Strategic Sourcing

Unit III
Strategic sourcing:

1. Supply management and commodity strategy development

Integrative strategy- conducting a spend analysis- category strategy development types of

strategies- insourcing/outsourcing- supply base optimization-supply risk management-global

sourcing-total cost of ownership-evolving sourcing strategies

2. supplier evaluation and selection

Identify potential supply sources- Exhibitions and Trade fairs- evaluation of supply

performances

3. Supplier quality management

4. supplier management and development- creating a world class supply base

5. World- wide sourcing.

Integrative Strategy Development
The process of aligning supply management goals with corporate objectives is especially
important for supply management and supply chain managers. These managers often
face some very broad directives from corporate management—for example, to reduce
costs or to improve quality. The strategy development process takes place on four levels:

• Corporate Strategies: These strategies are concerned with (1) the definition of
businesses in which the corporation wishes to participate and (2) the acquisition and
allocation of resources to these business units.

• Business Unit Strategies: These strategies are concerned with (1) the scope or
boundaries of each business and the links with corporate strategy and (2) the basis on
which the business unit will achieve and maintain a competitive advantage within an
industry.
• Supply Management Strategies: These strategies, which are part of a level of strategy
development called functional strategies, specify how supply management will (1) support
the desired competitive business-level strategy and (2) complement other functional
strategies (such as marketing and operations).

• Commodity Strategies: These strategies specify how a group tasked with developing the
strategy for the specific commodity being purchased will achieve goals that in turn will
support the supply management–, business unit–, and ultimately corporate-level strategies.
Companies that are successful in deploying supply chain strategies do so because the
strategy development process is integrative. This means that the strategy is drafted by (or
has significant input from) those people responsible for implementation.

Components of Integrative Strategy Development

Integrative supply chain strategies occur when corporate strategic plans are effectively
“cascaded” into specific supply management and commodity goals, through a series of
iterative planning stages (shown in Exhibit). Corporate strategy evolves from corporate
objectives, which effectively evolve from a corporate mission statement drafted by the
chief executive officer (CEO), functional executives, and the board of directors. Corporate
strategies are crafted by the CEO, taking into consideration the organization’s competitive
strengths, business unit and functional capabilities, market objectives, competitive
pressures and customer requirements, and macroeconomic trends. What distinguishes an
integrative strategy development process is that business unit executives, as well as
corporate supply management executives, provide direct input during the development of
corporate strategy
Category Strategy
A category team is often composed of personnel from the operational group, product
design, process engineering, marketing, finance, and supply management. The
personnel involved should be familiar with the commodity being evaluated.

Before initiating any category strategy, there must be buy-in from the key stakeholders,
especially at the senior leadership level. Without executive commitment, strategic sourcing
results are unlikely to be successful. To ensure buy-in of the corporate team, supply
management must clearly define the “prize” or carrot at the end of the stick, to obtain the
go-ahead to pursue the strategy. To enable an effective category strategy, the team must:

1. Spend money on resources initially, including assessment of current spend, data

collection, market research, training, and people.
2. Validate the savings or contribution to other company objectives achieved by supply
management and drive them to the bottom line.
3. Sustain the initiative through presentations to senior executives who support the move
toward an integrated supply management function with other functional groups in the
supply chain, including marketing, research and development, and accounting.
Conducting a Spend Analysis

As we discussed, a robust procure to pay process is critical, in order to facilitate an accurate

