MODULE-II: Supplier Research and Market Analysis

With the growing maturity of supplier relationship management functions and the increasing
need for enhanced savings and reduced risks, Supply Market Intelligence (SMI) has become a
critical strategic organizational need. Macro factors such as increased social and political
instability, volatile market conditions, and increased labor market mobility have intensified
the organizational need for reliable, timely, insightful procurement intelligence solutions.
Our supply market intelligence solutions focus on empowering procurement decision makers
with powerful and insightful analysis on the overall market dynamics, key suppliers and their
capabilities, pricing insights, procurement best practices, cost-saving opportunities, and much
more in order to help procurement managers with strategic direction and process
improvements for sourcing decisions, negotiation management, and contract sign off. We are
capable of empowering procurement centers of excellence (CoE) with powerful market and
supplier analysis based on primary and secondary research databases that we have been
building since 2003 and continue updating on a regular basis. Whether be it through
SpendEdge ready-to-use procurement intelligence reports, our on-demand custom reports
generated through RFx processes, or a one-off engagement, our supply market intelligence
has served as the backbone of many procurement and sourcing teams to drive great value to
their supplier relationship management. We are proud to maintain a high client retention rate
across the globe thanks to our very talented pool of 500+ procurement and industry experts
and a results-driven approach where we commit to solving 100% of our clients’ problems
through actionable solution-oriented insights and custom reports, further compounded by our
global footprint and localized expertise.

Vendor Rating:
Vendor rating is the process of establishing performance categories, and collecting and
analysing data to monitor trends and identify areas for further action.
It helps to minimize subjectivity in judgment and make it possible to consider all relevant
criteria in assessing suppliers. – Providing feedback from all areas in one package. –
Facilitating better communication with vendors. – Providing overall control of
the vendor base.
 Vendor management is a term that describes the processes organizations use
to manage their suppliers, who are also known as vendors. Vendor management includes
activities such as selecting vendors, negotiating contracts, controlling costs,
reducing vendor-related risks and ensuring service delivery.

Criteria for Vendor rating

 Competitive pricing. The prices paid should be comparable to those

of vendors providing similar product and services. ...
 Price stability. Prices should be reasonably stable over time.
 Price accuracy. ...
 Advance notice of price changes. ...
 Sensitive to costs. ...
 Billing.

Methods

1. Categorical Method. Categorical method is the most uncomplicated method. ...

2. Weighted-Point Method. Weighted-point method is the most frequently

used method for evaluation process. ...
3. Cost Ratio Method. ...

4. Dimensional Analysis Method. ...

5. Analytical Hierarchy Process (AHP)

Supplier Evaluation and selection

Once the portfolio analysis is completed, the buyer must then dive into the category and
evaluate individual suppliers as to their suitability, narrowing the list down to a critical few.
The ultimate result of this step is to make supplier recommendations, so the buyer must first
identify current and potential suppliers, determine any information technology requirements
and identify opportunities to leverage the commodity expenditures with similar commodities.

Most procurement experts will agree that there is no one best way to evaluate and select
suppliers, and organisations use a variety of different approaches. Regardless of the approach
employed, the overall objective of the evaluation process should be to reduce procurement
risk and maximise overall value to the buying organisation. Figure 3.5 summarises all the
critical steps involved in the supplier evaluation and
selection process that we have covered in Unit 3.

Figure :  Supplier evaluation and selection process

We shall now examine briefly some of the different criteria that an organisation may use to
assess potential suppliers. Although it may not be possible to obtain all the relevant
information, whatever data that can be obtained will definitely help the buying organisation
assess the potential for a successful match.

1.   Process and design capabilities: Suppliers should have up-to-date and capable products,
as well as process technologies to produce the material needed. Because different
manufacturing and service processes have various strengths and weaknesses, the buying
organisation must be aware of these characteristics upfront. When the buying organisation
expects suppliers to perform component design and production, it should also assess the
supplier’s design capability. One way to reduce the time required to develop new products is
to use qualified suppliers that are able to perform product design activities.

