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Supplier selection
1. Supplier Selection
Training for Selecting the Right Supplier
by
Scott Mathusek
10 April 2010 Supplier Selection 1
2. What will be covered
• Supplier Selection Defined
• Brainstorming Exercise
• Supplier Evaluation and Selection Process
• Real World Example
• Practice Exercise
10 April 2010 Supplier Selection 2
3. Supplier Selection Defined
• Supplier: “External entity that supplies relatively
common, off the shelf, or standard goods or
services” (Business Dictionary)
• Supplier Selection: “The stage in the buying
process when the intending buyer chooses the
preferred supplier or suppliers from those
qualified as suitable.” (Westburn Dictionary)
10 April 2010 Supplier Selection 3
4. Brainstorming Exercise
• Why is supplier selection so important to
your organization?
• What can result in your company from
having the incorrect supplier?
• What is important to you when finding a
supplier?
10 April 2010 Supplier Selection 4
5. Evaluation and Selection Process
1. Recognize the need for supplier selection
2. Identify key sourcing requirements
3. Determine sourcing strategy
4. Identify potential supply sources
10 April 2010 Supplier Selection 5
6. Evaluation and Selection Process
5. Limit suppliers
6. Determine method of supplier evaluation
and selection
7. Negotiate and select supplier
10 April 2010 Supplier Selection 6
7. Recognize Need for Supplier Selection
• Why are you looking for a supplier?
– End of contract
– Problems with current supplier
– Have new product
10 April 2010 Supplier Selection 7
8. Identify Key Sourcing Requirements
• What do you require from your suppliers?
• Are your requirements in alignment with
company goals and mission?
• Consider Carter’s 10 C’s of Supplier
Selection
10 April 2010 Supplier Selection 8
9. Carter’s 10 C’s of Supplier Selection
• Competency • Commitment to quality
• Capacity • Cash/finances
• Consistency • Clean
• Control of Process • Culture and relationships
• Cost/Price • Communication
10 April 2010 Supplier Selection 9
10. Determine Sourcing Strategy
• How many suppliers are you going to need?
– Single Source
– Multiple Source
10 April 2010 Supplier Selection 10
11. Identify Potential Supply Sources
• Where can you find your suppliers?
• Simple brainstorming activity will generate
a long list of possibilities
10 April 2010 Supplier Selection 11
12. Limit Suppliers in Pool
• Narrow down your choices
33%
33% 40%
40%
75%
75% 43%
43%
100%
100% 36%
36% 22%
22%
25%
25% 57%
57%
31%
31% 18%
18%
A
10 April 2010 B C
Supplier Selection D E12
13. Determine Method of Supplier
Evaluation and Selection
• Choose what you would like to evaluate
• Decide where you will gather your
information from
• Make selection from your evaluations
10 April 2010 Supplier Selection 13
14. Negotiate and Select Supplier
• Perform negotiations with supplier
• Choose supplier and agree to terms
10 April 2010 Supplier Selection 14
15. MFG.com
• Moves to India to better position themselves
as a buyer
• Looks to specifically increase competency,
commitment to quality, and capacity and
lower cost/price
10 April 2010 Supplier Selection 15
16. Practical Exercise
• You and three others have narrowed the search
down to four companies
• Using Carter’s 10 C’s you have chosen four factors
you will use to evaluate and have also assigned each
factor a weighted percentage
• Perform a weighted factor analysis to decide which
company to is the best option
10 April 2010 Supplier Selection 16
17. Column1 Danny Ryan Jane Helen Mode Average
Competency 40% 30% 25% 30% 30% 31%
Capacity 30% 30% 25% 20% 30% 26%
Consistency 20% 20% 25% 30% 20% 24%
Control of
10% 20% 25% 20% 20% 19%
Process
A B C D
Competency 77 90 76 85
Capacity 85 85 85 90
Consistency 95 86 95 87
Control of Process 90 95 90 90
10 April 2010 Supplier Selection 17
18. MODE A B C D
Competency 23.1 27 22.8 25.5
Capacity 25.5 25.5 25.5 27
Consistency 19 17.2 19 17.4
Control of Process 18 19 18 18
Total 85.6 88.7 85.3 87.9
AVERAGE A B C D
Competency 24.1 28.1 23.8 26.6
Capacity 22.3 22.3 22.3 23.6
Consistency 22.6 20.4 22.6 20.7
Control of Process 16.9 17.8 16.9 16.9
Total 85.8 88.7 85.5 87.7
10 April 2010 Supplier Selection 18
19. Summary
• The evaluation and selection process is
much based off of company goals, missions,
and preferences
• Use Carter’s 10 C’s to have a more
encompassing evaluation
10 April 2010 Supplier Selection 19
20. Readings list
All information used for this presentation is based from information from the following sources:
• Fuller, Neil. “How Many C’s in Partner?” All Business. Supply Management, 8 Sept. 2005. Web. 5 April
2010.