spend analysis. Why is it important to capture the transaction level data associated with all
purchasing processes? Because from time to time the firm must identify opportunities for
savings through a process known as a spend analysis. A spend analysis becomes a critical
input into building category strategies.
A spend analysis is an annual review of a firm’s entire set of purchases. This review provides
answers to the following questions:
• What did the business spend its money on over the past year? (This value is an important
component in calculating the cost of goods sold in the financial statement. Purchased goods
and materials are often more than 50% of the total cost of goods sold.)
• Did the business receive the right amount of products and services given what it paid for
them? (This is an important requirement to meet the legal requirements of the Sarbanes
Oxley Act, which requires accountability and correct reporting of financial statements to the
SEC.)
• What suppliers received the majority of the business, and did they charge an accurate
price across all the divisions in comparison to the requirements in the POs, contracts, and
statements of work? (This is an important component to ensure contract compliance.)
• Which divisions of the business spent their money on products and services that were
correctly budgeted for? (This is an important component for planning annual budgets for
spending in the coming year.)
• Are there opportunities to combine volumes of spending from different businesses,
and standardize product requirements, reduce the number of suppliers providing these
products, or exploit market conditions to receive better pricing? (This is an important
input into strategic sourcing planning, the topic of the next chapter in the book.)
Best Practices in Spend Analysis
Moreover, a spend analysis provides insights and clarity into these questions and becomes
an important planning document for senior executives in finance, operations, marketing,
purchasing, and accounting. Despite the importance of this element, many firms struggle
to develop a comprehensive and accurate spend analysis report. This is because
purchasing was for many years a paper-based system, and figures were not entered
correctly into accounting systems. Even with the evolution of sophisticated enterprise
systems such as SAP and Oracle, purchasing transactions are often entered incorrectly,
which elicits the old phrase “garbage in, garbage out.” Another problem is that many
enterprises have grown through mergers and acquisitions. When a new division is
acquired, they may be using a different system from the acquiring company, and so the
data is not easily translatable. For this reason, many firms are undergoing major initiatives
to streamline procurement through electronic procurement systems that will revamp the
purchase to pay process and automate different portions to capture transactions more
effectively. Indeed, the research shown by Aberdeen Research in Exhibit 6.3 on p. 197
suggests that “best in class” firms are more likely to have a higher proportion of their
spend under management, which has led to important improvements such as cost
reductions, reduction of noncompliant purchases, supply base reduction, and
electronically enabled suppliers.
Spend Analysis Spreadsheet

Assuming that a spend database is available and is reasonably accurate, how do firms
produce a spend analysis? The best way to illustrate is to go through a specific example of
a spend analysis and identify the requirements at each stage.

Exhibit 6.4 shows spend data sorted by descending dollar. Note that the dataset
contains information on the general classification or “commodity,” the primary supplier
for that category, and the dollar amount spent with that supplier in that commodity. It is
important to note that there may be multiple suppliers that supply a single commodity,
and vice versa (multiple commodity classifications supplied by a single supplier). The
entire spreadsheet is NOT shown in this case; in fact, the spreadsheet has over 2,500
lines in it, and this would be considered a simple spend analysis. Many datasets have
literally millions of transactions in them. With this information in hand, you can proceed
as follows:
Example of Spend Analysis
1. The first step is to take this information and sort the data by commodity. In this case, a
commodity is a “category” of spending.

2. From the commodity sort, find the total spend by commodity. (Hint: The subtotal or
pivot table functions in Excel can help.) Calculate the total spend by commodity.

3. Make a chart of the top 10 commodities by descending $ spend. A Pareto chart is used
to show the total value of spend that occurs within each category. As shown in Exhibit 6.5,
the top 10 categories of spending are rebate fulfilment and call center spending,
advertising, general contracting, hardware, investments, paper, service parts, business and
management services, contract labor, and telecommunications. These areas represent the
highest level of spend and, therefore, the biggest opportunity for sourcing analysis and
opportunities for cost savings and price reductions. But we aren’t done yet!

4. From the commodity sort, find the number of suppliers by commodity. (Hint: The pivot
table function in Excel can help.) Perform a descending sort of number of suppliers by
commodity.
Pareto Chart of Spend by Commodity Category
5. Make a chart of the top ten commodities by descending number of suppliers. As shown in
Exhibit 6.6, the advertising category has the highest number of suppliers within it, followed
by other miscellaneous small dollar suppliers (who might be supplying office products or
other noncritical items), energy, security, general contracting, and business and
management services. It is amazing that this firm is using almost 2,500 different suppliers of
advertising! However, this is not uncommon, as business units will often use their own local
preferred supplier, because they are nearby and they know them. Although this is
appropriate in some cases, it may also be an opportunity for supply base reduction and
further cost savings.

6. From the commodity sort, find the average spend per supplier by commodity. Perform an
ascending sort of average spend per supplier. Exhibit 6.7 shows the categories that have the
lowest volume of spending by supplier. A low spend per supplier figure is indicative that
there are too many suppliers in that category, as the volume per supplier should be
increased. It is interesting that none of these parameters show up in the other two charts,
suggesting that there may or may not be an opportunity worth pursuing in the categories
shown in these charts.