2.   Quality and reliability: Quality levels of the procurement item should be a very important
factor in supplier selection. Product quality should consistently meet specified requirements
since it can directly affect the quality of the finished goods. Besides reliable quality levels,
reliability also refers to other supplier characteristics. For example, is the supplier’s delivery
lead-time reliable? Otherwise, production may have to be interrupted due to shortage of
material.
3.  Cost: While unit price of the material is not typically the sole criterion in supplier
selection, total cost of ownership is an important factor. Total cost of ownership includes the
unit price of the material, payment terms, cash discount, ordering cost, carrying cost, logistics
costs, maintenance costs, and other more qualitative costs that may not be easy to assess.

4.  Service: Suppliers must be able to back up their products by providing good services when
needed. For example, when product information or warranty service is needed, suppliers must
respond on a timely basis.

5.  Capacity: The organisation may also need to consider whether the supplier has the
capacity to fill orders to meet requirements and the ability to fill large orders if needed.

6.  Location: Geographical location is another important factor in supplier selection, as it

impacts delivery lead time, transportation, and logistics costs. Some organisations require
their suppliers to be located within a certain distance from their facilities.

7.  Management capability: Assessing a potential supplier’s management capability is a

complicated, but important step. The different aspects of management capability include
management’s commitment to continuous process and quality improvement, its overall
professional ability and experience, its ability to maintain positive relationships with its
workforce and its willingness to develop a closer working relationship with the buyer.

8.  Financial condition and cost structure: An assessment of a potential partner’s financial

condition usually occurs during the evaluation process. Evaluation teams will typically
evaluate the different financial ratios that determine whether a supplier can invest in
resources, pay its suppliers and its workforce, and continue to meet its debt and financial
obligations. These elements are important in determining whether the supplier will continue
to be a reliable source of supply, and that supply will not be disrupted.

9.  Planning and control system: Planning and control systems include those systems that
release, schedule and control the flow of work within an organisation and also with outside
parties. The sophistication of such systems can have a major impact on supply chain
performance. For example, how easy to use is a supplier’s ordering system, and what is the
normal order cycle time? Placing orders with a supplier should be easy, quick and effective.
Delivery lead time should be short, so that small lot sizes can be ordered on a more frequent
basis to reduce inventory holding costs.

10. Environmental regulation compliance: The 1990s brought about a renewed awareness of

the impact that industry has on the environment. As a result, a supplier’s ability to comply
with environmental regulations is becoming an important criterion for supply chain alliances.
This includes, but is not limited to, the proper disposal of hazardous waste.

11. Willingness to share technologies and information: With the current trend that favours
outsourcing to exploit suppliers’ capabilities and to focus on core competencies, it is vital that
organisations seek suppliers that are willing to share their technologies and information.
Suppliers can assist in new product design and development through early supplier
involvement to ensure cost-effective design choices, develop alternative conceptual solutions,
select the best components and technologies, and help in design assessment. By increasing
the involvement of the supplier in the design process, the buyer is free to focus more attention
on core competencies.

12. Longer-term relationship potential: In some cases, an organisation may be looking to

develop a long-term relationship with a potential supplier. This is particularly true if the
supplier is in the ‘critical’ quadrant, and the category of spend is high volume and critical to
the organisation’s business. This approach requires that the parties share their mutual goals,
establish metrics to guide the relationship and develop a series of ongoing discussions on how
issues and conflicts can be resolved in a mutually beneficial manner. These relationships may
also involve joint cost-savings projects and new product-development efforts.

13.  Supplier selection scorecards: During the selection stage, sometimes organisations need
a structured way to evaluate alternative suppliers. This can be particularly hard when the
criteria include not just quantitative measures (such as costs and on time delivery rates) but
other, more qualitative factors, such as management stability or trustworthiness. A supplier
selection scorecard may be used as a decision support tool. The evaluation team will assign a
weight to the different categories and develop a numerical score for each supplier in each
category, thereby developing a final performance score.
 Solicitation of Bids and Proposals

Solicitation is the process of requesting bids or proposals from potential suppliers. ... One

should always keep in mind that there are sourcing and procurement actions that fall outside
the requirement for solicitation, such as purchasing card transactions and spot or
micropurchases.

Generally. Procurement Officials may use any appropriate means when procuring supplies
and services. This chapter gives guidance regarding some processes, and does not limit the
use of other appropriate processes.

