1. The Importance of Supplier Selection Presented by: Deborah Anderson Danaillie Woodfine

2. Evolution of the Supply Function The Handling of Railway Supplies – Their Purchase and Disposition – Published in 1887 The Handling of Railway Supplies – Their Purchase and Disposition – Published in 1887 Attention in the first half of 1900’s to reliable access to supply of raw materials, supplies, and service Attention in the first half of 1900’s to reliable access to supply of raw materials, supplies, and service Two problems arise in the 1970’s that puts senior managements attention on the supply function: Two problems arise in the 1970’s that puts senior managements attention on the supply function: International shortage of basic raw materialsInternational shortage of basic raw materials Price inflationPrice inflation 1990’s, firms are faced with challenges of global supply chains and increased reliance on suppliers 1990’s, firms are faced with challenges of global supply chains and increased reliance on suppliers Technological developments in the early 21 st century provides expectations for supply chain integration, lower transaction costs, and faster response times. Technological developments in the early 21 st century provides expectations for supply chain integration, lower transaction costs, and faster response times.

3. Supplier Selection Criteria 1. Price 2. Quality 3. Delivery 4. Service

4. Four Product Categories Routine Order Products – no problems associated with learning to use the product Routine Order Products – no problems associated with learning to use the product Procedural Problem Products – no question about the capability of the product, but problems in learning to use the product Procedural Problem Products – no question about the capability of the product, but problems in learning to use the product Performance Problem Products – some doubt as to whether the product will perform satisfactorily in the application for which it is being considered Performance Problem Products – some doubt as to whether the product will perform satisfactorily in the application for which it is being considered Political Problem Products – require large capital outlays, and the buying decision will likely involve people from several functional areas within the organization. Political Problem Products – require large capital outlays, and the buying decision will likely involve people from several functional areas within the organization.

5. Buyer-Supplier Relationship: Investment Versus Rewards Obtained

6. Supply Risks and Dollars 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

7. View of Buyer-Supplier Relationship: A Paradigm Shift Traditional Lowest price Lowest price Specification-driven Specification-driven Short-term, reacts to market Short-term, reacts to market Trouble avoidance Trouble avoidance Purchasing’s responsibility Purchasing’s responsibility Tactical Tactical Little sharing of information Little sharing of informationPartnership Total cost of ownership Total cost of ownership End-customer driven End-customer driven Long-term Long-term Opportunity maximization Opportunity maximization Cross-functional teams and top management involvement Cross-functional teams and top management involvement Strategic Strategic Both supplier and buyer on both sides share short- and long-term plans Both supplier and buyer on both sides share short- and long-term plans Shared risk and opportunity Shared risk and opportunity Standardization Standardization Joint ventures Joint ventures Share data Share data

8. Supply Strategy Questions Where Where Local, regionalLocal, regional Domestic, internationalDomestic, international Large versus smallLarge versus small Multiple versus sole sourceMultiple versus sole source High versus low supplier turnoverHigh versus low supplier turnover Supplier relationsSupplier relations Supplier certificationSupplier certification Supplier ownershipSupplier ownership

9. Supply Strategy Questions How How Systems and proceduresSystems and procedures ComputerizationComputerization NegotiationsNegotiations Competitive bidsCompetitive bids Fixed bidsFixed bids Blanket orders/open ordersBlanket orders/open orders Blank check systemBlank check system Group buyingGroup buying MRPMRP Long-term contractsLong-term contracts EthicsEthics Aggressive or passiveAggressive or passive Purchasing researchPurchasing research Value analysisValue analysis

10. Formal Supplier Evaluations Quality Quality Price Price Delivery Delivery Service Service Good Performance Fair Performance Unsatisfactory Performance

11. Weighted Point Evaluation Systems Identify suppliers Identify suppliers Important suppliers and/or critical goods and servicesImportant suppliers and/or critical goods and services Identify factors or criteria for evaluation Identify factors or criteria for evaluation Determine the importance of each factor Determine the importance of each factor Establish a system for rating each supplier on each factor Establish a system for rating each supplier on each factor

12. 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?

13. Arguments in Favor of Multiple Sourcing Traditional practice Traditional practice Keep suppliers “on their toes” Keep suppliers “on their toes” Assurance of supply Assurance of supply Capable of dealing with multiple suppliers efficiently Capable of dealing with multiple suppliers efficiently Avoid supplier dependence on one customer Avoid supplier dependence on one customer Obtain a greater degree of volume flexibility Obtain a greater degree of volume flexibility Strategic considerations Strategic considerations Government regulations Government regulations Limited supplier capacity Limited supplier capacity Opportunity to test a new supplier Opportunity to test a new supplier Supply market volatility Supply market volatility

14. Arguments in Favor of Single Sourcing Exclusivity: The supplier may be only available source Exclusivity: The supplier may be only available source patent protection, exclusive distributorshippatent protection, exclusive distributorship Outstanding quality or service  value Outstanding quality or service  value Order too small to split Order too small to split Opportunities for discounts or lower freight costs Opportunities for discounts or lower freight costs More important customer  more attention from supplier More important customer  more attention from supplier Cost of duplication prohibitive Cost of duplication prohibitive Easier to schedule deliveries Easier to schedule deliveries JIT, stockless buying or EDI arrangements JIT, stockless buying or EDI arrangements Easier to manage one supplier Easier to manage one supplier Prerequisite to partnering Prerequisite to partnering

15. The customer’s point of view

16. The suppliers’ point of view

17. Helpful Websites International Federation of Purchasing and Supply Management (IFPSM) International Federation of Purchasing and Supply Management (IFPSM) http://www.ifpmm.org/ www.ifpmm.org Purchasing and Supply Management Certificate Program Purchasing and Supply Management Certificate Program http://www.is.lsu.edu/newDOCE/Professional/certificate. asp?Home=1 http://www.is.lsu.edu/newDOCE/Professional/certificate. asp?Home=1 Louisiana State University (LSU) http://www.is.lsu.edu/newDOCE/Professional/certificate. asp?Home=1 http://www.is.lsu.edu/newDOCE/Professional/certificate. asp?Home=1 Institute of Supply Management (ISM) Institute of Supply Management (ISM) http://www.ism.ws/

18. Questions? Works Cited: Purchasing and Supply Management, McGraw Hill Companies ProQuest – The Relative Importance of Supplier Selection Criteria: A Review and Update