7. Applying the concept of Pareto analysis to the chart of top 10 commodities by

descending $ spend, what are the recommendations for savings opportunities?
Category Strategy Development (Strategic Sourcing)

Once the decision has been made to outsource a product or service, firms will typically use a
process known as strategic sourcing to decide to whom to outsource
the product or service, as well as the structure and type of relationship that should
be established. A sourcing strategy is typically focused on a category of products or
services, and for that reason, the strategy is sometimes called a category strategy. A
category strategy is a decision process used to identify which suppliers should provide
a group of products or services, the form of the contract, the performance
measures used to measure supplier performance, and the appropriate level of price,
quality, and delivery arrangements that should be negotiated. A typical category
may include many smaller subcategories. For example, a category around information
technology may include subcategories such as laptops, desktops, servers, and
keyboards. If a firm outsources accounting services, the category strategy may include
tax accountants and managerial accountants. The strategic sourcing decision is
typically made by a cross-functional team, composed of sourcing professionals, operations
managers, finance, or other stakeholders for the product or service. A stakeholder
is someone who is impacted by the sourcing decision. They have a stake in
the game, so to speak, so their input in the sourcing decision is critical to reaching
a successful sourcing decision. The sourcing process is described below and is
shown in Exhibit 6.9.
Strategic Sourcing Process
Step 1: Build the Team and the Project Charter
Companies are increasingly using a team approach to sourcing decision making
by bringing together personnel from multiple functions who are familiar with the
product to be purchased. Part of the first phase of the category management process
is to identify the people who should be involved, as well as the key subject matter
experts who may be part of the extended team. Once developed, the team should then
define the scope of the category strategy, publish a project charter, and develop a
work plan and communication plan. These steps help to define the purpose,
boundaries, and goals of the process; identify the tasks involved; and provide a plan for
communicating the results to the primary stakeholders.
Step 2: Conduct Market Research on Suppliers
The second step when developing a sourcing strategy is to fully understand the purchase
requirement relative to the business unit objectives. Also involved in this step
is a thorough supplier spend analysis to determine past expenditures for each commodity
and supplier, as well as the total expenditures for the commodity as a percentage
of the total. Note that the spend analysis identified in the prior section looked at
spending for the entire company. A category spend analysis will drill down to a more
granular level and identify the specific business units that are purchasing the products
or services, and which suppliers they are currently using.
To make an informed decision about sourcing, several pieces of information are
needed. These include the following:
• Information on total annual purchase volumes. This is often an important
element from the spend analysis. This analysis should show how much was
spent on the category of goods or services by supplier, by business unit, and
by subgroups.
• Interviews with stakeholders to determine their forecasted requirements. For
example, if the annual purchase volume last year was $10 million, is this
figure expected to go up or down next year based on the predicted amount
of work? Stakeholders should also be interviewed to determine any new
sourcing elements that may not have been included in last year’s figure.
• External market research identifying information on key suppliers, available
capacity, technology trends, price and cost data and trends, technical requirements,
environmental and regulatory issues, and any other data that is available.
In effect the team must educate themselves through a detailed analysis
of the marketplace and identify how best to meet the forecasted demand
(generated by the spend analysis and interviews with stakeholders) given the
market conditions that will occur in the next year.

