Supplier Selection A Four-Step Process Supplier Identification Supplier Evaluation Approved List Supplier Performance Monitoring Supplier Identification Supplier Evaluation Approved List Supplier Performance Monitoring Universe of Potential Suppliers Suppliers of Choice Objective: Build the best supply team ever!!! Not all supply relationships are created equal!!!

A Good Supplier A good supplier is one who is at all times honest and fair in his dealings with customers, his own employees, and himself; who has adequate plant facilities, and know-how so as to be able to provide materials which meet the purchaser's specifications, in the quantities required, and at the times promised; whose financial position is sound; whose prices are reasonable both to the buyer and to himself; whose management policies are progressive; who is alert to the need for continued improvement in both his products and his manufacturing processes; and who realizes that, in the last analysis, his own interests are best served when he best serves his customers. What do you think? When was this description written? What are its strengths? What are its weaknesses?

Supplier Identification Universe of Potential Suppliers “Suppliers of Choice” Current Suppliers Buyer's Previous Experience Purchasing Database Internal Contacts External Contacts Purchasing Consortiums Directories Thomas Register Try Us Trade Publications Trade Associations & Trade Shows The Web Current Suppliers Buyer's Previous Experience Purchasing Database Internal Contacts External Contacts Purchasing Consortiums Directories Thomas Register Try Us Trade Publications Trade Associations & Trade Shows The Web Where to begin? Sources of Information:

Supplier Evaluation Universe of Potential Suppliers “Long list” of suppliers--look good enough to evaluate Information Collected Pre-visit Analysis Selective Visits & Supplier Audits Post-visit Classification 48%29% 23% 100% 33%36% 31% 78% 22% 100% Universe of Potential Suppliers “Suppliers of Choice”

Supplier Evaluation Evaluation Criteria: TOP Performance Management Capability Workforce Capabilities Cost Structure Quality Systems Process Control Capabilities Technological Capabilities Financial Stability Information Systems Capability E-commerce Readiness Upstream Management Capabilities Long-term Partner Viability Universe of Potential Suppliers “Suppliers of Choice” Information Gathering: Supplier Database Other Buyer’s Experience Benchmarking Data RFI Supplier Survey Facility Visit/Audit What issues should be evaluated? How can information be obtained? How can suppliers be compared? Comparison Approaches: Intuition Weighted-factor Model Expert System

Supplier Evaluation Universe of Potential Suppliers “Suppliers of Choice” Does management understand the importance of strategic planning? Is the company vision clearly articulated & understood? Is the company mission clearly communicated & understood? Is management committed to customer service & satisfaction? Is management committed to continuous improvement? What is the average tenure of managers? What is the experiential background of senior managers? Does senior management invest in building a competitive workforce? Is management making needed investments in technology? Is management dedicated to building world-class processes? Does management recognize competitive threats & opportunities? Does management understand the importance of strategic sourcing? Questions to Ask! Management Capability:

Supplier Evaluation Universe of Potential Suppliers “Suppliers of Choice” Are employees committed to the company vision & mission? Are employees committed to customer service & satisfaction? Are employees are committed to quality? Are employees are committed to continuous improvement? Does the workforce possess the skills needed to deliver value? Are employees constantly learning new skills? Is the workforce cross-trained? Do employees respect management? Are employees passionate about the company? Their work? Are employees encouraged to share their knowledge & experience? Are employees fairly compensated? What is the annual level of workforce turnover? Workforce Capabilities: Questions to Ask!

Supplier Evaluation Universe of Potential Suppliers “Suppliers of Choice” Does the supplier bring unique value to the relationship? Are we really a preferred “Customer of Choice”? Is the supplier willing to commit capacity exclusively to our needs? Is the supplier willing to commit key people to meet our needs? Is the supplier “capable” of exchanging relevant information? Is the supplier “capable” of participating in joint problem solving? Is the supplier “capable” of participating in ESI initiatives? Is the supplier “capable” of achieving TOP certification? Does the supplier take confidentiality seriously? How well does the supplier know our industry & business? Will the supplier come to us first with new ideas/technologies? Does the supplier view the relationship as “mutually” advantageous? LT Relationship Potential: Questions to Ask!

FactorWeight 1.00Supplier Score Supplier Evaluation Universe of Potential Suppliers “Suppliers of Choice” Weighted-Factor Analysis HermesAthenaArtemisSaturnApollo

Approved List Factors Influencing the Decision: Purchasing philosophy of the buyer Technological sophistication of item Characteristics of the market Supplier capabilities Greater responsiveness Higher quality Improved/faster product design Greater economies of scale Reduced inspection costs Reduced administrative costs Asset specificity dictates Competition leads to lower prices... better service Reduced risk of shortages Meet local content rules Hedge technological risk Learn from different suppliers Universe of Potential Suppliers “Suppliers of Choice” Single Source:Multiple Source: How Many Suppliers Do You Need?