• Hadaway, Jordon. “Supplier Selection.” 12Manage The Executive Fast Track. 12Manage. 6 January
2010. Web. 7 April 2010.
• “Home: Sourcing Platform MFG.com Launches India Operations.” NetIndian, 3 April 2010. Web. 8
April 2010.
• “Supplier.” Business Dictionary. Online Business Dictionary, 2010. Web. 5 April 2010.
• “Supplier Selection.” Westburn Publishers. The Westburn Dictionary of Marketing, 2002. Web. 5 April
2010.
• Oxenbury, Alan. “Making the Right Choice.” Supply Management. Supply Management, 20 July 2006.
Web. 6 April 2010.
• Oxenbury, Alan. “The Final Countdown.” Supply Management. Supply Management, 3 August 2006.
Web. 6 April 2010.
• Wallin, Cynthia. “Supplier Selection.” Brigham Young University. Microsoft PowerPoint file. 9
February 2010.
10 April 2010 Supplier Selection 20
Editor's Notes
Supplier Selection Defined: Simple definitions of suppliers and supplier selection Brainstorming Exercise: Three brainstorming questions to get training group prepared for training Supplier evaluation and selection process: Process and important areas to consider of suppliers Real World Example: Practice Exercise:
These are very basic definitions straight from the dictionary.
This is not meant to have a wrong or right answer. As titled, this is simply a brainstorming exercise designed to get a group of people thinking together and sharing ideas with one another. Why is supplier selection so important to your organization? This question will get people thinking deeper about the specific answer to their organization. Answers could be lower costs, increased quality, etc. What can result in your company from having the incorrect supplier? This question is basically to get the opposite answers as the first. It will get the group to see the stark contrast and importance of it. What is important to you when finding a supplier? This question will get them thinking about their views of supplier selection before hearing our views. They will then be able to compare those thoughts during the training.
This slide is used to give a preview of the steps we will take through the evaluation and selection process. We will go into greater detail for each step in subsequent slides.
This slide is used to give a preview of the steps we will take through the evaluation and selection process. We will go into greater detail for each step in subsequent slides.
There are other reasons to look for a supplier. Only three are shown here as examples. This is meant to encourage discussion and allow for other ideas to be brought up by all participants.
These are questions that you will want to ask prior to searching for a supplier so that once you are actually searching and talking with potential suppliers, you will be able to consider your answers and compare them with what you are finding out. What do you require from your suppliers? This is another thought provoking question prior to the real training that will occur with the next slide. Your requirements should be in alignment with your company goals and mission. If you don’t know your company goals or mission, then find out! Talk to anyone you can in the organization that had anything to do with the creation of the goals and mission. Ray Carter created a comprehensive list of important areas to consider. A common method used in supplier selection is the “five R’s: right price, right quality, right quantity, right time, and right place. Carter’s ten C’s are more encompassing and thorough. They will be explained on the next page.
Competency: This is fairly straightforward, but is the supplier competent in what they do? Do they possess the needed skills, have the proper management, use correct auditing procedures, have the proper qualifications? Capacity: Will your supplier be able to provide enough of what you need every time? Obviously the answer to this has to be yes. One thing to consider is how much your contract comprises the supplier’s annual turnover. If it is high enough that they will have problems if you make a late payment, they may not have enough capacity for you. You don’t want their company to rely on you to keep them in business. Consistency: You should expect the supplier to deliver exactly what you want every time. If it is not exactly what you want, it should be exactly what you require. The supplier needs to be consistent with timing and quality issues. Control of Process: You need to be certain the supplier can be in control of their own processes. There may be a time when you require a change in the product they send to you. Will they be able to cope with that change to continue giving the same consistent service? Do they monitor their programs and systems to be on top of any possible failures? What poke yokes do they use? Cost/Price: This does not just mean getting a low price on products you purchase. It encompasses all possible costs. What will be the cost of maintenance and repair costs? If you are buying equipment for a manufacturing plant are you going to be able to easily match the new parts with the old machines? How much will it cost to fix it if not? Does the price you pay seem in line with your expectations? If not, why not? Have you reached a common understanding with your supplier about the scope of the project? Is there quality worse than you expect? Maybe it’s better than you need. Commitment to quality: Remember that a company that is ISO certified doesn’t necessarily have great quality measures. It basically means the follow the same process and should be consistent in their quality. This does not mean they will meet YOUR quality standards. Research their quality standards and compare them to yours. Ask to read their manuals. Look at their history of recalls and returns. DON’T BE SHY about this. Cash/finances: This is obvious. Make sure you are dealing with a company that has the money to stick around. Read their financial reports. Look deeper than the numbers. Remember that any annual statement on the financial documents have to be honest, but they can be making the situation seem better by articulating the words used. Clean: We go deeper into the meaning of clean than you probably expect here. Yes, you want to make sure that their buildings and products are clean and sanitary. That’s just the surface though. By clean, Carter means that you want to make sure that the products the supplier uses are not controversial, dangerous, or tampered with in any way. For example, if you are Nike and you are having a company make your shoes you will want to make sure you are not using sweat shops somewhere along the supply chain. If you are a toy company and you buy your toys from China you will want to make sure that the toys are not painted with lead paint. Culture and relationships: Does the supplier want to build a collaborative relationship with you? Do you even want that from them? What kind of relationship are you looking for? Does it match what they do? Communication: This goes a lot with culture and relationships. It actually goes well with the other 9 C’s. Does the supplier have the technology to stay in communication with you? How does the supplier communicate? How often does the supplier communicate? Are they willing to give proprietary information?
