Supplier Selection and Management-Part 1

Welcome to Course 4. This is on Supplier Management. This is probably one of the most
important topics in the global procurement and sourcing specialization. The reason is because
only you and procurement are going to make the decision to select the supplier. Well, yes, you're
going to certainly check with your stakeholders, your stakeholders are going to be involved in
that decision, but at the end of the day, you're going to have to make the supplier selection. Yes,
you may be in a cross-functional team that you're working with and you're going to come up with
recommendation, but at the end of the day, you're going to select the supplier. At the end of the
day, you're going to sign the contract, not the stakeholders, not those cross-functional team and
more importantly, in to my 38 years of experience with working in and out of procurement is that
when things happen and there's problems with a supplier, does happen from time to time, your
senior management or your boss doesn't go to quality, doesn't go to engineering. He will go to
you and say, "Look, we have this problem with supplier. What do we need to do to fix the
problem?" So my point here, this is an important decision and it relies upon you to make the right
decision. Then if there are problems, it relies upon you to probably fix the issue if there is one. So
let me just talk a little bit about what we're going to cover. It is 6-week course. The first one we're
going to talk about through week 1 and week 2 about how do we select and evaluate suppliers.
We're going to go on and show some supplier evaluation system. We saw a little bit of this in
staging sourcing, but we're going to review it again here because it's important. Then we're going
to talk about what types of contracts you want to put in place, and what are the advantages and
disadvantages of long and short term contracts? I'm going to give you 10 things to consider
about risk management. This is a big topic, particularly in light of the recent problems with
COVID-19 and all problems with getting goods and services into the country from outside the
United States as well as within the country. The question would be as how do you manage and
mitigate that risk? Lastly, we want to talk about ethics, I put it in this course because it's primarily
focused around suppliers, although there are other things that do occur. But primarily ethics is
around suppliers, and we're going to go through five or six different ethical type problems. So
let's get started. So just as I said earlier, week 1 and 2 are going to be around supplier evaluation
selection in management. Then we're going to move on to contract management, week 3, two
weeks in risk management, and then we're going to wrap it up in week 6 with ethics.

2:48
So here we go. So how do we select and evaluate suppliers? So again, this is a question I
usually put it in the beginning, each one of the courses in weeks that we're covering these
various topics. But take about 30 seconds if you could and let me know what activities would you
think you would need to cover to select and evaluate suppliers? See you in 30.

3:38
So as you can see here, this is a process chart about how to select and evaluate suppliers. I'm
not going to go through each one of these. Once again, you can just read over them. We're going
to cover all these as we go through week 1 and week 2. But is just to highlight many of these
things, what we've seen in the strategic sourcing and that's because selecting and evaluating
suppliers is part of the strategic sourcing process. But here it is again and we want to cover it a
little more in depth than we did in strategic sourcing. So first of all, where do these requirements
come from? I think first of all, as we said earlier, many of them come from outside procurement.
So just huddled highlight a few of these, might be coming from product development, maybe
you're buying new equipment for a plant and you got your engineering departments coming to
you and you got to buy this equipment, the business could be coming to you and say, "We need
to outsource this function." An example would be payables. You want to have somebody go on
the outside pay your bills to suppliers. It's a very common thing to outsource. As we said, most of
the time this comes through some requisitions, particularly if it's coming from outside
procurement. But there also are some that you make in decisions. You make decisions around
suppliers. For example, if we're having a poor supplier performance and you need to replace
them, you might see an opportunity for consolidating volumes such as we noted in the print
material example in previous courses. You might be coming out of a contract, you're going to
have to send out request for quotation or do a reverse auction. When suppliers maybe they don't
have sufficient capacity, this is very common, for example, in the electronics industry, there's
very tight capacities and you may have insufficient capacity and you have to find another supplier
to give you what you need. So there are lots of different reasons, and this list is really things that
you would decide how you want to evaluate and select sub-suppliers. So from a sourcing
strategy, there's a number of things to think about. You want to think about, do you want single
sources or multiple sources? For example, you might think that multiple sources is better,
because if one supplier has a problem you can go to the second source. On the other hand,
maybe this suits to have a single supplier because you're leveraging the volume and getting
consistent quality. Do you want to have a long or short term contracts? We're going to talk about
more of that in Week 3, but that's a decision you got to make. Maybe you need some support,
design support, collaboration versus arm's lengths. So maybe you want have them help you in
the design of this particular product. On the decision about full-service versus non full-service
suppliers. An example would be let's say, you're buying a pump for manufacturing, and you want
to have it whenever there's a problem that pump and it breaks down, you're going to have to see
this local company or distributor come in and repair that pump, let's say 24-hour, seven days a
week whenever it breaks. Or maybe you don't want any service and you want to whenever it
breaks, you just want to buy it on the internet and deliver it to your site. Big decision today is
domestic versus foreign suppliers. We live in a global economy now, as we've learned a little bit
with the COVID-19. A lot of things come from China, but they also come from other countries all
over the world. The reason it comes from there, particularly if it's labor-based, they have very
inexpensive labor and quick turnaround time, so people have over the years have gone there in
huge numbers and used foreign sources. An example would be clothing, if you're in the clothing
business,. There isn't any shirts or pants that are made in this country anymore. It's because of
the inexpensive labor and it's done all over the world. Lastly, as I said earlier, collaboration. You
may want a relationship, we need to collaborate with them, to work with them to develop some
innovative idea or innovative product. Or you just want to be your arm's length to say this is the
price deal. We've seen this chart before. Sources of information. Certainly you have suppliers in
your company that current suppliers you probably listed. Preferred suppliers, you certainly might
have gone to a trade show, for example, and met suppliers. Maybe the supplier came in and
gave you information and you kept the file on that particular commodity or item. You pulled it out
when you're looking for new sources. Internet, of course, many people will search the Internet.
There are sites such as ThomasNet that you can use looking for industrial products, and search
for those types of products to convey or a piece of equipment that you can get off the Internet
also. So lots of ways to get suppliers. You're going to want to limit your suppliers. We're going to
revisit this again in Week 2 as we are talking about supplier selection and evaluation. But one of
the first ways you do it, is you use it for financial risks. If you know, through your RFI, that the
supplier has weak financials through a Dun and Bradstreet report or through Bloomberg,
probably going to not use them or at least limit him in your exposure. If it's an existing supplier,
you're going to look at those performance records. We looked at this briefly in strategic sourcing,
we're going to look at comparing how those numbers look on price, quality, service and
determine whether we want to use these suppliers going forward. Then lastly is we learned in
strategic sourcing, you can have all sorts of information coming at you. Request for formal
information. That's when you go out and sent a formal request out to a bunch of suppliers, you
can learn about their financials, you want to learn about their management, are they unionized?
What type of company they have, where their plant is located, tremendous amount of
information. Then you're going a step further, you would request a quotation. You have a very
good specification and you're going to send out a request for quotation, get the best price. You
might want to know about the lead time or what type of transport you're going to do to get that.
That's all in the request for quotation. Quest for proposals are a little bit different. That's when
you don't really know exact specification and say probably you're hiring a consulting service to
help you launch products, let's say in South America. So you're asking consultants come back
with what your proposal to help us launch these products, and give us the list of activities and the
price. You would basically evaluate that proposal on many different criteria in addition to price.
So that's it for Week 1 and we look forward seeing you in Week 2.