1. Selecting Suppliers
Revision Seminar

2. Supplier Selection*
Three critical activities must be carried out when implementing sourcing decisions:
Effective supplier selection - a formal selection process should be used to choose the best supplier(s) for particular materials / services.
Information sharing – both technical and business information must be shared with the outsourced supplier.
Resource allocation – allocating enough resources e.g. to solve problems as they appear.
Selection objectives need to be aligned to the overall business objectives and trading conditions.

3. Supplier evaluation and selection process (Monczka et al, 2009, p.163)
You may want to draw this on the white board to relate to as you go through the other slides.

4. 1. Recognise need for Supplier*
Supplier switching
New product
Supplier failure
New market/ customer
Growth (need for additional Suppliers)
Alternative materials / components
Better price, quality, responsiveness

5. 2. Key Sourcing Requirements
Product / service specification
Price / delivery date / quantity….
Order winners and order qualifiers
Market qualifiers – minimum requirements
Market winners – decisive selection criteria
Quality
Being RIGHT, consistency
Speed/ Lead time
Being FAST,
delivery
Dependability
Being ON TIME,
reliability
Flexibility
Being ABLE TO CHANGE, responsiveness
Cost
Being PRODUCTIVE, efficiency
Sustainability/ CSR
Reducing ethical/ environmental IMPACT
Competitiveness:
Customer
value
E.g. IKEA selects Suppliers that can make products of good function and design at a good price, but not at any price.

6. Key Sourcing Requirements*
Quality: Certification, products/services of good quality, continuous improvement etc.
Delivery: Lead time, deliver on time (reliability), frequency, location etc.
Dependability: Reliability (time, quality) etc.
Flexibility: Adjustability/Responsiveness to last minute changes, Just In Time (JIT), Volume flexibility, Design flexibility, Ability to cope with variation etc.
Cost: Price per Unit, Exchange Rates, Taxes, Duties etc.

7. 3. Determine Sourcing strategy
The key order winning priorities
Type of sourcing process to follow (Kraljic – Supply positioning matrix),
How many suppliers - many or few
Type of relationship:
Close/distant, partnerships, outsourced or vertically integrated
Issues associated with local vs global sourcing and sourcing from different geographical areas
Ethics in the supply chain
The ‘Cost Iceberg!’
Once these decisions are made, suppliers can be assessed in comparison to one another on the basis of what they offer – cost competitiveness, reliability, flexibility, quality, speed….

8. Supplier relationship decisions
How many suppliers to use?
How close are the relationships?
Relationships range from
Individual suppliers providing families of product/service
Several suppliers providing alternative sources
Close relationships for mutual gain
Distant relationships reduces cost of doing business
Discuss benefits of spreading risk, compared to increase in transaction/ relationship costs
Will focus on Arms length and partnership in rest of presentation.
Arm’s length partnership strategic alliance joint venture vertical integration

9. Supply positioning matrix – Kraljic matrix*
Low Importance or cost High
High volume core products
Strategic items – high impact and hard to find
Standardised parts = commodities and low cost
Bottleneck items low impact but hard to find
Buyer weakness
Buyer strength
Low Difficulty of finding supplier High
Have a class discussion on when you would use an intermediary such as Li and Fung. – My opinion/view is that I would use an intermediary when it is difficult to find a Supplier, and especially when the importance or cost is high. So, especially for the Strategic Items (high impact and hard to find) AND the Bottleneck Items.
(Adapted from Kraljic, 1983)

10. Supply positioning matrix
High Impact on business Low
Leverage items (best deal)
Reduce prices/ seek preferential treatment
Single Sourcing Disintermediation
Strategic (critical) items
Develop supply
Relations
Delegate Sourcing Re-intermediation
Non-critical (routine) items
Standardised parts/ competitive buying
Multiple Sourcing
Parallel Sourcing
Bottleneck items (continuity)
Reduce dependence
on items
Buyer strength
Buyer weakness
Buyer
Supplier
Buyer
Supplier
Low Supplier market complexity/ risk High
Buyer S2 S3 S4 S1
OEM
Buyer
Supplier 1 S2 S3 S4
Buyer S2 S3 S4 S1
OEM
(Kraljic, 1983 in Cousins et al, 2008)

11. 3. Determine Sourcing Strategy*
80:20 rule
80:20 rule A
20% purchase = 80% effort
B/C
80% purchase = 20% effort

12. 4. Identify supplier sources*
Existing suppliers
Web
Advertise (call for tenders or proposals)
Trade shows
Catalogues
Networks
Customer specified

13. 5. Limit Suppliers in selection pool*
Shortlist
Evaluate expressions of interest/ Pre Qualifying Questionnaires

14. Supplier selection techniques
Based on information from suppliers,
visits, performance measures
Effort and precision depends on:
Impact on the business
Low-value products
compare quotation or proposal
High-value strategic items
multi-criteria decision-making models
Supply Market complexity
Few alternatives, no switching opportunity
comprehensive decision
Many alternatives, low switching costs
less rigorous selection procedure
Discussion of supplier selection techniques see Cousins et al ch 5
Proposals, quotations, auctions, negotiations

15. Objectives in forming partnerships
Eliminating unnecessary work
Reducing costs for each side – achieving cost saving breakthroughs
Increasing market share/revenue
Attaining sales/ turnover growth
Creating competencies that can’t be copied
Provide an example here:
I use the car industry - integration of production systems and co-location and relate to Smart Car

16. The Partnership continuum: types of relationship….
Relationship type
Activities
Time
Scope of activities
Open market negotiation
Price based discussion; adversarial relationships
Short
term
Single order
Partnership type
cooperation
Fewer suppliers
Longer term contracts
Short term
Single function
coordination
Information links/ Work In Progress Links EDI/ shared technologies
Long term
Many functions
collaboration
SC integration/ Joint planning/ shared technology
Long term no set date
Firms = extensions of each other
EDI = Electronic Data Interchange
Don’t jump straight in from arms length to partnership – need to build relationship.
It is similar to personal relationships
Co-operation
Co-ordination
Collaboration