Three tools we will discuss here are Porter Five Forces analysis, SWOT
analysis, and supplier analysis ------------ PPT
Step 3: Strategy Development
Once the team have educated themselves to the point that they feel they know
enough about the supply market conditions, the forecasted spend, and the user
stakeholder requirements, they are faced with a different challenge. The team must
convert all of this data into meaningful knowledge and apply some meaningful tools to
structure the information so that it will render an effective decision. Two tools are
most often used in this process: a portfolio analysis matrix (sometimes called the stra-
tegic sourcing matrix), and the supplier evaluation scorecard.
Strategy Portfolio Matrix for Category Management
Portfolio Analysis
Portfolio analysis is a tool to structure and segment the supply base, and is used
as a means of classifying suppliers into one of four types. The objective is to categorize
every purchase or family of purchases into one of four categories. The premise
of portfolio analysis is that every purchase or family of purchases can be classified
into one of four categories or quadrants: (1) Critical, (2) Routine, (3) Leverage, and
(4) Bottleneck.3 By effectively classifying the goods and services being purchased into
one of these categories, those responsible for proposing a strategy are able to comprehend
the strategic importance of the item to the business. The results of this analysis
can then be compared to the current sourcing strategy for the category group, and tactics
and actions defined for moving forward. Exhibit 6.12 on p. 211 summarizes the essential
elements of strategy, tactics, and actions associated with managing categories
that fall into each of the different quadrants in the matrix, and these are described in
greater detail below.
Critical Commodity—Strategic Supplier
Generally speaking, the goals for a strategic commodity are to develop a competitive
advantage, support and leverage the supplier’s core competencies, develop bestin-
class suppliers, support the company’s overall strategy, and improve value-added
services beyond a simple purchasing agreement. If the annual spend on the item is
high, then it also makes sense for the company to establish a strategic preferred supplier.
A preferred supplier designation indicates that the selected supplier should receive
the business under most conditions. Formally designating a supplier as strategic
builds a foundation for achieving higher levels of information sharing and improvement.
In the words of Dave Nelson, a guru in supply management who has worked
at Honda, John Deere, and Delphi, “If you develop the right relationship with your
supply base, you can have 10,000 additional brains thinking about ways to improve
your product and generate cost savings. And that is very powerful!”4
Routine Commodity
Products and services in this category are readily available and often are low
in cost. Examples include janitorial services, facilities management, and
office suppliers. The goal for the team is to reduce the number of items in
this category through substitution, elimination of small-volume spend,
elimination of duplicate SKUs, rationalization of the number of units to
control costs, and simplification of the procurement process using electronic
tools (e.g., electronic data interchange, auto-order systems, online vendor
catalogs, and purchasing cards). For example, at GlaxoSmithKline, a
pharmaceutical company, the chief procurement officer discovered that the
R&D group was using 50 different types of Bunsen burners and beakers
simply because scientists
have particular preferences that they acquired in graduate school.
Supplier Evaluation
Once the portfolio analysis is completed, the team 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 team must first identify current and potential suppliers, determine
any information technology requirements, and identify opportunities to leverage the
commodity expenditures with similar commodities.
Supplier Selection Scorecards
During the selection stage, oftentimes companies 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 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. The need for assessment does
not end with the selection decision, however. After the buyer-supplier relationship has
been established, buyers also must track supplier performance over time. The ability to
rank suppliers across multiple criteria can be especially helpful in identifying which
suppliers are providing superior performance, and which are in need of some work.
Step 4: Contract Negotiation
After the sourcing strategy has been determined and suppliers have been recommended,
it is time to implement the strategy and negotiate the contract. Effective
implementation of the strategy includes establishing tasks and time lines, assigning
accountabilities and process ownership, and ensuring adequate resources are made
available to the process owners. The strategy should also be communicated to all
stakeholders, including suppliers and internal customers, in order to obtain buy-in
and participation. Before entering into contract negotiations, the commodity team should
perform an analysis of market and pricing issues so that a fair price for both parties can be
agreed upon. This analysis attempts to define the marketplace, including best price,
average price, and the business unit’s price, and determines expected trends in pricing.
In preparation for negotiations, the buyer should develop a negotiation plan and an
ideal contract. There should also be a contingency plan in case negotiations with the
recommended suppliers do not go as expected. Finally, the negotiation is conducted,
and a contract is signed.
Step 5: Supplier Relationship Management
The strategic sourcing process does not end when a contract is signed with a supplier.
Although the sourcing team may disband and go their separate ways once the
contract is signed, typically one member of the team will continue to work with the
supplier in the role of supplier relationship manager. This individual must continuously
monitor the performance of the sourcing strategy, as well as the supplier. The
buying firm should revisit the sourcing strategy at predetermined intervals, to ensure
that it is achieving its stated objectives, and may need to make modifications to the
strategy if it is not working as planned or if there are changes in the market. The
buying firm should also continuously monitor the performance of suppliers based on
predetermined and agreed-upon criteria such as quality, delivery performance, and
continuous cost improvement. And there should be a plan in place to manage any
conflicts that occur with suppliers.
Types of Supply Management Strategies

Organizations can employ a variety of different strategies that may be unique to

each commodity. Although we cannot cover all of the possible variations of strategies
that may emerge, we will briefly review some of the most common and important supply
management strategies. As we will see later, certain strategies are used more often
than others, depending on how advanced an organization is at the supply management
strategy development process. Each of these strategies or supply management
approaches is covered in greater detail in other chapters throughout the book.

