Professional Documents
Culture Documents
Supp Evalu
Supp Evalu
Supp Evalu
Presentation on
Supplier Evaluation and Selection
By Pradeep Owalekar
Based on the cited Book
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
Coverage of Topic
3
Supplier Selection and Evaluation
4
Scenarios requiring Supplier Evaluation and Selection
Decisions
Pradeep B. Owalekar
7
Determine Sourcing Strategy
Pradeep B. Owalekar
9
Information Search Requirements
Pradeep B. Owalekar
11
Sourcing Alternatives
Pradeep B. Owalekar
13
Key Suppliers Evaluation Criteria
Pradeep B. Owalekar
14
Key Suppliers Evaluation Criteria
Pradeep B. Owalekar
17
Management Capabilities
Pradeep B. Owalekar
18
Employee Capabilities
Pradeep B. Owalekar
20
Challenges of Total Cost Analysis
Management commitment
Use of SPC techniques
Level of defects
Safety, training, and maintenance
Use of ISO 9000 criteria
Pradeep B. Owalekar
23
Environmental Compliance
Pradeep B. Owalekar
24
Financial Stability
Often used as a screening process in
the initial selection phase
Risks of a financially weak supplier
Supplier will go out of business
Insufficient resources to invest in
improved plant and equipment
Supplier may become too dependent on
buyer
May be an indicator of other problems
Pradeep B. Owalekar
25
Production Scheduling and Control
Pradeep B. Owalekar
28
Potential for Long-Term Relationships
Pradeep B. Owalekar
32
Initial Supplier Evaluation
Score (1 Weighted
Category Weight Subweight Subtotal
- 5 scale) Score
Quality Systems 20
Process control systems 5 4 4.0
Total quality commitment 8 4 6.4
PPM defect performance 7 5 7.0 17.4
Management Capability 10
Management/labor relations 5 4 4.0
Management capability 5 4 4.0 8.0
Financial Condition 10
Debt structure 5 3 3.0
Turnover ratios 5 4 4.0 7.0
Cost Structure 15
Costs relative to industry 5 5 5.0
Understanding of costs 5 4 4.0
Cost control/reduction efforts 5 5 5.0 14.0
Delivery Performance 15
Performance to promise 5 3 3.0
Lead-time requirements 5 3 3.0
Responsiveness 5 3 3.0 9.0
Technical/Process Capability 15
Product innovation 5 4 4.0
Process innovation 5 5 5.0
research and development 5 5 5.0 14.0
Information Systems Capability 5
EDI capability 3 5 3.0
CAD/CAM 2 0 0.0 3.0
General 10
Support of minority suppliers 2 3 1.2
Environmental compliance 3 5 3.0
Supply base management 5 4 4.0 8.2
Total Score 80.6
Critical Supplier Selection Issues
Size relationship
Use of international suppliers
Competitors as suppliers
Countertrade requirements
Social objectives
35
Reducing Selection Cycle Time
Pradeep B. Owalekar
36
A Good Supplier Does the Following:
Pradeep B. Owalekar
37
A Good Supplier Does the Following:
July 2009
1
Need for Centralized VM function @NJM
2
Vendor Management Process – Touch Points
3
Key Players
Players Responsibilities
Vendor Various Categories of Service providers to NJM
●
Hardware
●
Software
●
Telecom
●
Services
VMO – Vendor Dedicated centralized function to co-ordinate between key players of NJM
Management Office ( Business Units, Contract Management, Purchasing ) with Vendors.
Key functions of VMO
●
Vendor Management Policy & Guidelines (Standard Templates)
●
Assist business units in Vendor Selection
●
Contract Management (Coordinate/Negotiate Contracts with support from
LoB sponsor and Corporate Legal)
●
Vendor Service Level Management (Performance Management)
●
Vendor Relationship management (LoB sponsor, Corporate Legal, Vendors)
4
Vendor Management Office (VMO)
5
Vendor Management Function/Office
Vendor Management
Overview & Structure
Vendor
Vendor Management
Management
Function Build Out
Office
Define Components
Select Function
Owner Build out component
processes and supporting
templates where needed
6
Vendor Management Office
Who?
“A dedicated group of staff who focus on providing the governance and
processes to oversee and manage suppliers pre and post contract”
Vendor IT, Business units perform vendor *** Need for Centralized process
Management management function and hence no repository consisting of policies,
Function centralized policy guidelines, templates…
Vendor Selection Process exists but is Process variations or missing for other
mostly used for and specific to types of vendors – Professional Services,
software vendor / product selections Business services, etc, and needs to be
built
Master List of Categorized “master” list of vendors Need to create a master list of vendors
Vendors doesn’t exist with key attributes
*** One of the objectives of this exercise is to create a framework for a centralized VM processes
Master List of Vendors - Proposed
p
shi
ate
ty
ion
at e
a li
rt D
lat
dD
tic
d
NJM
Re
en
Sta
Cri
ce
En
l Sp
pla
of
ss
act
act
to
e
ne
in
tu r
r
lue
ntr
ntr
nu
he
si
SLA
Na
An
Va
Vendor Category Vendor
Bu
Co
Co
Ot
1 Hardware
1
2
3
2 Networking Equipment
3 Software
1
2
4 IT Consulting Services
5 Telecom Services
6 Data Services
7 IT Research Services
11
Vendor Management Life Cycle
12
Vendor Management Life Cycle
13
Vendor Management Policy Key Components
Vendor Management
Policy
Vendor Selection
Process
Contract This presentation and attached Visio files – provide
Management a high level framework for drafting a detailed
Vendor management policy.
Relationship
Management
Service Level
Management
14
Vendor Selection Process
15
Vendor Selection Process
16
Vendor Selection Process NJM Artifacts/Templates
Vendor Evaluation Vendor Evaluation Template exist Templates need to be developed for other
Template for Software Vendors categories of vendors
RFP/RFI Template Exist for Software Vendors only Templates need to be developed for other
categories of vendors
17
Contract Management
18
Contract Management Touch Points
19
Contract Management NJM Artifacts
Contract review guidance Law & Regulation Vendors often provide contracts favorable to
them. Hence it is important to have a check
list of items – which should be part of NJM
contracts.
20
Contract Management
Essentials of Formal Contracts
1. Security Requirements
2. Business continuity requirements
3. Mandated Technical standards
4. Migration plans (Agreed pre-scheduled change)
5. Disclosure agreements
21
Vendor Service Level Management
Performance Metrics
22
Service Level Management
23
Service Level Management
24
Vendor Relationship Management
25
Vendor Relationship Management
3. Vendor to keep NJM informed of all the events which can impact NJM
business
26
Change Management @NJM
How to implement the VMO framework with minimum impact to NJM operations?
27
Change Management How to implement VMO framework
1. Select VM leader
2. Have leader develop communications plan regarding creation and roll-
out of vendor management function at NJM
3. VM leader works with corporate communications developing ongoing
information communication events, articles, and testimonials as
experiences are acquired
4. VM leader works with Corporate Legal, Contract Management function,
Communications, and Learning & Development to create a
comprehensive awareness-building, and training video on the key
concepts of vendor management
5. VM leader works with NJM leaders and LoB leaders to establish
oversight guidelines for adhering to Vendor Management best practices
28
Supplier Selection
Training for Selecting the Right Supplier
by
Scott Mathusek
75%
75% 43%
43%
100%
100% 36%
36% 22%
22%
25%
25% 57%
57%
31%
31% 18%
18%
A
10 April 2010 B C
Supplier Selection D E12
Determine Method of Supplier
Evaluation and Selection
• Choose what you would like to evaluate
• Decide where you will gather your
information from
• Make selection from your evaluations
A B C D
Competency 77 90 76 85
Capacity 85 85 85 90
Consistency 95 86 95 87
Control of Process 90 95 90 90
10 April 2010 Supplier Selection 17
MODE A B C D
Competency 23.1 27 22.8 25.5
Capacity 25.5 25.5 25.5 27
Consistency 19 17.2 19 17.4
Control of Process 18 19 18 18
Total 85.6 88.7 85.3 87.9
AVERAGE A B C D
Competency 24.1 28.1 23.8 26.6
Capacity 22.3 22.3 22.3 23.6
Consistency 22.6 20.4 22.6 20.7
Control of Process 16.9 17.8 16.9 16.9
Total 85.8 88.7 85.5 87.7
10 April 2010 Supplier Selection 18
Summary
• The evaluation and selection process is
much based off of company goals, missions,
and preferences
• Use Carter’s 10 C’s to have a more
encompassing evaluation
1. Categorical Model
2. Weighted-Point Model
3. Cost-Ratio Model
1.1 Suppliers’ Evaluation Methods
Categorical Model
Advantages Disadvantages Users
qualitative &
quantitative factors
into a single
system
1.3 Suppliers’ Evaluation Methods
Cost-Ratio Model
Advantages Disadvantages Users
Slight
importance
2.2 Key Performance Criteria
Weber’s supplier evaluation criteria
Ran Criteria Evaluation
k
1. Net Price Extreme
2. Delivery Importance
3. Quality
4. Production facilities&cap.
5. Geographical location
6. Technical capabilities
7. Management & organization
8. Reputation & industry position
9. Financial Position
10. Performance History
3. Approaches to Evaluate Suppliers
Methodologies for evaluating are also
known as quantitative approaches and are
used as a tool for the final phase.
