Chapter-four

Solicitation Planning, Solicitation,

Evaluation and Selection

Temesgen Belayneh (PhD)

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 Content

 Introduction
 Solicitation planning
 Solicitation
 Key supplier evaluation criteria
 Developing a Supplier Evaluation and
Selection Survey
 Supplier Selection

Temesgen Belayneh (PhD)

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 Solicitation Planning
 Solicitation planning involves preparing the documents
needed for solicitation and determining the evaluation
criteria for the contract award. Two common documents
are:
 Request for Proposals: used to solicit proposals from
prospective suppliers. In this case, the product scope
is not well-defined. The buyer may choose a
particular option out of several options provided by
various suppliers
 Requests for Quotes: used to solicit bids or quotes for
well-defined product or item.
 Invitations for bid or negotiation, and initial contractor
responses are also part of solicitation planning
Temesgen Belayneh (PhD)
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Solicitation
 Solicitation involves obtaining proposals or
bids from prospective sellers
 Organizations can advertise to procure
goods and services in several ways
 approaching the preferred vendor
 approaching several potential vendors
 advertising to anyone interested
 A bidders’ conference, or pre-bid
conference can help clarify the buyer’s
expectations Temesgen Belayneh (PhD)
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Evaluation and Selection Process

 No “one best way”

 Overall objective is to reduce sourcing
risk and maximize value to the buyer
 Need to select suppliers for the long-
term

Temesgen Belayneh (PhD)

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 Cont’d...

 Strategic supplier selection involves

four main stages:
1 initial supplier qualification;
2 agree measurement criteria;
3 obtain relevant information;
4 make evaluation and selection.

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Step 1: Initial supplier qualification
 Supplier qualification is the first step towards
supplier selection.
 The GOAL is to identify suppliers who meet
the requisite product and process standards
and are capable of supporting the buyer’s
long-term objectives.
 Because organisations are resource
constrained, qualification helps to reduce the
pool of potential suppliers to a more
manageable number for detailed evaluation
and selection.
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 Cont’d...
 Buyer firms will usually wish to assess two
categories:
1. Manufacturing capabilities: Manufacturing
capabilities are best conceived as stocks of
strategic assets that are accumulated through a
pattern of investments over time and cannot be
easily imitated, acquired by trade, or substituted
(Dierickx and Cool, 1989).
 Thus, capabilities such as low cost, quality,
flexibility and delivery performance are stocks of
strategic assets that the supplier has accumulated
over time.
2. Financial viability: Buyer firms also need to assess
the long-term financial health of the suppliers.
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Step 2: Agree measurement criteria

 The strategic selection process continues

with identifying relevant and appropriate
selection criteria.
 We use the words relevant and
appropriate deliberately to emphasise the
need for criteria that are specific to the
particular product purchased and that do
not create unnecessary effort within a
resource-constrained organisation.
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 Criteria for supplier selection

 Cost: Unit price, Pricing terms, Exchange rates,

taxes and duties.
 Quality: Quality system certification ,Quality circles
,Continuous improvement, ISO 9000 series.
 Delivery: On-time performance, Lead-time
Delivery frequency, Minimum lot size, Inbound
delivery cost, Location.
 Flexibility: Supplier flexibility
 Others : Financial risk analysis, Ethical analysis,
Environmental analysis, E-commerce capability,
Reputation ,Diversity of ownership, Innovation
capability.
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 Step 3: Obtain relevant information
 The third stage in the process is obtaining the
information used to compare suppliers across
criteria. It is important that the information is
comparable across suppliers so that, for example,
information on quality from supplier A can be
compared to information on quality from supplier
B.
 Information should also be timely and accurate.
The supplier selection procedure relies on having
up-to-date information that provides an accurate
representation of suppliers. Supply Strategists can
obtain information from a variety of sources,
including information from suppliers, supplier visits
and supplier performance measures.
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Step 4: Make evaluation & selection

