Chapter 12 Supplier Selection ©McGraw-Hill Education. All rights reserved.

Key Questions Addressed in Chapter 12 How can the supply professional match the organization’s needs to what the market can supply? Which supplier(s) should be selected?

Identification of Potential Sources ©McGraw-Hill Education. All rights reserved. 3

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? ©McGraw-Hill Education. All rights reserved. 4

Supplier Development Initiative ©McGraw-Hill Education. All rights reserved. 5 Supplier PurchaserSupplier Purchaser The Marketing Context Marketing Initiative Supply Response The Supplier Development Context Sales Response Supply Initiative

Key Supplier Evaluation Question Is this supplier able to supply the purchaser’s requirements satisfactorily? – strategically and operationally – in the short and long term

Three Levels of Supplier Evaluation Level 1 – Strategic Level 2 – Traditional: quality, quantity, delivery, price and service – Technical, engineering, manufacturing and logistics strengths – Management and financial evaluation Level 3 – Current Additional: financial, risk, environmental, regulatory, innovation, social and political ©McGraw-Hill Education. All rights reserved. 7

Formal Supplier Evaluations ©McGraw-Hill Education. All rights reserved. 8 Quality Price Delivery Service Good Performance Fair Performance Unsatisfactory Performance

Supply Risks and Dollars Extended ©McGraw-Hill Education. All rights reserved. 9 Source: Peter Kraljic, Purchasing Must Become Supply Management,” Harvard Business Review, September- October, 1983 Bottleneck Unique specification Supplier technology important Production-based scarcity Substitution difficult Usage fluctuates Potential storage risk Strategic Continuous availability essential Custom design or unique specifications Supplier technology important Few adequate suppliers Changing source of supply difficult Substitution difficult Non-Critical Standard or commodity type Substitute products available Competitive supply market Leverage Unique cost management important Substitution possible Competitive supply market Low High Value Risk

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 ©McGraw-Hill Education. All rights reserved. 10

Evaluation of Potential Sources: Two Key Questions 1.Is this supplier capable of supplying our requirements satisfactorily in both the short- and long-term? 2.Is this supplier motivated to supply these requirements in the way we expect in the short- and long-term? ©McGraw-Hill Education. All rights reserved. 11