Manufacturing 23 71.9
Commercial 6 18.8
Services 1 3.1
Other 2 6.3
Total 32 100
5.2 Findings
Position of respondents
Position Frequency Percent
Owner 9 28.1
General 10 31.3
Manager
Purchasing 5 15.6
Manager
Employee 8 25.0
Total 32 100
4.3 Findings
Size of Companies
Number of Frequency Percent
Employees
<50 13 40.6
51-100 13 40.6
101-150 4 12.5
>150 2 6.3
Total 32 100
4.4 Findings
Companies holding quality certification
Yes 19 59.4
No 13 40.6
Total 32 100
5.5 Findings
Evaluation process
Certification Frequency Percent
Yes 27 84.4
No 5 15.6
Total 32 100
5.6 Findings
Key Performance Criteria of SME’s in
FYROM
1. Net Price
2. Operational Control
3. Close Relationships
4. Desire for Business
5. Production Facilities and capacity
6. Quality
7. Technological capabilities and innovation
8. Geographical location
9. Delivery
10. Technical Capability
11. Vendor’s industry position
12. Repair Service
13. Flexibility in changes
14. Management commitment
15. Clear communication paths
16. Warranties and claim policies
17. Procedural compliance
18. Impression by vendors
19. Attitude
20. Packaging
5.6 Findings
Importance of other factors
6. Conclusion
The current research provides knowledge
for improvement performance
Addresses the need of SME’s in FYROM to
collaborate with suppliers
Provides a solid ground for further
research in the area and can serve as to
develop a suppliers evaluation model that
will assist in the selection process
Questions and Answers
Thank You !
Shpend Imeri
Vendor Selection -
A Roadmap to Success
2
Milestones in the Vendor Selection Process
Contract Negotiation
Vendor Selection
Demos/Due Diligence
Bid Evaluation/Finalists
RFP
Needs Analysis
Tech Assessment
3
Selecting a Core Systems Vendor - Criteria
Category Explanation
The current features and benefits of the system and the ability of these features to
allow the client employees to do their jobs better
FUNCTIONALITY The users’ perception of future systems migration and the impact it will have on the
client
The ability of the system to support the sales and service goals set by the client
The ability of the vendor to support and enable the strategic goals of the client
The ability of the vendor to deliver promised systems and programs on time and
with consistent high quality
The track record of the vendor in supporting other utilities
VENDOR STRENGTH The perception of client management that the vendor understands the client and its
unique strategy and will proactively aid in its realization
The financial strength of the vendor and the ability to continually invest in system
upgrades and enhancements
The base unit prices that will be charged
The structure of price increases over five years in various growth scenarios
PRICE The additional products and services that are included as part of the base price
The value the client will receive in products and services for the money paid
4
Selecting a Core Systems Vendor - Criteria
Category Explanation
The technical design of the system and the underlying hardware and software used to
support it
The ability of the vendor platform to support the continual upgrade and improvement of
ARCHITECTURE the core systems
The vendor’s stated technology plan and its funding to support the plan
The ability of the platform to incorporate and maximize the benefits provided by new
technologies
Risk is divided into three categories:
Technology Risk – The potential that newer, unproven or undeveloped technology will
cause problems in the operating units. Conversely, the risk that older technology will lack
the functionality and flexibility needed by the client
RISK
Conversion Risk – The possibility that the conversion to new systems will negatively
impact the ability of the client to execute plans and attain goals
Operations Risk - The possibility that back office and other client operations will be
negatively impacted, either during or after conversion
5
Present a Project Plan to Your CEO
Planning/RFP Development
Review strategic plan to determine key
technology and information implications
for the future
Survey employees to discern user system
requirements and operational plans for the
future
Develop request for proposal (RFP) soliciting bids from
the vendor community
Develop vendor short list to receive RFP
Decide upon desired delivery as early as possible
Have RFP approved by senior management team
6
Decision Interface RFP Philosophy
7
Review of Vendor Background and Experience
Recommended Approaches:
Article search/industry reports on vendor
Annual report/financial statements of vendor
• Demand financial statements even from private companies
# of installs by delivery channel and asset size
Evaluate market momentum
Ask for a long list of references with contact information
Ask to see information concerning:
• R&D budget
• Training and user group offerings
• Current interfaces!
8
Review of Vendor Technology
Recommended Approaches:
Ask for technology “white paper” from vendor
Ask for product architectural details in RFP
• Product name
• First and last installation dates
• Original developer
• Programming languages
• Data structure and database product
• Operating system
• Hardware
• Communications
9
Review of Financial Proposals
Recommended Approaches:
Build a five-year cash flow projection
Ensure that each proposal includes the same products
and services to compare fairly
Build a 10% - 20% contingency into each proposal
Identify any “variable” charges that may
become expensive as transactions
and/or accounts grow
Don’t forget COLA!
10
Review of Financial Proposals
Recommended Approaches:
Attempt to negotiate fixed arrangements as much as
possible
Ensure that any required additional hardware,
software, communications and staffing investments
have been identified
This is especially important when comparing in-house
proposals to service bureau/ASP proposals
Integration experience
• The difference between “Can do” and “Have done” can easily
be six figures
Calculate a total five-year cost and an annual cost for
accounting purposes
11
User Demonstrations and Due Diligence
Recommended Approaches:
Live demo at client site
Written questions to vendor
Active phone campaign with peers
Live demo at vendor client site
Visit to vendor corporate office
Recommended Evaluation:
Devise a score sheet for each system user
Use a worksheet to evaluate conversion,
support and operational risks
12
Sample Vendor Score Sheet
Functionality X%
Vendor
X%
Strength
Architecture X%
Price X%
Risk X%
TOTAL
100%
SCORE
13
Contract Negotiation
14
Contact Negotiation
15
Contract Negotiation
The terms of the contract you sign with your vendor will
be with you for years to come.
Decision Interface can help ensure you the best possible
advantage.
17
Contract Negotiation Tips
18
Questions?
Vendor Selection -
A Roadmap to Success
19
OUTSOURCING AND VENDOR MANAGEMENT
SUBMITTED BY
GROUP#9 MBA-IT 2012-14
AGENDA
• Introduction to Outsourcing
• Reasons for Outsourcing
• Types of Outsourcing
• What can be Outsourced
• When to Outsource
• How to Implement Outsourcing
• Model Of Outsourcing
• Vendor Management
• Case Study Vendor management
• TCO
• Conclusion
INTRODUCTION
Services
COMPANY OUTSOURCER
Organization Service
Level Level
Agreement Agreement
Outsourcing models:
Business
processes BPO: Business Process Outsourcing
BPO
Administrative APO: Administrative Process Outsourcing
processes
ASP: Application Service Provider
AMO Application Development
DBRO: Design, Build, Run & Operate
and Maintenance
ADM: Application Develop. & Maintenance
• Security
Client Operations Management • End-to-end security services
Security Data Technical Network Desktop Supplier including firewall
Delivery
capabilities
Centers Support Services Mgmt. Mgmt. management, intrusion
&
detection, identity management
Mobility
and security policy
• Data Centers
• Remote and on-site managed
Sales Support and Mobilization server hosting
• Data centers
Hosting • Technical Support
Technical Support
• - Help desk, desk-side and self-
service support
Network Management • - Global hubs
Services
• Network Services
Security Operations • Managing data and voice
networks
Desktop Management & Mobility
• Desktop Management and
Messaging & Collaboration Mobility
• PC, laptop, hand-held, distributed
7
• Supplier Management
BPO-BUSINESS PROCESS OUTSORCING
WHAT CAN BE OUTSOURCED
• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• Maintenance/repair
• Applications development
• E-commerce
• End-user support system
WHEN TO OUTSOURCE
Strategic Non-Strategic
Non-Competitive In House
Outsource
if Possible
PricewaterhouseCoopers Model
HOW TO IMPLEMENT OUTSOURCING
• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementation
• Transferring staff
• Service Level Agreement (SLA)
• Establish communications
between partners
• Actual transfer of the service
• Establish management
procedures
• Contract agreement
• Contract fulfillment
LEAD SUPPLIER MODEL
• COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, roles, and
responsibilities
• Usage of sub-suppliers for
specifics activities
• Cooperation and exchange
of knowledge
• Competitive environment
7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carry out a SWOT analysis to evaluate the risks the company is exposed to
• Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive
• research
• Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing
etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify
processes and procedures as well backup, recovery, and business continuity
plans
• Set clear SLAs, Set KPIs and ROI evaluation systems
• Evaluate carefully the expenditures on the outsourcing partnerships
CORPORATE GOVERNANCE
Due Diligence
Risk Analysis in Vendor
selection
Documenting
Supervision
the Vendor
and
Relationship
Monitoring of
Contract
Vendors
Issues
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, the nature of the activities the vendor
will perform, and the inherent riskiness of the activity.