 A range of models has been developed to

assist the Supply Strategist in making the
final selection between potential suppliers.
 Selection models range from the highly
quantitative (such as fuzzy set theory) to the
highly qualitative (such as categorical
methods), and from the very simple (such as
eyeballing RFQ data) to the much more
complex (such as artificial intelligence based
models).
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 Source Selection
 Source selection involves
 evaluating bidders’ proposals
 choosing the best one
 negotiating the contract
 awarding the contract
 It is helpful to prepare formal evaluation
procedures for selecting vendors
 Buyers often create a “short list”
Temesgen Belayneh (PhD)
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 Source Selection Process
 The inputs to the source selection is bid proposal,
evaluation criteria, and organizational policies
 Tools and techniques are:
 Contract negotiation: involves clarification and mutual
agreement on the structure and requirements of the contract
prior to the signing of the contract
 Weighting system: a method of quantifying qualitative data to
minimize the personal prejudice or influence of source selection
 Screening system: involves establishing minimum requirements
of performance for one or more of the evaluation criteria
 Independent estimates: the procuring department may prepare
its own independent estimates as a check on proposed pricing
 The output from the source selection is a contract.
 It is a mutually binding agreement that obligates the seller to
provide the specified product and obligates the buyer to pay for
it. Temesgen Belayneh (PhD)
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 Cont’d...
 There are a number of MODELS that can be used to
SELECT the appropriate suppliers, of these let us see
the following one:
 MULTICRITERIA DECISION MODELS, as the name
suggests, are models that allow decision makers to
evaluate various alternatives across multiple decision
criteria.
 Multicriteria decision models are especially helpful
when there is a mix of quantitative and qualitative
decision criteria, when there are numerous decision
alternatives to be considered, and when there is no
clear “best” choice. As such, they are well suited to
supplier evaluation efforts.
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Weighted-Point Evaluation System
 A common multi-criteria decision model is
the weighted-point evaluation system.
 In this model, the user is asked upfront to
assign weights to the performance
measures (WY), and rate the performance
of each supplier with regard to each
dimension (Performance XY). The total
score for each supplier is then calculated
as follows:
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 Cont’d...
n

Score X is = Σ performance xy X Wy
1
Where X = Supplier X
Y = Performance Dimension Y
Performance XY = rated performance of Supplier X with regard to
Performance Dimension Y
WY assigned weight for Performance dimension Y

where Σ Wy =1
y= 1

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 example
 The Electra Company is looking to award a new contract for
500,000 integrated circuit boards (ICBs). In the past, the
company has shared all business equally across three
suppliers, and has amassed a significant amount of
information on their performance history.
 The process begins by developing a weight for each of the
criteria used. The sum of the weights must equal one. In this
case, the sourcing team assigned to evaluating suppliers
for the new contract has decided that quality is the most
important criteria, closely followed by delivery and price.
The resulting weights are:
 WPrice 0.3 = 30%
 WQuality 0.4 = 40%
 WDelivery Reliability 0.3 = 30%
 Total 1.0 = 100%

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 Cont’d..
Performance D S1 S2 S3
Price (Birr) 4 5 2
Quality (%,defection) 5 1 10
Delivery, Reliability 95 80 60
(%)
Price (5-scale) 4 3 5
Quality (5-scale) 3 5 1
Delivery (5-scale) 4 2 1

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 Cont’d...

Q. Rank the suppliers, and which

supplier should be awarded as per the
model.?
S1 = 4X0.3 + 3 X 0.4 + 4 X 0.3 = 3.6
S2 = 3 X 0.3 + 5X0.4 +2X0.3 = 3.5
S3 = 2 X 0.3 + 1X0.4 +1X0.3 = 2.2

Now which one?????

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 Cont’d...
 The model and the amount of effort put into
the final selection should reflect the impact on
the business and market complexities:
 Impact on the business:
 For low-value products, selection may involve
little more than a comparison of the
information contained within the responses to
the RFQ or RFP.
 For high-value, strategic products, selection
should be more complex and will often
involve the use of multi-criteria decision-
making models.
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 Cont’d...

 Market complexity:
 For products with few alternative
sources of supply, selection should be
comprehensive because the possibility
of substitution is low.
 For products with many alternative
sources of supply, selection can be
less comprehensive.
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Cont’d….

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Temesgen Belayneh (PhD)

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