SUPPLIER SELECTION

1. Identify company’s vision and goals: Is there a need

2. Set supplier criteria
3. Understand purchasing strategy
a) Single versus Multiple Sourcing
 Single sourcing:
o Prior commitments, a successful past relationship or an ongoing long-term contract with a
preferred supplier might prevent the possibility of splitting the order
o The supplier may be the exclusive owner of certain essential patents or processes and
therefore, be the only possible source
o A given supplier may be so outstanding in the quality of product or in the service or value
provided as to preclude serious consideration of buying elsewhere
o The order may be so small
o Concentrating purchases may make possible certain discounts or lower freight rates that
could not be had otherwise
o Deliveries may be more easily scheduled
o The use of JIT production, stockless buying or systems contracting
o Effective supplier relations require considerable resources and time -> fewer suppliers are
better
o Single sourcing is a prerequisite to partnering

 Multiple sourcing:
o Assurance of supply is increased: should any disruption occur to any one supplier,
deliveries can still be obtained from the others
o Supply organization has developed a unique capability of dealing with multiple sources
o To avoid supplier dependence on the purchaser
o To obtain greater flexibility because the unused capacity of all suppliers may be available
o Volatility in the supply market makes single sourcing unacceptably risky
o Strategic reasons: military preparedness and supply security

b) Manufacturer versus Distributor

The decisions is closely related to buying from local sources
Some large organizations often seek ways of going around the supply house, particularly when the
buyer’s requirements of supply items are large, when the shipments are made directly from the
original manufacturer and when no selling effort or service is rendered by the wholesaler. Some
manufacturers operate their own supply houses to get the large discount. Others have attempted to
persuade the original manufacturers to establish quantity discounts
4. Identify potential sources
a) Information sources
The identification of potential sources is a key driver of the ultimate success or failure of the
supplier solution effort. Every supply professional is always on the alert for potential new sources
Knowledge of sources is therefore a primary qualification for any effective supply manager:
online searches, e-catalogues and company web sites are the most common tools use today. Other
sources include trade journals, advertisements, sales interviews, professional contacts, etc.
b) Standard Information Requests
Additional information from the supplier itself is usually sought during the identification of
potential suppliers stage and before supplier selection takes place
Request for Information (RFI)
- Signals that the supply professional has identified a supplier as a potential source of supply
- An opportunity for the supplier to indicate its willingness to enter into a potential business
relationship
It is clear to both parties that the RFI does not commit either party to future business.
Request for Quotation (RFQ) or Request for Bid (RFB)
- Represent a serious inquiry of the supplier on a specific requirement or a variety of
requirements. RFQ and its equivalent ask the supplier to declare at what price and what terms they
are prepared to supply
The assumption is that requirement specifications are sufficiently descriptive and standard so that
multiple suppliers can meet these requirements. Therefore, the price and terms quoted become the
differentiation between various suppliers
Request for Proposal (RFP)
When it is difficult to describe a requirement adequately or the supply organization lacks the
ability to create an RFQ or the supply professional expects that innovation or creativity in the
market might result in a superior solution, the RFP allows more latitude to the supplier than an
RFQ. The RFP permits the supplier to fit the proposal to its strength. For the supply professional,
comparison of RFPs received is considerably more difficult than an RFQ evaluation and may
involve a lot of judgment
c) Plant visit:
Some supply managers feel that visits to suppliers are particularly useful when there are no
difficulties to discuss. The supply manager can talk with higher-level executives rather than
confining discussion to someone who happens to be directly responsible for handling a specific
complaint. Such a visitation policy does raise certain problems not found in the more routine types
of visits, such as who should make the visits, how best to get worthwhile information and the best
use of the data once obtained. When the visits are carefully planned, the direct expense incurred is
small compared with the returns
 d) Samples: samples of supplier’s product can be tested. Frequently, a sales representative
for a new product urges the buyer to accept a sample for test purposes. This raises questions about
what samples to accept, how to ensure a fair test of those accepted, who should bear the expense
of testing and whether or not the supplier should be given the results of the test

5. Short-listing
6. Evaluation
The evaluation of potential sources attempts to answer one key question: Is this supplier able to
supply the purchaser’s requirements satisfactorily, strategically and operationally in both short
and long term. The evaluation of potential suppliers must be followed three levels of need criteria:
Level 1: Strategic
- Linking Sourcing with Strategy: the first level of analysis is finding out which suppliers might
be able to meet the buying organization’s requirements. The second level of analysis is
determining which of these the supply or sourcing team is willing to consider seriously as a source
- Risk assessment: for the supply manager, it is essential to consider each decision in the context
of the organization’s risk profile. Research into risk assessment behaviour of supply professionals
shows that the perceived risk of placing business with an untried and unknown supplier is high
- Strategy development:
Risk assessment is a key step in strategy development. Supply risks can be assessed in several
ways: Pareto analysis (compares dollar volume to variables such as percent of suppliers, percent
of inventory and number of orders), Portfolio analysis (includes supply market risks in the
assessment and focuses attention on the value generating capability of a purchase in light of the
risks of acquiring the purchase)
Level 2: Traditional
Applying the traditional level 2 evaluation criteria of quality, quantity, deliver, price and service is
still a fundamental assessment task in evaluating potential suppliers. These are typically evaluated
on the basis of the technical, engineering, manufacturing and logistics strengths of potential
suppliers
a) Technical, Engineering, Manufacturing and Logistics Strengths
Technical and engineering capability along with manufacturing strength impinges on a number of
supply concerns. The most obvious factor is the quality capability of the supplier. The reason for
selecting one supplier over another is that of greater strengths in areas of importance to the
purchaser. The evaluation of the supplier therefore should focus not only on current capability but
also on the supplier’s future strengths
b) Management and Financial Evaluation
From the supply point of view, the key question is this: is the management of this supplier a
corporate strength or a weakness. This will require a detailed examination of the organization’s
mission, its corporate values and goals, its structure, qualifications of managers, management
controls, policies and procedures, etc.
The financial strengths and weaknesses of a supplier obviously affect its capability to respond to
the needs of customers. The supply professional must determine the extent of the financial
assessment appropriate for each purchase. While short-term alternatives may lessen the risks, the
strategic nature of the purchase indicated the need for complete understanding of the long-term
risks and opportunities from the supplier’s financial situation. Individual financial measures that
may be examined include: credit rating, capital structure, profitability, ability to meet interest,
inventory turnover, ROI, etc. Presumably, financial stability and strength are indicators of good
management and competitive ability. Financial statement, therefore are a useful source of
information about a supplier’s past performance
Level 3: Current Additional
- Financial considerations: finding potential ways of strengthening the purchasing organization’s
financial statements beyond obtaining a lower price
- Environmental Impact: sustainability is the ability to achieve economic prosperity while
protecting the natural system of the planet and providing a higher quality of life. Supply managers
play a key role in an organization’s sustainability initiatives in product or service design, sourcing
and contracting and asset or investment recovery. Environmental supply chain strategies range
from merely trying to avoid violations to including environmental considerations from the design
stage forward
- Innovation: assessing a supplier’s potential for innovation requires evidence of continuing
improvement and managerial and technical competence
- Regulatory compliance: the supply professional does not want supply arrangements to go to
naught because of a lack of supplier attention to regulatory compliance
- Social and Political Factors: noneconomic factors may have a significant bearing on sourcing
decisions. These include social and political concerns