- Are there other potential vendors that could quickly provide the
same service if the current vendor fails?
STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operationally meet the requirements for the proposed service
and an inquiry into the vendor's financial ability to deliver on its
promise
CHALLANGE SOLUTION
• More than 35000 employees, 100’s of • Global vendor Management
locations, Huge IT Infrastructure Office(VMO) within CISCO that supports
Budget, Each office has complex strategic vendor relationships across IT
requirements Organizations
• Cisco uses its own products and services
wherever possible, but still spends • VMO has Defined Seven Phases of
US$500M a year globally on other IT CISCO Vendor Management
products and services. ENGAGE
• Lack of Consistent Processes and INVESTIGATE
Strategic Planning cost CISCO significant EVALUATE
amount of money NEGOTIATE
• It had signed multiyear contracts for CONTRACT
products that became obsolete as they COMPLIANCE
moved to new technologies RENEW
VENDOR MANAGEMENT – CISCO
CASE STUDY
S
• Conduct period-over-period
performance reviews of like vendors to
identify consolidation opportunities.
TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitative cost of acquisition
of project in IT in order to
make decision.
NEED OF TCO
• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision making
• Communication of cost issues internally and with
suppliers
• Support external teams with suppliers
• Better insight/understanding of cost drivers
• Support an outsourcing analysis
METHODOLOGY TO CALCULATE TCO
• Hardware
Ownership • Human resources
Costs • infrastructure
• Communication system Etc.
• Invest in Planning
SUBMITTED BY
GROUP#9 MBA-IT 2012-14
AGENDA
• Introduction to Outsourcing
• Reasons for Outsourcing
• Types of Outsourcing
• What can be Outsourced
• When to Outsource
• How to Implement Outsourcing
• Model Of Outsourcing
• Vendor Management
• Case Study Vendor management
• TCO
• Conclusion
INTRODUCTION
Services
COMPANY OUTSOURCER
Organization Service
Level Level
Agreement Agreement
Outsourcing models:
Business
processes BPO: Business Process Outsourcing
BPO
Administrative APO: Administrative Process Outsourcing
processes
ASP: Application Service Provider
AMO Application Development
DBRO: Design, Build, Run & Operate
and Maintenance
ADM: Application Develop. & Maintenance
• Security
Client Operations Management • End-to-end security services
Security Data Technical Network Desktop Supplier including firewall
Delivery
capabilities
Centers Support Services Mgmt. Mgmt. management, intrusion
&
detection, identity management
Mobility
and security policy
• Data Centers
• Remote and on-site managed
Sales Support and Mobilization server hosting
• Data centers
Hosting • Technical Support
Technical Support
• - Help desk, desk-side and self-
service support
Network Management • - Global hubs
Services
• Network Services
Security Operations • Managing data and voice
networks
Desktop Management & Mobility
• Desktop Management and
Messaging & Collaboration Mobility
• PC, laptop, hand-held, distributed
7
• Supplier Management
BPO-BUSINESS PROCESS OUTSORCING
WHAT CAN BE OUTSOURCED
• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• Maintenance/repair
• Applications development
• E-commerce
• End-user support system
WHEN TO OUTSOURCE
Strategic Non-Strategic
Non-Competitive In House
Outsource
if Possible
PricewaterhouseCoopers Model
HOW TO IMPLEMENT OUTSOURCING
• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementation
• Transferring staff
• Service Level Agreement (SLA)
• Establish communications
between partners
• Actual transfer of the service
• Establish management
procedures
• Contract agreement
• Contract fulfillment
LEAD SUPPLIER MODEL
• COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, roles, and
responsibilities
• Usage of sub-suppliers for
specifics activities
• Cooperation and exchange
of knowledge
• Competitive environment
7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carry out a SWOT analysis to evaluate the risks the company is exposed to
• Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive
• research
• Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing
etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify
processes and procedures as well backup, recovery, and business continuity
plans
• Set clear SLAs, Set KPIs and ROI evaluation systems
• Evaluate carefully the expenditures on the outsourcing partnerships
CORPORATE GOVERNANCE
Due Diligence
Risk Analysis in Vendor
selection
Documenting
Supervision
the Vendor
and
Relationship
Monitoring of
Contract
Vendors
Issues
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, the nature of the activities the vendor
will perform, and the inherent riskiness of the activity.
- Are there other potential vendors that could quickly provide the
same service if the current vendor fails?
STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operationally meet the requirements for the proposed service
and an inquiry into the vendor's financial ability to deliver on its
promise
CHALLANGE SOLUTION
• More than 35000 employees, 100’s of • Global vendor Management
locations, Huge IT Infrastructure Office(VMO) within CISCO that supports
Budget, Each office has complex strategic vendor relationships across IT
requirements Organizations
• Cisco uses its own products and services
wherever possible, but still spends • VMO has Defined Seven Phases of
US$500M a year globally on other IT CISCO Vendor Management
products and services. ENGAGE
• Lack of Consistent Processes and INVESTIGATE
Strategic Planning cost CISCO significant EVALUATE
amount of money NEGOTIATE
• It had signed multiyear contracts for CONTRACT
products that became obsolete as they COMPLIANCE
moved to new technologies RENEW
VENDOR MANAGEMENT – CISCO
CASE STUDY
S
• Conduct period-over-period
performance reviews of like vendors to
identify consolidation opportunities.
TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitative cost of acquisition
of project in IT in order to
make decision.
NEED OF TCO
• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision making
• Communication of cost issues internally and with
suppliers
• Support external teams with suppliers
• Better insight/understanding of cost drivers
• Support an outsourcing analysis
METHODOLOGY TO CALCULATE TCO
• Hardware
Ownership • Human resources
Costs • infrastructure
• Communication system Etc.
• Invest in Planning
QUESTION:
• Discuss How Organisational Buyers Evaluate Potential
Suppliers.
TITLE
Supplier Evaluation Selection
PRESENTED BY
Sinqobile Ndebele L013-0961R
&
Sibonginkosi Ndhlovu L013- 1354J Supplier Selection
2 March 2017 1
CONTENT
• Supplier, Buyer Supplier Evaluation Definition.
• Brainstorming Exercise.
• Approaches to supplier evaluation.
• Importance of Suppler Evaluation.
• Mitigate Risk.
• Supplier Evaluation Selection Process and Criteria.
• The Procurement Cycle.
• Carter’s 10 C’s of Supplier Selection.
• Real World Example.
• Tender/Bids.
• Bonus – Ethics.
• References.
2
www.google.co.zw/imgres?imgurl
Supplier Evaluation
www.google.co.zw/imgres?imgurl 3
Supplier Defined
Supplier: “External entity that supplies relatively
common, off the shelf, or standard goods or
services” (Business Dictionary)
A supplier is a business or individual that
supplies one’s business with products or services
that one uses in his or her business. For example
for chicken inn, some of its suppliers could be a
broiler company(supplying with chicken, the
electricity company supplies with electricity. 4
Broiler as a Supplier
www.google.co.zw/imgres?imgurl
5
Supplier Selection Definition
• Supplier Selection: “The stage in the buying process when
the intending buyer chooses the preferred supplier or
suppliers from those qualified as suitable.” (Westburn
Dictionary)
6
www.google.co.zw/imgres?imgurl
Brainstorming Exercise
• Why is supplier selection so important to
your organization?
• What can result to your company by having
the incorrect supplier?
• What is important to you when finding a
supplier?
7
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APPROACHES TO SUPPLIER EVALUATION
• CONFERENCE ROOMS
• SITE VISITS
• USING THIRD PARTY EVALUATORS
8
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Conference rooms
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12
Mitigate Risk
• Insight into supplier performance and business
practices helps to reduce business risks. Those
risks can be financial or operational
Align Customer & Supplier
Business Practices
• Suppliers should run their business in alignment
with their customers, they can share same
business ethic and expect similar standards of
excellence as well as showing commitment to
continuous improvement.
13
Supplier Evaluation Selection Criteria
• Competitive pricing
• Ability to meet specifications and standards
• Product and service quality
• Product yields and durability (food)
© iStockphotovm
14
The Procurement Cycle
www.linkedin.com
15
Ray Carter’s Key to
Successful Evaluation
@@@@@@@@@@@@@@@@@@@
• Competency • Commitment to
• Capacity Quality
• Consistency • Cash/Finances
• Clean
• Control of Process
• Culture & Relationships
• Cost/Price
• Communication
17
Competency
• Looking at how competent the
supplier is, in what they do?