     Solicitation Materials. The Procurement Official has discretion to determine what
solicitation materials are appropriate for any given procurement, and the manner in which
they will be prepared. The Procurement Official may specify practices to be followed for
routine types of procurement. Without limitation, materials may be as follows:

A.       Competitive Sealed Bids. Generally, competitive sealed bids should be

solicited using a bid package. The bid package shall state requirements to which the
bidder must respond, and any matters relevant to the procurement process. The bid
package generally contains a bid form; specifications; a copy of any published notice;
forms or examples of the anticipated contract and other documents; any necessary
directions for delivering bids; notice of any pre-bid conference; a description of any
required samples or descriptive literature, tests, examinations or other special
requirements; and any provisions required by mandatory applicable federal, state or
local law.

B.       RFP's, RFQ's, and Other Competitive Sealed Proposals. Generally, RFP's,
RFQ's, and other competitive sealed proposals should be solicited using a proposal
package. A proposal package may contain documents similar to those in a bid
package. It shall state the criteria which a proposer's submission must address in order
to be considered by the City, and any matters relevant to the procurement process. For
example, in connection with an RFQ, the City's request for qualifications shall state
the qualifications required to meet the City's needs, that the City may conduct oral or
written discussions at its discretion, and that the City may select a short list of
qualified applicants who may submit technical or other proposals.
 C.      Other Solicitations. The Procurement Official shall determine what materials
should be prepared to solicit bids or responses in connection with any other type of
solicitation.

     Public Notice. The City shall give notice of the City's need for a supply or service in a
manner that alerts a reasonable pool of qualified persons. A Procurement Official has
discretion to determine what method of notice is appropriate for any given procurement, and
shall comply with all applicable laws. Notice may be transmitted by internet website, E-mail,
or other electronic means whenever practicable. Methods of giving notice include, but are not
limited to, the following:

A.       Notices for Construction Procurement. Any notice for the procurement of
construction must comply with Chapter 16 of the Procurement Rules.

B.       Advertised Notices. Advertised notices may be used when soliciting routine
types of sealed bids, RFP's, RFQ's or other competitive sealed proposals. They should
include the following unless additional requirements are imposed for the procurement
of construction:

1.       Content. The notice should state the desired supplies or services, when
and where a bid or proposal package may be obtained, any applicable
restrictions on obtaining the package, when and where bids or responses must
be submitted, the time and place of any bid opening, and any provisions
required by law.

2.       Where to Publish. Publication may include placement in a newspaper of

general circulation, in trade publications, with professional organizations, in a
governmental publication established to give public notices, with an
appropriate internet website, or publication service, or similar placement.

3.       When to Publish. Generally, the final publication of a notice should

occur at least five business days before the time when bids or proposals are
due, or the time when bid or proposal packages will no longer be available.
However, a Procurement Official may determine that shorter periods are
appropriate to give adequate notice, and may shorten such period when
appropriate.
C.      Use of Lists. The Procurement Official may determine to create and maintain
lists for the purpose of giving notice. Any such list shall be created and maintained in
a manner designed to effectively procure the desired supplies or services while
providing adequate opportunity for the City to benefit from competition among
bidders or proposers. A list may be designed to meet a particular procurement need,
such as to assist with procuring small quantities of supplies on a regular basis, or to
permit an immediate response to small construction needs. The Procurement Official
shall determine an equitable manner in which persons will be placed on the list,
notified of procurement opportunities, and removed from the list. The Procurement
Official shall determine how long a list will be used, and whether to consult with the
City Attorney's Office when creating it. Without limitation, lists may include the
following:

1.       Notice List. The Procurement Official shall specify what need will be
met using the list. Any qualified person may be placed on the list upon
request, and the Procurement Official may establish reasonable criteria and a
reasonable process for determining who is qualified. The creation of the list
may or may not be initially advertised. As the specified need arises, the City
may give phone, fax, mail, computer or other notice to persons on the list on a
rotating basis. The Procurement Official shall determine a reasonable number
of persons to notify. The notified persons will submit a bid or proposal, and
the City will award to the lowest bidder or best qualified offeror. The City
may reevaluate the qualifications of any listed person at any time, and may at
any time reject a listed person or a bid or proposal from that person if the
Procurement Official decides such person is not qualified to meet the specified
need.

