Ethiopian Civil Service University

College of Urban Development and Engineering

Department: Urban Infrastructure and Transport
Management
Program: Transport Planning and Management Masters
Program
Course Title : Logistics and Freight Transport (TPM7071)
Unit 4
Purchasing and Supplier Selection
Semester I, Week 4

ECSU Department of UITM, Transport Logistics and Fr. Mgt.

11/15/2021 (TPM7071). Prepared and presented by Dr. Belew D. AA, Oct.2021-
1 Feb 2022
 Contents
• Definition of Purchasing
• Strategic Role of Purchasing
• Purchasing Portfolio
• Supplier Selection
• Tools for Supplier Selection

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021 2
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Learning Objectives
At the end of this chapter students will be able to:
• Understand the concepts of purchasing in supply chain
• Describe the strategic roles of purchasing
• Discuss the techniques/tools for supplier selection

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021 3
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 4.1. Definition
• Classical definition of purchasing : to obtain materials
and/or services of the right quality in the right quantity
from the right source, deliver them to the right place at
the right price.
• Composite definition of purchasing: the process
undertaken by the organisational unit which, either as a
function or as part of an integrated supply chain, is
responsible for procuring supplies of materials and
services of the right quality, quantity, time and price,
and the management of the suppliers, thereby
contributing to the competitive advantages of the
achievement of theECScUoDerppartomernat otf UeITMs,tTrraanstpoertgy.
Logistics and Fr. Mgt. (TPM7071).
5 11/15/2021 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 4.2. Strategic Role of Purchasing
• Purchasing function has a strategically indispensible role
to play in supply chain management.
• It covers the sourcing end of supply chain management
interfacing with the delivery end of the suppliers.
• It is one of the most important, delivery arms of supply
chain management.
• Often it directly delivers the cost saving, quality
improvement and fulfils the supplier relationships.
• It basically intermediates the company ’s internal
operations with the suppliers, ensuring the right suppliers
are found and engaged in a process of supply and
delivering the required materials, components and
services that best sEuCiStU Dtehpaertmiennttoef UrITnMa, Tlranospporet rations.
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
5 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…

ECSU Department of UITM, Transport

6
Fig. 4.1: Operational purchasing activities (adopted from Slack,
11/15/2021
Logistics and Fr. Mgt. (TPM7071).
Prepared and presented by Dr. Belew
1998) D. AA, Oct.2021- Feb 2022
 4.3. Purchasing Portfolio
• The innovations we make on a daily basis can
have a profound effect on making the world a
better place for people, business and society.

ECSU Department of UITM, Transport

7
11/15/2021 Fig.4.2: Kraljic purchasing portfolio matrix
Logistics and Fr. Mgt. (TPM7071).
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
1). Leverage Products
– Are those products that have significant impact on
the finance, but relatively easy to buy from the
supply market (low market risk).
2). Routine Products
– Are those products that have very little financial
impact and are also plenty to choose from the market
place.
– They don’t cost much in comparison to the total cost
of your own products.
– The market availability for those product is very high
and there is no risk of supply.
ECSU Department of UITM, Transport
Logistics and Fr. Mgt. (TPM7071).
8 11/15/2021
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
3). Strategic Products
– Are those products that have high level of financial
impact to your final product and are not usually
available in the market place, thus high supply risk.
– They are very expansive to develop and manufacture,
and often involve high technology contents.
4). Bottleneck products
– Are those products that may or may not cost too
much in comparison with the total material cost, but
they must have them and they are very difficult to get
hold of.
– The supply risk for those components is high, and the
availability of thEeCLSogUcisDotiecspm p
artm eo
nt on
f Ue
ITn
M,tTs
raniss
and Fr. Mgt. (TPM7071).
porn
t ot guaranteed.
11/15/2021 9
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 4.4. Supplier Selection
• One of the critical tasks of purchasing function is to
identify and select the suppliers.
• The quality of the suppliers and the righteousness of
their selection will have direct implications on the
supply chain’s long-term competitiveness.
• The processes of going about selecting suppliers can be
suggested as follows, but by no means comprehensive
and universal.