• Do they possess the needed skills i.e.
Building Project, Accounting and
Auditing
• Supplier's capabilities measured
against your needs
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18
Capacity
• The supplier needs to have enough
capacity to handle your firm's
requirements.
• Does it have the resources to meet
your needs, particularly when
commitments to other clients are
considered?
19
Consistency
• Expect the supplier to deliver exactly
what you want every time. If it is not
exactly what you want, it should be
exactly what you require.
• The supplier needs to be consistent
with timing and quality issues.
20
Control of Process
• Query how much control this supplier has
over its policies, processes, procedures, and
supply chain.
21
Cost/Price
• It is vital to look at the cost of the product that this
supplier provides.
• How does product compare with the other firms
that you're considering?
• Most people consider cost to be a key factor when
choosing a supplier. However, cost is in the middle
of the 10 Cs list for a reason:
• Other factors, such as a commitment to quality and
financial health, can potentially affect your business
much more than cost alone, particularly if you will
be relying on the supplier on an on-going basis.
22
‘’Quality means doing it right even if
nobody is looking’’ Henry Ford
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23
Commitment to Quality
• The supplier needs to provide evidence that it's
committed to high quality standards. Where
appropriate, look for quality initiatives within the
organization, such as ISO 9001, SAZ and Six Sigma .
• The supplier also needs to show that it is committed
to your Company, as a customer, for the duration of
the time that you expect to work together. (This is
particularly important if you're planning a long-term
relationship with the supplier.)
• You'll need evidence of its on-going commitment to
delivering to your requirements, whatever the needs
of its other customers.
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24
Look at what happened at Nandos building in
Bulawayo btwn 7th & 8th Jason Moyo
27
Comparison or two Suppliers in the
Beef Industry
Dirty Environment Clean and up to Standard
28
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Culture and Relationships
• The best business relationships are based on
closely matching workplace core values . This
is why looking at the supplier's business
culture is important. For example, what if
your organization's most important value is
quality, and your main supplier cares more
about meeting deadlines? This mismatch
could mean that it's willing to cut corners in a
way that could prove to be unacceptable to
you.
29
Communication
• This goes a lot with culture and relationships.
• It actually goes well with the other 9 C’s.
• Does the supplier have the technology to stay
in communication with you?
• How does the supplier communicate?
• How often does the supplier communicate?
• Are they willing to give proprietary
information?
30
In short we are saying
If you use Ray Carter’s Key to Successful
Evaluation you will never go wrong
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31
Real Life Examples
32
In Short
34
BONUS
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37
2 March 2017
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Identify Business
1.1
1.1 Requirement
Knowledge
1.2
1.2 Capture
Stakeholder
1.3
1.3 Consultation
1.4
Risk
1.4
Assessment
Identify Business
1.1
1.1 Requirement
1.1 Identify Business Requirement
Knowledge
Capture
Ensure that it is the business requirement that is captured and not the anticipated solution to
Stakeholder
Consultation
the requirement. e.g. When the business requirement is expressed like this: “We need a
software package to deliver presentations on the intranet”, the business requirement is to be
Risk
Assessment able to deliver presentations on the intranet. The software package is a potential solution. It
1.5
1.5 Scope and may be that outsourcing the work is more cost effective than buying software, support and
Communication training to use it.
Challenge the business in terms of how requirement might best be delivered. Again, make sure
you and your stakeholders know the difference between the requirement and the solution.
Once you establish the difference it is more straight forward to challenge the preconceived
ideas about how best to deliver a solution.
Timescale – be realistic and recognise that timing may be a critical component of the business
requirement. If the solution is needed yesterday, a quick solution might be the most pragmatic
– even if it’s not the most cost effective. But beware – the need for speed is often over
emphasised. Ensure that all stakeholders are aware of the risk to cost and quality of solution by
prioritising speed of delivery.
Make sure there is not already a solution in place. Another part of the business may have
already dealt with this business problem.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
1.2
Knowledge 1.2 Knowledge Capture
1.2 Capture
1.3 Stakeholder Perform a thorough fact-find. Understand the current situation and the problem that
1.3
Consultation requires a solution. Get beneath the skin of the issues and understand the wider
1.4
1.4 Risk implications. Without gathering solutions, gather a set of needs (SPIN – Solution, Problem,
Assessment
Implication, Need)
1.5
1.5 Scope and
Communication
Identify any initial risks to the procurement process. Examples of common risks to a
procurement project include: falling foul of IT security policy; failure to get budget sign off;
failure to meet implementation deadline; failure to get project sponsorship.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Risk
Assess the initial risk (high level), anything that may get in the way of a
1.4
1.4
Assessment successful conclusion to the procurement activity
1.5
1.5 Scope and
Communication Pay particular attention to any health & safety issues associated with the
procurement activity or the solution.
Also pay particular attention to environmental or sustainability issues as
well as ethical and international sourcing issues
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Stakeholder
Consultation
Risk
Assessment 1.5 Scope and Communication
1.5 Scope and
1.5
Communication Confirm the scope of the procurement exercise. In which businesses/regions
will it cover. What is the budget likely to be and what impact if any, will that
have on scope. What are the quality constraints?
Communicate and clarify the business requirement across all stakeholders
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Team Kick
2.1
2.1 Off
Market
2.2
2.2
Research
2.3 Define
2.3
Success
2.4
2.4 Agree
Strategy
What you need before you start 1. Formal Business requirement statement
2. Resources identified and committed
3. Buy-in obtained from all stakeholders
Team Kick
2.1
2.1 Off
2.2
2.2 Market
Research 2.1 Team Kick Off
2.3
2.3 Define
Success
This is an opportunity to bring the team together to gain
mutual understanding & buy-in to project objectives, roles,
2.4 Agree
2.4
Strategy responsibilities & actions.
Bear in mind that the scale of this event depends on the
scale of the procurement activity. It could range from as
trivial as a quick chat over a coffee to an off-site
conference.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.2
2.2
Market 2.2 Market Research
Research
Gather as much information as possible in order to establish a range of
2.3
2.3 Define
Success approaches, products and services that will meet the business need.
Identify what traditional and innovative solutions may be available.
2.4
2.4 Agree
Strategy Use as many sources of information as you have access to including the
internet and the existing knowledge from stakeholders
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.2
2.2 Market
Research
Define
2.3 Define Success
2.3
2.3
Success
Define the criteria by which a successful solution will be
2.4
2.4 Agree judged.
Strategy
Define the minimum quality criteria, the cost range and the
deadline for delivery.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.2
2.2 Market
Research
2.4
2.4 Define
Success 2.4 Agree Strategy
2.4
2.4 Agree Compile market research and make recommendations as the
Strategy
proposed strategy. e.g. outsourced solution vs. in-house
developed and managed.
Include within the strategy, some thinking about the purchase to
pay processes to identify potential problems or opportunities for
efficiencies
Collaborate with stakeholders to ensure that they all have input
to the procurement approach and strategy.
Obtain formal agreement to the strategy before moving the
process forward
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
Objectives
1. To select the right suppliers and value proposition to be taken
forward to final negotiation.
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
Develop Pre-qual
3.3 Develop and Launch Tender
3.1
3.1
Strategy
Amend the tender based on lessons learned from
3.2
3.2 Score, Filter
& Notify
responses and prepare the relevant documents to
be issued to shortlisted suppliers.
3.3
3.3 Develop &
Launch Tender Develop a set of weighted criteria by which tender
3.4
3.4 Assess responses will be assessed and agree this, together
& Filter with the rest of the tender, with stakeholders
Prepare all relevant communication to ensure that
suppliers are aware of what is expected of them
and issue all tender documentation to suppliers.
Consider contractual terms and conditions as well
as day to day operational considerations. Matter
such as health and safety, invoicing and payment
arrangements should all be clarified at this stage.
For goods and services that will be ordered
regularly, ensure that the internal procedures for
placing and approving orders are understood and
documented as this may have an impact on the way
the supplier is expected to interact with the
business
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.4
4.4 Finalise
Contract
4.5
4.5 Award
Objectives
1. Complete Negotiations and select best supplier
2. Award contract
Prepare for the negotiation with short listed suppliers. Decide Conduct
4.3
on the approach (face to face conversations, a collective 4.3
Negotiations
Conduct
Explore the process by which goods and services will be 4.3
4.3
Negotiations
purchased. Look for opportunities to reduce business risk
4.4 Finalise
reduce process time and effort and develop efficiencies. 4.4
Contract
Will there be a need for a requisition and approval process. Will 4.5
4.5 Award
there be purchase orders and how will they be placed? How will
payment be made? Against a schedule, in response to invoices?
Will invoices be paper or electronic. Will invoices be sent
directly to AP or will the business need to see them first? How
will segregation of responsibilities be employed to minimise
risk? Will the supplier need to put in place new or revised
processes? Will there be training required either internally or
within the supplier?