2.       Open Contracts List. The Procurement Official shall specify what needs
will be met using the list, and may advertise to solicit a number of persons
who are qualified to meet the needs. All or a fixed number of qualified
respondents will be placed on the list. The Procurement Official may require
that all listed persons enter an open contract governing any work to be
performed in connection with the list. As the specified need arises, the City
may give phone, fax, mail, computer or other notice to all persons on the list.
 All may submit a bid or proposal, and the City will award to the lowest bidder
or best qualified offeror. The City may reevaluate the qualifications of any
listed person at any time, and may at any time reject a listed person or a bid or
proposal from that person if the Procurement Official decides such person is
not qualified to meet the specified need.

D.      Contacting Qualified Persons. In appropriate circumstances, the Procurement

Official may ascertain a number of persons who are qualified to meet the City's needs,
and the City shall obtain the best price or proposal from among them. The
Procurement Official shall act in a reasonable and equitable manner to obtain
appropriate competition. Appropriate circumstances under this subparagraph shall
include, but not be limited to, the following:

1.       The procurement of small purchases under Procurement Rules Section

11.2, or under Procurement Rules Section 11.3 when other methods of notice
are burdensome in light of the needs of the procurement.

2.       Procurement to meet special needs where other forms of notice would
not be likely to produce better competition, such as procuring services in a
specialized industry where potentially qualified persons can be easily
identified, or may need to be recruited.

3.       Procurement where such notice would result in a cost savings to obtain a
needed supply or service, and the City has reason to believe that additional
notice would not be likely to enhance the cost savings because of matters such
as fixed prices that are available to the City. Such matters may include
procurement to meet the City's needs in connection with running tickets.

4.       Procurement in connection with a procurement waiver or exemption.

   Use of Solicitation Materials. The Procurement Official may use solicitation materials in
any manner that is beneficial to the City, including, but not limited to, the following:

A.       Time Restrictions for Obtaining Materials. The City may determine a time
when bid or proposal packages will be available, and a time when they will no longer
be available.
 B.       Fees. The City may charge reasonable fees in connection with providing
solicitation materials.

C.      Modifying Materials. A bid or proposal package shall be modified by issuing a

written addendum to all persons who obtained a copy of the package. Addenda must
be delivered at least forty-eight hours in advance of the time for submitting bids or
proposals, except when an addendum is issued solely to extend the time when
submissions are due. The City may require persons submitting bids or proposals to
sign to acknowledge their receipt of all addenda issued. When a solicitation does not
make use of a bid or proposal package, the Procurement Official may determine
reasonable and equitable methods for modifying other solicitation materials.

    Other Solicitation Means. The Procurement Official may require any solicitation means
that the Procurement Official deems appropriate. Such matters may include, without
limitation, the following:

A.       Pre-submission Conferences. The City may hold a meeting prior to the time for
submitting bids, proposals or other submissions to allow interested persons to discuss
a solicitation. The City must notify all persons who obtained solicitation materials of
the meeting, and hold it at least 48 hours before the time when submissions are due.
Verbal or other statements will not change a bid or proposal package or other
solicitation document except when the City modifies the document in question in
writing by addendum to include such statement.

B.       Securities. The City may require bonds, letters of credit, or other financial
arrangements to protect the City's interests. The Procurement Rules or the City's
codes, rules or policies may make some securities mandatory.

   Submission Requirements. Any submission in a procurement process shall be submitted in

the manner specified by the City. Matters shall be submitted as follows:

A.       What to Submit. Bids, proposals or other offers or submissions shall be

submitted using the City's forms, if any, and shall contain all materials required by the
City to be submitted with the bid, proposal or other submission.  Digital or electronic
signatures are acceptable signature methods for solicitation responses when provided
 in accordance with applicable sections of the Uniform Electronic Transactions Act as
set forth in Utah Code Chapter 46-4, or its successor Utah Code provisions.

B.       Delivery. If the City does not specify a particular delivery method, bids,
proposals or other offers or submissions may be delivered by any method that
provides the City with a complete, signed submission in a format designated by the
solicitation instructions before the time of bid opening, or before the time when
proposals or other offers or submissions are due.