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
10 11/15/2021 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
• The processes of selecting suppliers are as follows:
1) Set up selection criteria
2) Initial contact
3) Formal evaluation
4) Price quotation
5) Financial data
6) Reference checking
7) Supplier visit
8) Audits, assessments or surveys
9) Initiation test
ECSU Department of UITM, Transport
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
11 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
• There are three significantly different approaches
toward supplier selection:
1) Product based: this approach will normally check the product
prototype to see if the quality and technical specifications can
be met and the delivery terms are satisfactory.
2) Capability based: It typical checks whether the supplier has the
design and development capability, strategic investment in
technology and skills, and up to scratch management. Often
used for long-term supplier selection and can be done well
before the idea of component is taking shape.
3) Combination of product and capability based selection: It
applies to when a strategically important new part is to be
outsourced to a neEw supplier.
CSU Department of UITM, Transport
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
12 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
– Assessment criteria on the supplier ’s capability:
• Total quality management policy
• BS 5750/ ISO 9000 certification or equivalent
• Implementing latest techniques e.g. JIT, EDI
• In-house design capability
• Ability to supply locally or world-wide as appropriate
• Consistent delivery performance, service standards and
product quality
• Attitude on total acquisition cost
• Willingness to change, flexible attitude of management
and workforce
•
ECSU Department of UITM, Transport
11/15/2021
Favou ra b l e l on gLotgiestircsm
andiFn
r. vet.s(TtPm
Mg M7e
07n
1).t plan
13 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 4.5. Tools for Supplier Selection
• To facilitate the process of supplier selection,
quantitative tools are beneficial.
• They can make the selection process more rationale;
they serve as the platform for meaningful discussion or
debate; they provide traceable documents; they form
the factual contents for decision-making.
• Three basic quantitative tools are introduced here for
managers to get started on creating their own tools for
their own industry and products.

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
14 11/15/2021 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
1). Categorical Method
– You define the selection criteria first, for example
quality, delivery and service; then you make three
category judgements: good (+), unsatisfactory (-), and
neutral (0) against the criteria for each supplier;
finally you sum up the judgement into a total score
for each supplier; the highest one will be selected.
– This method is very simple to apply but is rather
subjective.
– Hence, it is recommended to form a multi-functional
team to make collective judgements in order to limit
the bias from individuals.
ECSU Department of UITM, Transport
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
15 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021
16 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
2). Cost Ratio Method
– What ’s different from the categorical method is that it is
not entirely based on the people’s subjective judgement.
– It makes use of some available data on the quality
performance; service standard and delivery reliability for
instance.
– With those historically collected data, you will be able to
establish the corresponding cost ratios for each criterion
in term of how much the penalty cost needs to be added.
– The original quoted unit prices from different suppliers
will then be adjusted to generate the net-adjusted costs.
ECSU Department of UITM, Transport
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
17 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021
18 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…
3). Linear-average Method
– The weight is a score that reflects the relative importance
of the criterion.
– The sum of all the weight scores is normally 100.
– Whatever the judgement score multiplied by the weight
become the adjusted judgement score; and then add all
the adjusted scores together to generate the total
selection score for the supplier.
– It should be noted that the weight can also be applied to
the cost ratio method, or any other method.
– In the end, the most appropriate supplier selection tool
perhaps is the coEm
CSb
UDinepaarttmieontnof UoITfM,sToranm
spoe
rt of those methods.
Logistics and Fr. Mgt. (TPM7071).
11/15/2021
19 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Cont…

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021
20 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Reference

• Christopher, M. (2005). Logistics and supply chain

management – creating value-adding networks,
3rd ed. FT Prentice Hall, London.
• Lu, D. (2011). Fundamentals of Supply Chain
Management, Ventus Publishing Aps, ISBN 978-
87-7681-798-5.
• Slack, N and Johnston, S. (2006). Operations
Management, 5th Edition, Prentice Hall, London.

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021
21 Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022
 Question and Comments!

ECSU Department of UITM, Transport

Logistics and Fr. Mgt. (TPM7071).
11/15/2021 22
Prepared and presented by Dr. Belew
D. AA, Oct.2021- Feb 2022