Document the Purchase to Pay processes including details of any
authorisations that will be required .
Identify and agree relevant Key Performance Indicators
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.2
4.2 P2P Design
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.4 Finalise
4.4 Finalise Contract 4.4
Contract
4.5
Finalise commercial agreement and contractual terms 4.5 Award
with the supplier in preparation for award and agree
achieved savings with budget holders and log them
on the savings register
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.5 Award Contract 4.4
4.4 Finalise
Contract
Communicate the award of contract to successful as well
4.5
as the unsuccessful suppliers. Communicate also to 4.5 Award
relevant internal audiences. Ensure the contract is in place
prior to commencement of the service or product being
purchased
Be prepared to provide feedback to the suppliers about
their performance throughout the process. Apart from
being a professional courtesy it can help maintain a
positive relationship with the unsuccessful suppliers
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier
4.3
4.3
Continuous
Integration
Objectives 1. To ensure that the supplier is fully prepared to deliver all aspects of the contract
2. To ensure that all parties are familiar with agreed P2Ppolicies and procedures
3. To initiate the relevant performance measures and reporting
Deliverables
1. Business Requirement met
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier
4.3 Continuous
4.1 Launch Supplier 4.3
Integration
4.1 Launch
4.1
Supplier
4.3 Continuous
4.2 Post Procurement Review 4.3
Integration
4.1 Launch
4.1
Supplier
4.3
4.3
Continuous
Initiate performance monitoring and amend processes as Integration
Table of Contents
Executive Summary 2
1. Introduction 3
4.3.1 Weighted Point System and Fuzzy Logic Decision Making system 14
5. Conclusion 20
6. References 21
1
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
Executive Summary
The main objective of this paper is to propose a holistic framework for supplier selection and
performance measurement for the procurement function of XYZ Company. For the literatur e
review we firstly look at the importance of performance measurement in supply chain
management especially in context with the purchasing function and the supplier network. The
factors that needs to be considered in a holistic supplier evaluation framework are discussed.
We also look into what firms are currently doing and then enlighten the finer aspects of
evaluation which are often overlooked or neglected that leads to lower performance levels.
The paper then briefly describes the case company considered, the kind of business, strategic
goals along with the overview of the supply chain. The current issues in the supplier network
and the deficiencies in the supplier selection and evaluation process of the firm are brought to
light. The CPO has asked us to develop a more holistic framework for supplier selection and
evaluation. For this our team formulates phase-wise methodological and holistic framework
that is more comprehensive and effective than the existing selection and evaluation process.
We start out with the identification and classification of the procurement needs based on the
Kraljic portfolio model. Then we use Carter 10'c for the identification process of the supppiers.
Considering our organizational goals and the complexity in supplier network it terms of the
number of suppliers as well as type of qualitative and quantitative factors we propose the
Analytic Hierarchy Process (AHP) together with the fuzzy logic method to arrive at final
ratings suppliers. Further we discuss the concept of continuous improvement though constant
evaluation and feedback among stakeholders. This involves a mechanism of the supplier
evaluating us in addition to self-evaluation process. Finally we arrive at the concluding re-
evaluation that could be conducted quarterly or yearly depending on the situation for the scope
of terminating or renewing contracts with our suppliers.
2
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
1. Introduction
“Measurement is the first step that leads to control and eventually to improvement.
If you can’t measure something, you can’t understand it.
If you can’t understand it, you can’t control it.
If you can’t control it, you can’t improve it” - H. James Harrington
&
"If you cannot measure it, you cannot manage it" - (Garvin 1993)
As pointed out by Harrington and (Garvin 1993), performance measurement is one of the most
crucial aspects of any kind of management and has become a competitive necessity for
globalized supply chains. For any supply chain the cost, quality (both at a services level and
the supplies), along with the responsiveness of your suppliers make a huge difference in the
overall performance of the company. The qualification, selection and evaluation of the
suppliers is one of the key tasks performed by the purchasing and procurement function in an
organization and the need for a robust and comprehensive mechanism has become increasingly
critical.
In this paper we establish a methodological framework for the holistic performance evaluatio n
of XYZ Company which is OEM in the automobile sector based in Chonburi, Thailand. The
company is currently facing scrutiny from the board who are not happy with current state of
affairs of the supplier network. The board feels that immediate changes need to be made in
supplier evaluation framework as our company continues to grow globally. It has become
imperative to adopt a holistic framework that integrates cross-enterprise frameworks for
supplier relationship management (SRM) or supplier performance management (SPM) in order
achieve higher "triple bottom-line" performance. The Chief Procurement Officer has asked our
team to come up with a holistic plan for supplier selection and performance evaluation. We
approach this task in methodological manner by separating the core activities involved in the
evaluation processes into five phases, starting by identifying our core procurement needs. The
various steps involved and their importance in each phase is discussed. Finally we look into
the continuous improvement and supplier development before arriving at the decision of
retaining and removal of suppliers.
3
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
Figure1 - Commonly Tracked Metrics for a Manufacturing Firm, Source- (Gordon 2008)
As pointed out by (Gordon 2008) most companies (approx. 50-75 percent) have a framework
for measuring supplier performance. However the number of these companies that are satisfied
4
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
with their current approaches are quite few in number. The supplier evaluation process is quite
complicated and challenging. (Gordon 2008) says that the biggest challenge is to come up with
the "right metrics" and even if some firms are successful in doing this, they don't necessarily
translate to achieving desired results. Why? The answer to that is, most metrics that are used
by firms are based on a standard norm which are usually borrowed from other firms involved
in the same type of business. Figure1 illustrates some of the common metrics used by a typical
manufacturing firm. Some of these metrics lack the required customization with relevance to
the firm's particular business objective. Also the ERP systems that are in place are usually
bought "of the shelf" and are configured to read specific type of information such as supplier
quality, on time deliver, inventory levels etc which do not really capture business processes
and practice quality (Gordon 2008).
In addition most firms try to single out individual procurement functions for improveme nt
without looking at it holistically. As pointed out by (Latham 2015), while the savings made by
the purchasing department is an essential component of evaluation, it must relate to saving
made from the entire production process, from raw materials to services while considering the
business growth. If the firms is buying material at the same price when it produces $10 millio n
revenue, as to when it started with an investment of $1 million then the purchasing department
may not be doing their job well enough. He argues that "buying cheaper" is not a useful
performance measure if you consider the true or overall costs arising due to lower raw material
quality or the below par services rendered. For example costs arising due to returns, liability
claims or increased transportation costs. Analysing all these parameters and including them in
the evaluation methods will give a more accurate view of the purchasing performance.
While farming the performance evaluation framework it is also essential to that the capabilities
of the suppliers are carefully considered it should not just be based on a competitive process.
These capabilities must be judged in relation to the firms specific requirements. Supplier
relationships is another important area along with supplier development processes which is
often neglected by firms while forming the evaluation metrics. Some aspects under the supplier
relationship criteria could be the negotiating capability of the firm with respect to pricing,
discounts and other benefits as well as the ability to empower suppliers to manage themselves
against the shared performance metrics. There are various other areas where the evaluation of
5
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
the supplier relationship must be taken into consideration such as with respect to design,
planning, forecasting and how well the data and ideas are shared both internally and externally
that achieves overall objective of the enterprise. Lastly but by no way the least, the evaluators
often fail to evaluate themselves or their performance level with respect to the supplier as well
as their contribution to the overall organizational performance. The evaluation framework must
be part of the overall supply management program and must be aligned to achieve the overall
objectives of the firms "mission and vision" statement.
Over the past decade Thailand has seen tremendous growth in production and exports of
automobiles and auto-parts. Our company's business revolves around the same strategic
objective and are concentrating on business from overseas markets. However we face stiff
completion from Japanese firms such as Toyota, Mitsubishi and Honda who were earlier
entrants into this market. Though our firm has achieved substantial market share in the pick-
6
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
up trucks and the "eco-friendly" small car segment, the firm is still lacking in terms quality and
responsiveness of service provided to our valued customers. On carrying out the root cause
analysis, major reason is attributed to the quality of our supplier network.
Due to government regulations as well as for reasons of cost benefits, most of the parts and
assemblies are sourced from local suppliers. The final assembly is done in the company factory.
The manufacturing processes follows a "lean and agile” principle that emphasis on reduction
of wasteful process while being robust with agile methods to deliver quality products in a fast
and effective manner. As part of this strategy, the use of a distributor network is minimised
especially for local and nearby regions where we directly provide the finished product to the
dealers and end customers. The logistics activities are handled by a third party which uses
sophisticated and far reaching transportation and distribution network to deliver our vehicles
within the region.
