1. Supplier Selection & Evaluation
BPT3133 – Procurement in Industrial Management

2. Chapter Outline Supplier Evaluation and Selection
Supplier Quality Management
Supplier Management and Development
Global Sourcing

3. Learning Objective
Identify the 7 step supplier selection process as an enabler to world-class supplier selection
Link the principles of total quality management to supply management practices
Recognize that supplier management and development includes a variety of activities intended to improve supplier performance
Understand the reasons why firms pursue international purchasing

4. Supplier Evaluation & Selection
Recognize the need for supplier selection
Identify key sourcing requirements
Determine sourcing strategy
Identify potential supply sources
Limit suppliers in selection pool
Determine method of supplier evaluation and selection
Select supplier and reach agreement

5. Supplier Evaluation & Selection
When do supplier evaluation and selection decisions arise?
During new product development
Due to poor internal or external supplier performance
At the end of a contract
When buying new equipment
When expanding into new markets or product lines
When performing market tests
When current suppliers have insufficient capacity
When reducing the size of the supply base
During outsourcing analyses
When consolidating volumes across a business

6. Supplier Evaluation & Selection
Determine sourcing strategy
No single sourcing strategy approach will satisfy the requirements of all purchases
Purchasing strategy adopted will influence the approach taken during evaluation and selection process
Key decisions include:
Single vs. multiple supply sources
Short term vs. long term purchase contracts
Selecting suppliers that provide design support vs. those that lack design capability
Full-service vs. non full-service suppliers
Domestic vs. foreign suppliers
Expectation of a close working relationship vs. arm’s-length purchasing

7. Supplier Evaluation & Selection
Identify potential supply sources:
Current suppliers
Sales representatives
Information database
Experience
Trade journals / directories / shows
Second-party / indirect information
Internal sources
Internet searches
Sourcing alternatives:
Manufacturer vs. Distributor
Local / National / International Suppliers
Large or Small Suppliers
Multiple or Single Sourcing

8. Supplier Evaluation & Selection
Key Supplier Evaluation Criteria:
Management capability
Employee capabilities
Cost structure
Total quality performance, systems and philosophy
Process and technological capability
Environmental regulation compliance
Financial stability
Production scheduling and control systems
E-commerce capability
Supplier’s sourcing strategies, policies and techniques
Longer-term relationship potential

9. Supplier Quality Management
Ability to meet or exceed current and future customer expectations or requirements within critical performance areas on a consistent basis

10. Supplier Quality Management
Importance of Supplier Quality
Supplier Impact on Quality
supplier responsible for 50% of firm’s product-related quality problem
company focuses only its own internal quality issues will usually fail to recognize and take action on quality-related problems
Continuous-Improvement Requirements
continuous quality improvements in all aspects; one way to do this is through effective management of supplier quality
Outsourcing of Purchase Requirements
no longer an advantage in some industries to make most of the components of a product
therefore, progressive buyers are relying on suppliers that demonstrate significant capabilities

11. Supplier Quality Management
Factors affecting supply management’s role in managing supplier quality:
The ability of a supplier to affect a buyer’s total quality
The resources available to support supplier quality management and improvement
The ability of a buying firm to practice world class quality
A supplier’s willingness to work jointly to improve quality
A supplier’s current quality levels

12. Supplier Quality Management
8 Key Principles of TQM
Define quality in terms of customers and their requirements
Pursue quality source
Stress objective rather than subjective analysis
Emphasize prevention rather than detection of defects
Focus on process rather than output
Strive for zero defects
Establish continuous improvement as a way of life
Make quality everyone’s responsibility

13. Supplier Management & Development
Important part of supplier management involves the continuous measurement, evaluation and analysis of supplier performance.
What to measure?
Delivery performance
Quality performance
Cost reduction
Types of Supplier Measurement Techniques
Categorical System
Weighted-Point System
Cost-Based System

14. Supplier Management & Development
Categorical System

15. Supplier Management & Development
Weighted-Point System

16. Supplier Management & Development
Cost-Based System
* Supplier Performance Index (SPI) = (Total Purchases + Nonperformance Costs) / Total Purchases

17. Supplier Management & Development

18. Global Sourcing
Definitions of globalization – ‘interdependence’, ‘connectivity’ and ‘integration of economies’ in social, technical and political spheres
International Purchasing relates to a commercial purchase transaction between a buyer and a supplier located in different countries.
Global (worldwide) sourcing involves proactively integrating and coordinating common items and materials, processes, designs, technologies and suppliers across worldwide purchasing, engineering and operating locations.

19. Global Sourcing Why Source Worldwide? Cost / Price Benefits
Access to Product and Process Technology
Quality
Access to the Only Source Available
Introduce Competition to Domestic Suppliers
React to Buying Patterns of Competitors
Establish a Presence in a Foreign Market

20. Global Sourcing Barriers to Worldwide Sourcing:
Lack of knowledge and skills concerning global sourcing
Resistance to change
Longer lead times
Different business customs, language and culture
Currency fluctuations

21. Global Sourcing Benefits: Lower purchase price or cost
Greater supplier responsiveness
Greater sourcing process consistency
Improved supplier relationships
Improved sharing of information with suppliers

22. Summary
Suppliers evaluation and selection will establish the foundation to develop & improve supplier performance.
Improving supplier quality involves much more than providing clear specifications and maintaining open communication.
An effective supplier management program helps maximize the contribution received from suppliers, lowering costs, increasing quality and developing future capabilities.
Firms operating in competitive industries must purchase from the best available sources worldwide.