Hatcher, Senior Consultant, Vantage Partners  - See more at: http://www.mypurchasingcenter.com/office-products/articles/supplier-relationship-management-where-are-we-now-where-are-we-going/#sthash.BkoJ2JOh.dpuf