Our procurement team's main focus is to get the best out of our supplier in terms of quality and
responsiveness and hence the main metrics under which we evaluate our suppliers were focused
in these two areas as shown in green in figure3. However as mentioned earlier our company's
performance is under scrutiny especially with regard to the supplier evaluation framework as
well as the performance of purchasing and procurement function under main categories of
Time, Cost, Quality and Supplier Management. There is a lack of holistic approach and our
7
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
team has been given the task to develop an effective evaluation framework to get the best out
of our suppliers as well as our procurement team. For this we first need to analyse our core
procurement needs and decide "what" to measure. We then link it to "why" we need to measure
and focus on the key aspects that is currently missing in our evaluation framework both in
terms of the suppliers and ourselves, the procurement team. Then we decide on "how" to
measure by developing appropriate methods that suit our requirement. The supplier
management and evaluation cycle that we intend to implement is shown in figure and the phase
wise approach of implementing it is discussed next.
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The figure 5 illustrates our suggested framework for the evaluation process. The first three
phases deals with initial assessment of the problem and framing the right criteria for selection
of the suppliers based on our firms objective. These phases are crucial as developing the right
performance metrics at the start will ensure a greater firmness in evaluation process and
minimize the risks of alteration or re-work by changing the requirement mid-way. The Phases
4 and 5 deals with the continuous improvement and supplier development process where
periodic re-evaluation of suppliers along with our firm is collectively analysed and evaluated.
The actually achieved results in phase 4 & 5 are compared to the set standards in Phase 1,2 &
3 that enables better decision making with regard to the necessary steps that need to be taken
for supplier development or for their removal.
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The first phase is to identify the procurement needs after which the required procurement
strategy must be developed. The first part in this stage is to classify the procurement activity
based on the kind of supplies, whether its critical for production or not. Our "direct
procurement" involves acquiring raw materials that are needed for production. These supplies
directly affect the ability of the firm to manufacture the vehicle and any disruption can severely
affect the revenue. They are usually got from a pool of suppliers, ordered in larger quantities
with best possible cost, quality and reliability. The other type is the "indirect procurement"
which involves purchasing supplies for the day to day activities of the business which have a
lesser impact on the firms bottom-line but is important none the less for effective operations.
Once this is done we further classify supplies based on "portfolio purchasing model" developed
by (Kraljic 1983), shown in figure 6, where items are classified based on the level of criticality.
The strategic items are those items that are critical to production process, impact profit greatly
and has a high supply risk. These items require the most attention from our purchasing team
and the supplier of these items must be cautiously selected.
Figure 6 - Classification Matrix for Identifying Procurement needs, Source - (Kraljic 1983)
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Leverage items are those supplies that have an impact on profit but do not have a high supply
risk. For these items we use our full purchasing power in order to get the best costs and quality.
Then we have the bottle-neck items. These items do not impact profit directly but create bottle-
necks or situations where the firm have not many options. These are usually products where
we have to depend on one supplier. Lastly we have the non-critical items which can be got by
any supplier and have low impact on profit.
Once these procurement needs are identified make-or-buy decision can be made and other
sourcing strategies such VMI, strategic alliance with suppliers, umbrella agreements etc can
formulated. This phase is more crucial in terms of the performance of our procurement team as
any error in judgement made with the identification or classification of supplies would have
ramifications on the overall performance. We would have started on the wrong foot by sourcing
a critical supply to the wrong supplier.
In this phase we identify our potential suppliers based on our specific requirement and their
capabilities in terms of the competency levels. Like phase1, this phase too affects the
procurement team’s performance or KRA's (Key Result Area) as wrongly identifying suppliers
would severely impact the quality and responsiveness of our supply chain.
Firstly we look at the supplier company's financia l report to get a picture of the company we
are going to deal with. This is important with respect to matching the suppliers with our long
term or short terms goals. We then formulate a checklist based on the 10c's of supplier
evaluation developed by (Carter 1995) for the initial screening process (figure 7). We conduct
brain-storming sessions for the thorough examination of suppliers and the supplier's supplier
(tier2 & tier3 suppliers) based on these parameters. In order, to select the best supplier
sometimes there may be a need to trade-off between these parameters based on the core
capabilities of the supplier and how they relate to meeting our requirement. As pointed out by
(Fuh-Hwa 2005) these trade-offs need to be made at every stage of the supply chain while
integrating the performance metrics for different suppliers.
In addition, many aspects that were not adequately captured before such as "Clean" or "Culture
and Relationships" have been included. "Clean" refers to adherence to environmental and
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safety standards along with adherence to the law of the land. This is important as we seen in
the past many suppliers, though they were good in their core competencies, they had to be
removed mid-way due corruption or other legal factors. Equally important is the "Culture &
Relationships" category which may include past history in negotiation (qualitative), legal cases
against previous buyers (quantitative) or general work atmosphere (culturally complex or
different from ours etc) that would affect the performance of the supplier network.
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As pointed out by (Monczka 2011) there is no "one best way" for the selection and evaluatio n
of suppliers. Though the overall objective is to minimize risk and maximize value the
evaluation must be based on the right criteria that is line with firm’s objective. (Sagar 2012)
emphasises the importance of determining the right criteria for selecting the supplier in the
automobile sector during the 1st period of the planning horizon. This is a stage where the
annual, quarterly plans based on forecasts are being studied and formulated. Most of the
existing literature broadly classifies the methods used in the selection process based on the
“Quantitative" and "Qualitative" factors. The quantitative approaches includes both
optimization and non-optimization techniques. (Partovi 1989), (Narasimhan 1983) and
(Nydick 1992) illustrates how the Analytic Hierarchy Process (AHP) can be used to for the
supplier selection process because of its intrinsic capability to handle both the qualitative and
quantitative factors that conceptualizes the issues within the supplier selection process. In
addition (Gnanasekaran 2006) research has shown that the AHP improves the decision making
process and reduces time taken to select supplier. As illustrated in figure 8, it helps the
evaluation team to understand the problem with respect to main objective and systematica lly
evaluate performance under each relevant criteria and sub-criteria.
Figure 8: Analytic Hierarchy Process for Supplier Selection, Source- (Prusak 2013)
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Further, it is carried out in a "level based" approach where both, the qualitative and quantitative
metrics are evaluated under each category and sub-category. For example under the "deliver y"
category one of the sub category includes the "compliance with due date" which is further
classified into "percentage late delivery" and "delivery lead time". Figure 9 illustrates this but
not all parameters that are captured under each category and sub-category are shown.
Now once these parameter is evaluated and rated by the decision makers at various levels there
will be a degree of vagueness in their subjective perception and it needs to be integrated with
the general framework. For this we propose to use the fuzzy- hierarchy- multi criteria decision
making process or FHMCD that integrate the multiple weightages of the decision makers into
a single rank.
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4.3.1 Weighted Point System and Fuzzy Logic Decision Making system
The weighted point system is typically designed for quantitative measurement where the
weight or score given by the decision maker for each category and sub-category is multip lied
by the performance score that is assigned and then totalled to arrive at final rating. But the
problem arises when qualitative criteria needs to be considered (Kahraman 2003). Hence we
propose to use is the fuzzy logic method. (Sreekumar 2009) shows how the fuzzy approach can
be used for supplier selection and evaluation where there exists qualitative factors and multip le
criteria with more than one decision maker. Figure 10 shows an example where there are of
four main categories (C1,C2,C3,C4), four suppliers (S1,S2,S3,S4) and three decision makers
(D1,D2,D3D4).
Figure 10 : Rating of Decision Makers & Formulae for FHMCD Process, Source - (Sreekumar 2009)
Once the evaluation is done by the decision makers under various criteria, the aggregate
weights of each criteria must be calculated as shown in the figure 9 (step4). Next the aggregate
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fuzzy rating of the suppliers is arrived at using the formulae shown in figure 10 ( below step4).
The linguistic evaluation say using subjective variables such as P (poor), F (Fair), M (Medium),
G ( Good) and VG ( Very Good) by the decision maker can be expressed as positive triangular
fuzzy number which is then used to construct the fuzzy decision matrix. This is then normalized
based on the importance of each criteria. Next the positive ideal solution (FPIS) and negative
ideal solution (FNIS) is found. The vertex method is applied to determine the distance between
two. Finally the closeness co-efficient, which is the relative closeness of FNIS to FIPS, for each
supplier is calculated which is used to rank the supplier based on the predefined decision rule.
The fuzzy approach is especially useful when there are multiple decision makers or where the
ranking of one can be challenged by another. As suggested by (Herrera 2000) it helps in easier
resolutions of the conflicts arising in the evaluation process.
4.4 Phase4 - Continuous Evaluation of Supplier Network (Buyer and Supplier)
One of the main categories depicted in figure 3 is the Supplier Management category has a lot
to do with the effort put by both parties in the continuous improvement process. Earlier the two
sub-categories that captured this were the flexibility and commitment ratio. But these need to
be further defined based on supplier development level through the continuous process of
evaluation.