C.      Submission Deemed Agreement. Submission of a bid, proposal or other offer or

submission constitutes the bidder's or offeror's agreement to all of the terms,
conditions and provisions of the bid or proposal package, or other solicitation
documents. By the submission of any bid, proposal or other offer or submission, the
bidder or offeror represents that the matters stated therein are true and correct.

D.      Confidentiality. Any person submitting information that the person believes
may be maintained confidentially must comply with the Government Records Act.

 A request for proposal (RFP) is a business document that announces and provides details
about a project, as well as solicits bids from contractors who will help complete the project.
Most organizations prefer using RFPs, and, in many cases, governments only use requests for
proposal. A request for proposal for a specific program may require the company to review
the bids to examine their feasibility, the health of the bidding company, and the bidder's
ability to do what is proposed.

Requirements for a Request for Proposal 

Government agencies or other entities may be required to issue requests for proposals to
provide full and open competition to drive down the cost of a solution. Accepting a proposal
that is most responsive to specifications may not always mean the lowest-priced bid.

Skillfully creating a request for proposal may dictate the success or failure of the resulting
solution. If specified requirements are too vague, the bidder may not design and implement a
complete solution for the problem. If the requirements are too detailed and restrictive, the
bidders’ creativity and innovation may be limited.
The RFP process begins with drafting a request for proposal. Bidders review the solicitation
and submit suggestions for improvement. After implementing feedback, the final request for
proposal is issued. Bidders then submit their proposals. The customer selects a small group of
bidders and enters negotiations on pricing and technical details. The customer may ask the
remaining bidders to submit a best and final offer before awarding a contract. The contract is
presented to the company providing the best solution to the issue.

Example of a Request for Proposal

Say, for example, the Federal Railroad Administration issues a request for proposals to
finance, design, construct, operate, and maintain a high-speed rail system. Interested parties
submit proposals meeting the requirements outlined in the document. Based on the proposals
received by the deadline, the Department of Transportation establishes commissions for
further review and development of the proposals. The DOT chooses the proposal most
encompassing its goals and hires the company to carry out the work.

Vendor performance monitoring and controlling

Vendor performance management (VPM) is the monitoring and analyzing of the reliability,
quality and performance of a company’s vendors. It allows your company to improve your
efficiency and profits, reduce stock levels and inventory costs and leads to more customer
satisfaction.

Whilst vendor performance management may be relatively easy to define, in real life it is
very difficult to maintain. It requires constant real time information about the vendor’s
performance, formal procedures and a profitable two-way communication between the
vendor and the purchaser.

Luckily, technology has stepped in to breach all of these gaps. The purchasers benefit as
above, but the vendors also benefit from increased purchases and more loyalty from their
purchasers.

Vendor performance management is usually measured by a series of agreed and contractual

Key Performance Indicators (KPI’s). Most VPM systems use either dashboards or balanced
scorecards to measure a vendor’s performance.
The former provide a 2-D view and balanced scorecards provide a more 3D view. The KPI’s
used will usually include:

 Delivery lead times.

 Communication time lags.
 Quality of the products supplied.
 Prices.
 Frequency of price changes.
 Payment terms.
 Changes made.
 Under and over deliveries.
 Breakages.
 Competiveness with other vendors.
 Financial stability of the vendor.

A dashboard approach measures each vendor against a specific number of their KPI’s and
provides a visual display of their abilities and compliance. This is a very quantitative as
opposed to a qualitative observation so hence it is a 2D view.

The balanced scorecard approach would look at a number of weighted metrics in four key
areas:

 Relationship
 Cost Management
 Delivery
 Quality

Each company will have different ideas as to what weight to place on each of these elements.
The metrics can be examined individually or as a group, which provides the 3D view of the
vendor.

The supply of physical products and the supply of services can be measured in both cases.

Vendor performance management has been made considerably easier with the
implementation of VPM software and the collaboration of both vendors and purchasers. Both
purchasers and vendors see the benefit of vendor performance management to such an extent
that it is almost the normal practice in large companies.

Indeed most large company’s terms and conditions and master purchasing agreements now
consider that it is imperative and this shows in their profit levels.