Single source: the following are advantages to using a single source: Better quality Better Responsiveness because you only have to worry about communication with one place. Faster product design. If you have to suppliers working on the same thing or two different parts for one thing, you will have to worry about those two companies working together to make the same product or make products that will work together. There are potential problems with multiple suppliers because they may have different ideas about what the product should be and how it should be made. Reduced inspection costs: you only have to inspect one company rather than two. Multiple sources: You will be able to get a lower price easier because of competition. If one company runs out, you will have other companies to buy from. The more supplier you work with the more opportunities you have to learn from multiple sources.
This is a simple step. Brainstorm and list of all the databases, contacts, publications, and knowledge you have. After you have brainstormed, look through the databases, contacts, and publications for a list of suppliers. Write down any supplier that you see. This should give you a nice list to use to start looking for your suppliers.
The green boxes are solid enough to take them to the next step. The yellow boxes are still possibilities and could end up being your supplier, but proceed with caution. The red boxes are immediately discarded and not considered further. Each box shows a percentage of contacts taken from the previous step. The numbers shown are purely for example only. You do not need to collect enough for each box to match these numbers. Step A: This is a the list of suppliers that you have just compiled in your brainstorming and searching. Step B: In step B we collect information on the suppliers. For any supplier that seems good we will move to the next step. Anyone else is removed from consideration. Step C: We now perform a pre-visit analysis. This time adding three categories: the good, the okay, and the bad. The okays (yellows) are proceeding with caution (or done after the greens if time permits). Step D: In this step we perform selective visits and supplier audits. Step E: This is our final decision. The green is our supplier. The red is put aside and kept for future reference.
This slide is to be used to apply the previous slide. Choose what you would like to evaluate: This falls back to what your goals are and what you expect from the suppliers. Evaluate the most important stuff. Some examples would be quality systems, financial stability, and performance. You can evaluate anything you want. Decide where you will gather your information: This is just finding databases, archives, online resources, or whatever will have the information needed to evaluate. Compare data between companies, look on the internet, look up supplier databases, etc. Make selection from your evaluations: It’s time to make a choice. Some companies make the decision off of intuition. Others use expert systems to evaluate all the information you’ve collected. A good option is weighted factor analysis. To perform weighted factor analysis, you must give allocate 100 points (or percentage points) to specific categories. Give a score to each category based on their performance. Multiply your score by the percentage points you’ve given. Add up the total and compare the totals with other companies. The highest total is who you will choose.
This is an important part of the process. At this point you are fairly certain of who will be your supplier. Now you must negotiate with the supplier. If you are able to agree to the terms, you will have chosen your supplier. If you cannot agree, you must negotiate with someone else. If you are only choosing one supplier, this will be your only time to use other suppliers as leverage (if you are making a contract). Be careful though. You want to build a strong relationship. You also want to agree to terms that will benefit both parties. It does not do you any good if your supplier goes out of business because they do not make enough profit.
MFG.com has reported that they will be moving their business to India to better position themselves in the market for automobile parts. India has great skills in its product, process, and quality. Costs will be lower as well and so they will be able to lower their prices or at least keep them the same.
The problem is on the following slide.
The top chart shows how each member of the team weighted each factor. Notice that each member has assigned a total of 100%. Both the mode and average was calculated for all factors. The bottom chart is a list of the four companie—Company A, Company B, Company C, and Company D. The numbers shown are the scores given for each factor.
The top chart is a calculation for each company using the mode. The bottom chart is using the average. By multiplying the mode (or average for the bottom chart) by the score given for each factor (found on the bottom chart on the previous slide) you will get the final score for each factor. Add up all four factors for each company and you get the final score you base your decision on. We used mode and average because with outliers, there can sometimes be poor data. In this case, however, the numbers all ended up about the same. Company B has the highest total score and will therefore be the company chosen to negotiate with.
Emphasize that this is an arbitrary process. You can do it 90 times and it will be different every time. The person performing the evaluation will really dictate how it all goes.
All information used for this presentation is based from information learned from these sources.