As pointed out by (Gordon 2008) supplier evaluation is not an event but a process. There must
be continuous evaluation of the supplier along with our purchasing function on the defined
parameters of time, cost, quality & supplier management. (Morris 2010) elucidates the
importance of a closed loop performance improvement model for continuous evaluation of the
supplier network as shown in figure 11. The steps discussed in phases1 to 3 are repeated with
the only difference being the supplier is "on board" and data collected is shared and jointly
analysed to determine the areas that are lacking. The new set of improvement plans are jointly
formulated. This way a continuous collaborative effort is made by both stakeholders.
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Earlier, supplier evaluation constituted of a periodic reviews using static information typically
by using a balanced scorecard after which a review is done and action plans are made. However
times have changed and the availability of advanced technology such as RFID, smart tags,
barcodes, EDI, TMS, WMS, ERP2, MRP2, e-procurement, cloud computing etc. have enabled
most of the qualitative or quantitative criteria to be evaluated on a "any-time" "any-where "
basis. This transparency and visibility available must be fully utilized by our team as well as
the supplier to track the performance of any criteria faster and respond better. Both participant
should jointly work together to sort out issues and formulate corrective measures. Say for
example the on-time delivery parameter is poor for one of the suppliers. The supplier and us
would jointly work on the issue and find out the root cause, such as transportation delays,
component availability, location etc. and see if any change in processes within the
manufacturer, procurement team, supplier or our third party could eliminate the problem. Such
a collaborative framework where both participants are actively involved in the improveme nt
process have a greater impact on the performance than many other quantifiable criteria.
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According to (White 2013), collaboration is not just about having common data, EDI or bi-
directional communication, but it is to work together to achieve the mutually agreed goals
resulting in a "win-win" situation for both parties. This does not happen overnight, it takes time
to build these relationships over a continuous development cycle. As supported by (Kannan
2006) and (Ellram 1990) these "softer" or qualitative aspects such supplier-buyer relations hip,
the collaborative nature have increasingly become more important than traditional approaches
of measuring the quantitative aspects. This also has an in direct impact on other parameters of
the buyer evaluation. For example the relationships could be leveraged to get useful market
information, meeting emergency order or in other words the supplier meets "beyond the
expectations". Figure 12 shows the various levels of the supplier relationship which according
to us must be included as part of the evaluation process.
4.5 Phase5 - Periodic Re-evaluation of Suppliers for the scope of Retaining or Changing
Based on the output of the phase 4 the suppliers would undergo one primary re-evaluation for
the decision of retaining or changing any of the suppliers. This would be either done quarterly
or half yearly basis based on the nature of the event that causes the change or criticality of the
need. The output or actual performance levels is compared with the set specific targets, and if
they are found to be satisfactory then we continue to monitor them as discussed in phase4. In
case a supplier is not meeting the pre-defined requirement or specific goals they must be
rejected. However it important to compare the performance of these suppliers with the new
potential suppliers, competing to take this spot. So we pool them along with the new potential
supplier and repeat the steps discussed in Phase2 & 3. In case these lower performing suppliers
cannot compete or fail in the new selection process they would be phased out (as shown earlier
in figure 4) along with the reasons and blacklisted from all sites so they do not come up again
in our search engine.
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5. Conclusion
Performance evaluation is one of the most important aspects in managing and controlling the
supplier network. As we have seen in this case it is a complicated task to have a holistic
framework for an automobile supply chain considering the myriad of suppliers and variety of
parameters that need to be considered. There are various approaches and models that can be
used to tackle this challenge but the framework selected used must be based on what fits best
to the firms strategic objective or the "mission and vision" and by considering the nature or the
complexity in the network and type of qualitative or quantitative factors involved. Each method
researched had its own unique advantages and shortcoming. Our team felt the AHP coupled
with fuzzy logic method would suit best to the "multi-criteria" and "multi-decision makers"
involved in our supply chain and propose this approach to the CPO for the selection and
evaluation of the suppliers. However we still believe in the future, few more additional aspects
need to be considered and further optimization of the model would be required.
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6. References
Beijer, A.,T.,. Design of a Supplier Performance Measurement & Evaluation System for DSM’s
Petrochemical & Energy Group. Research Project, Twente University, 2012.
Carter, R.,. "The Seven C's of Supplier Evaluation." The Journal of Purchasing and Supply
Management, 1995: pp.44-46.
Ellram, M.,Lisa. "The Supplier Selection Decision in Strategic Partnerships ." Journal of Purchasing &
Materials Management, 1990.
Fuh-Hwa, Liu.,Hai,Fraknklin.,Lin,Hui.,. "The voting analytic hierarchy process method for selecting
supplier." International Journal of Production Economics,Vol.97, 2005: pp.308-317.
Garvin, A.,D.,. "Building a learning organization." Harvard Business Review,Vol.71(4), 1993: pp.78-81.
Gordon, R.,Sherry. Suppllier Evaluation and Performance Excellance - A guide to meaningful metrics
and successful results. J.Ross, 2008.
Gunasekaran, A.,Kobu,B.,. "Performance measures and metrics in logistics and supply chain
management: A review of recent literature (1995–2004) for research and applications." International
Journal of Production Research,Vol.45(2), 2007: pp.2819-2840.
Herrera, F.,Herrera-Viedma,E.,. "Linguistic decision analysis: Steps for solving decision problems
under linguistic information." Fuzzy Sets and Systems, 2000: pp.67-82.
Karjalainen, Mikko.,. "Framework for Supplier Performance Measurement System." Master's Thesis,
2012.
Kraljic, Peter. "Purchasing Must Become Supply Management." Harvard Business Review, 1983.
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MANUFACTURING COMPANY
Morris, Wayne.,. How to Leverage Supplier Performance Management for Continuous Supply Chain
Improvement . 6 30, 2010. http://www.sdcexec.com/article/10269181/how-to-leverage-supplier-
performance-management-for-continuous-supply-chain-improvement.
Narasimhan, R.,. "An analytic approach to supplier selection." Journal of Purchasing and Supply
Management,Vol.1, 1983: pp.27-32.
Nydick, R.,L.,Hill,R.,P. "Using the Analytic Hierarchy Process to structure the supplier selection
procedure." International Journal of Purchasing and Materials Management Vol.28 (2) , 1992: pp.31-
36.
Sreekumar, Mahapatra.,S.,S.,. "A fuzzy multi-criteria decision making approach for supplier selection
in supply chain management." African Journal of Business Management,Vol.3(4), 2009: pp.168-177.
White, Andrew.,. "Best Practices Collaborative Advanced Planning & Scheduling presentation."
Gartner,Inc.,, 2013.
22
TAMPERE UNIVERSITY OF TECHNOLOGY
Tampere School of Business and Technology
Seminar Report
Onur Tamur
Aznar Eduardo Moncayo Pinzon
Georgios Karakonstantis
ii
ABSTRACT
During the past few decades, globalization did not only affect the lifestyle of
human beings, but also the work processes in the business world. The markets grew
dramatically and new business opportunities appeared, raising the need of different
approaches in the procurement processes. The buyer-supplier relations have always
been a critical task for the success of a business. Now, more than ever before, this
task becomes very complicated in some cases. Multi-criteria approaches are needed
in order to have rational and profitable results.
This paper gives an insight of different theories that can be applied in order to
achieve a rational supplier evaluation and selection. Such theories, in combination
with an extensive analysis of the possible alternatives that a company may have,
can lead to high revenues and significant advantage over competitors. In this case,
the reader can acquire a basic understanding of the different criteria, methods and
models, which are used by the businesses during the supplier evaluation and
selection process.
PREFACE
Global business operations have become a very important part of the business
environment nowadays. One of the most interesting aspects of the global business
operations is the supplier evaluation and selection. As all the members of our group
are pursuing an International Master‟s program in TUT, related to sourcing, we felt
motivated to study, identify and analyze the field of supplier selection, emphasizing
on e-manufacturing that lately evolves very fast. More specifically, in this paper we
illustrate and analyze the buyer-supplier relations, the supplier evaluation and
selection criteria, processes, methods and models, and finally we attempt to apply
the acquired knowledge to the sector of e-manufacturing. It has not been an easy
task to conduct this report, and thus we would like to thank the assistant of the
course LIKU-8306 Logistics strategies and outsourcing, Ms. Erika Kallionpää for
her help and guidance during this process.
The group,
Aznar Moncayo
Georgios Karakonstantis
Onur Tamur
TABLE OF CONTENTS
ABSTRACT ______________________________________________________ ii
PREFACE _______________________________________________________ iii
1 INTRODUCTION ____________________________________________ 1
1.1 Background __________________________________________________ 1
1.2 Objective of the Paper __________________________________________ 1
5 CONCLUSION ______________________________________________ 19
REFERENCES __________________________________________________ 20
1 INTRODUCTION
1.1 BACKGROUND
As every aspect is very dynamic in business, supplier selection methods are also
affected by the changes in environment. After e-manufacturing concept started to
gain popularity and be used by many large organizations, companies tried to find
alternative ways to optimize their supplier selection criteria to be able to get better
results in long-term. E-Manufacturing is still an evolving process and changing
rapidly with the technological improvements in IT sector. Thus, it is hard to deduce
what is right or wrong in the supplier selection process and how it matches with the
current situation but it is possible to analyze the trends and optimize the selections
in the same way.
After the rise of e-manufacturing, the supplier selection criteria started to evolve
accordingly. Companies started to search for alternative ways to evaluate their
The paper consists of five chapters. First, the background information about
globalization and supplier selection with a short explanation about the e-
manufacturing trend and its impact on supplier selection will be defined. Second,
the challenges of B2B markets, the importance of buyer-supplier relations and how
the relations affect the business and the long term relations between peers and its
impact on negotiations will be examined. Then, supplier selection criteria and
methods will be introduced and compared. Next, e-manufacturing trend and the
evolution of supplier selection related to the e-manufacturing trend will be
highlighted. Finally, key results and the conclusion will be stated.
The intention to make profit is the most important characteristic when buying
products in B2B markets (Lyly-Yrjänäinen et al. 2010). Thus, purchasing process is
much formal and takes longer time because of long price negotiations. Many
companies tend to build long-term relationship to be able to derive their demand
when needed. This long term relationship results in close personal relationships
which are difficult for competitors to break (Lyly-Yrjänäinen et al. 2010).
Matthyssens et al. (2008) has examined the challenges in B2B marketing in terms
of globalization. First challenge is delocalization of the customers. As
multinational companies are moving their production and assembly units to low-
labour cost countries, industrial suppliers and subcontractors see their home market
shrinking. Secondly, purchasing function is globalizing as the purchasers from
multinational companies seek global purchasing synergies (Quintens et al. 2006).
Next, the importance of global networks is increasing. Lastly, the fourth challenge
faced by B2B companies is the transition to electronic forms of exchange. E-
internationalization is still challenging for companies because they may lose their
intellectual property on the web and B2B relationships are more difficult to manage
in the electronic highway (Samiee 2008).
Despite the above-mentioned challenges, more and more B2B companies expand
their operations internationally since international activities are fundamental to
their performance (Katsiekas 2006).
According to Das and Teng (1998), there are three critical elements that comprise a
successful co-operative relationship between manufacturers and suppliers:
Trust
Communication and information sharing
Commitment
Additionally, Goffin et al. categorize long term relationships into three different
types: short term partnerships, long term partnerships and long term relationships
with no end. The definition of each marketing relationship mentioned is presented
in Table 1.
Long term customer relationships tend to provide more value to the company, since
they can focus on those customers that will provide more profit and opportunities,
and at the same time, to the customer, since the company will be taking care of
providing services and support in order to guarantee the customer‟s satisfaction.
The closeness in long term customer relationships is related to geographical,
technological, cultural and social factors, as well as the current length of the
relationship. (Goffin et al., 2006) Furthermore, in some technological markets, the
customer is required to adjust to the provider‟s technological platform therefore
creates a high level of commitment between the customer and the provider. Since
these contracts are usually very expensive, this creates a long-term relationship by
default.
Long term customer relationships are relevant for suppliers in two main cases:
when buyers have other product alternatives (highly competitive ambiance) and
when buyers constantly or periodically require a service or product. Under the
same conditions, buyers obtain benefits such as better prices than the other
alternatives in the market and priority sourcing in cases where there is a low
availability of a good or service. (Berry 1983) The development of long term
customer relationships is good when it is mutually beneficial, therefore, both
supplier and buyer must benefit from the development of the relationship.
Suppliers are a very important part of businesses nowadays. Their importance lies
on the fact that the right evaluation and selection of a supplier can generate
significant profits and ensure the efficiency of business processes. Some suppliers
are able to approach their potential customers, but most of the times the companies
have to search, find, evaluate and select their suppliers. This process usually
follows the paths of professional fairs, B2B magazines and other companies.
The process of evaluation and selection of suppliers is very complex. Thus, many
studies have been conducted since the 60‟s in order to identify a pattern that can
propose the best possible solution. As a result, nowadays businesses use different
methods that are based on some specific criteria. Though, according to
Papagiannakis (2009) the number of those criteria makes the evaluation and
selection system unwieldy regarding its content and time consuming regarding its
management.
Thus, more recent studies addressed their focus on minimizing and mixing those
criteria, without affecting the quality of the evaluation process. Dickson (1966)
argues that there are 23 criteria that businesses should take into account when
selecting a vendor. Table 2 shows the findings of Dickson‟s study, including the
importance and main rating for each of them.
Although Dickson‟s study was very useful for few decades, the industries emerged
and created a need for different approach. Some criteria became more important
than they were before. Ellram (1990) presented her own framework, in which she
included 12 criteria. Table 3 shows Ellram‟s findings.
Ellram did not ignore the importance of Dickson‟s quality criteria, but she focused
on finding complementary criteria that would support the supplier-buyer long-term
relationships.
There is not a general rule to evaluate an approach as right or wrong. Thus, some of
the criteria might be applicable in a specific case and some not. The importance of
the studies lies on the fact that those criteria help and support the supplier
evaluation process, which is analyzed next.
The framework of Monczka et al. includes more parameters in every of the seven
steps. Though, this paper will avoid to explore deeper the framework, so that it can
introduce some interesting supplier selection methods in the subchapter 3.3.
According to Daskalakis (2010), each method covers some aspects of the suppliers‟
characteristics that are under investigation. Consequently there is no method that
can replace some other. Of course in some cases a method can include
characteristics of many other methods, but it is not possible to cover all the
characteristics of a candidate supplier.
Simple
Analytic Hierarchical
Quantitative as well as Unstable
Process (AHP)
qualitative criteria
Use of software is
MACBETH Improvement of AHP
required
As seen in the table above, the linear weighting models are easy to implement and
simple to use. They are not very expensive but they are not very reliable as well.
On the contrary, the total cost models are flexible and very objective, but very
complex and difficult to implement. The principal components analysis is able to
manage multiple conflicting criteria. The AHP are simple to use and take into
account quantitative as well as qualitative criteria. Finally, the MACBETH is a new
method that improves the AHP.
Figure 3. E-Manufacturing
The benefits mentioned in the bullet list above provide endless opportunities to
companies against their competitors. The companies can optimize their inventories
and production capabilities by using just-in-time manufacturing and on-time
shipment so that they can control their costs and create a wider profit opportunity
for their organization. Now, e-manufacturing is seen as a core competency in which
companies can integrate all elements of their business in one solid framework.
Many authors have identified several criteria for supplier selection as these criteria
are vital in supplier evaluation and selection process since it helps to measure the
performance of supplier. However, the researched criteria mainly focus on tradition
manufacturing concept and e-manufacturing trend was not taken into consideration
during these researches. Nowadays, it is believed that e-manufacturing
distinguishes itself from traditional manufacturing by its characteristics and
capabilities. Thus, selection criteria must vary (Sridhar CNV et al. 2010).
5 CONCLUSION
Globalization trend has enabled new business opportunities for all companies
around the world. Many companies started to make business with suppliers from
abroad so that they can lower their costs and increase product quality. However,
this situation formed some challenges to companies as well in evaluating the best
supplier so that they can improve their performance. The supplier evaluation and
selection has always been one of the most important problems that companies need
to solve. The multi-criteria analysis methods can adapt to the needs of each
company and offer a reliable solution for this problem. Hence, these methods are
able to contribute significantly and improve the profitability of the buyer, if they
are used properly.
The objective of this paper was to highlight how efficient supplier selection can
provide business success and how the e-manufacturing trend affects the supplier
selection in current business environment. E-Manufacturing trend has plenty of
unique characteristics compared to traditional manufacturing so these aspects
should be taken into consideration before selecting a supplier to be able to get the
best performance and results.
Based on this research, this paper examines the concept of buyer-supplier relations
and how these relations affect the company‟s operations. Furthermore, the
evaluation and selection process has also become a very complex task for managers
in the modern business environment. Thus, the paper analyzes different criteria,
methods and models which are used in order to decide the most suitable supplier
for the company‟s operations. Multi-criteria methods are very popular and usually
provide the best results. Hence, they are also introduced and discussed in order to
acquire the basic knowledge regarding the supplier selection, so that the research
can proceed and analyze the case of e-manufacturing.
REFERENCES
Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer-firm
working partnerships”, Journal of Marketing, Vol. 54 No. 1, pp. 42-58.
Berry, Leonard (1983). Relationship Marketing. American Marketing Association,
Chicago. p. 146.
Calhoun, J., Davey, K., Wohlfarth, M. (2007). Predictive Customer Segmentation for B2B
Markets. Oliver Wyman Journal. pp. 26-32
Das, T.K. and Teng, B.-S. (1998), “Between trust and control: developing confidence in
partner cooperation in alliances”, Academy of Management Review, Vol. 23 No.
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