Supply Base Optimization

Supply base optimization is the process of determining the appropriate number and
mix of suppliers to maintain. Although this has also been referred to as rightsizing, it
usually refers to reducing the number of suppliers used. Moreover, suppliers that are
not capable of achieving world-class performance, either currently or in the near future,
may be eliminated from the supply base. This process is continuous because the
needs of the business unit are always changing. Optimization requires an analysis of
the number of suppliers required currently and in the future for each purchased
item. For example, General Motors was ready to eliminate 160 suppliers worldwide
that it considered poor performers in 2003 and 2004. Chapter 9 discusses supply
base optimization in detail.
 Supply Risk Management
Events in 2005 such as Hurricane Katrina and corresponding escalating commodity
prices have highlighted more than ever the impact of disruptions on supply chain
operations and global competition. Although many events are not easily predicted,
there are many other sources of supply chain disruption that have the potential to be
better managed, thereby reducing the impact on firm agility and profitability.

Global Sourcing
Global sourcing is an approach that requires supply management to view the entire
world as a potential source for components, services, and finished goods. It can
be used to access new markets or to gain access to the same suppliers that are helping
global companies become more competitive. Although true global sourcing is
somewhat limited in most industries, more and more companies are beginning to
view the world as both a market and a source of supply.
Longer-Term Supplier Relationships
Longer-term supplier relationships involve the selection of and continuous involvement
with suppliers viewed as critical over an extended period of time (e.g., three years and
beyond). In general, the use of longer-term supplier relationships is growing in importance,
and there will probably be greater pursuit of these relationships through longer-term
contracts. Some purchasers are familiar with the practice, whereas for others it represents
a radical departure from traditional short-term approaches to supply base management.

Early Supplier Design Involvement

Early supplier design involvement and selection requires key suppliers to participate
at the concept or predesign stage of new-product development. Supplier involvement
may be informal, although the supplier may already have a purchase contract
for the production of an existing item. Early involvement will increasingly take place
through participation on cross-functional product development teams. This strategy
recognizes that qualified suppliers have more to offer than simply the basic production
of items that meet engineering specifications. Early supplier design involvement
is a simultaneous engineering approach that occurs between buyer and seller, and
seeks to maximize the benefits received by taking advantage of the supplier’s design
capabilities. This strategy is discussed in detail in Chapter 4; the Good Practice Example
at the end of this chapter also highlights how one company has successfully
employed early involvement.
Supplier Development
In some cases, purchasers may find that suppliers’ capabilities are not high
enough to meet current or future expectations, yet they do not want to eliminate the
supplier from the supply base. (Switching costs may be high or the supplier has
performance potential.) A solution in such cases is to work directly with a supplier to
facilitate improvement in a designated functional or activity area. Buyer-seller consulting
teams working jointly may accelerate overall supplier improvement at a faster
rate than will actions taken independently by the supplier. The basic motivation behind
this strategy is that supplier improvement and success lead to longer-term benefits
to both buyer and seller. This approach supports the development of world-class
suppliers in new areas of product and process technology. Chapter 9 discusses supplier
development in detail.
Total Cost of Ownership
Total cost of ownership (TCO) is the process of identifying cost considerations beyond unit
price, transport, and tooling. It requires the business unit to define and measure the
various cost components associated with a purchased item. In many cases, this includes
costs associated with late delivery, poor quality, or other forms of supplier
nonperformance. Total cost of ownership can lead to better decision making because it
identifies all costs associated with a supply management decision and the costs associated
with supplier nonperformance. Cost variances from planned results can be analyzed to
determine the cause of the variance. Corrective action can then prevent further problems.
TCO is discussed in detail in Chapters 10 and 11.
Evolving Sourcing Strategies

If we compare the level of supply management strategy evolution to the strategies

available, there is clearly an implementation sequence that emerges. Exhibit 6.13
presents the sequence of supply management strategy execution based on research
from multiple studies and interviews with many executives. Organizations tend to evolve
through four phases as they become mature and sophisticated in their supply
management strategy development.
Stages of Supply Management Strategy Evolution
2. supplier evaluation and selection
The Supplier Evaluation and Selection Process

Most purchasing experts will agree that there is no one best way to evaluate and select
suppliers, and organizations use a variety of different approaches. Regardless of the
approach employed, the overall objective of the evaluation process should be to reduce
purchase risk and maximize overall value to the purchaser. An organization must select
suppliers it can do business with over an extended period. The degree of effort associated
with the selection relates to the importance of the required good or service. Depending on
the supplier evaluation approach used, the process can be an intensive effort requiring a
major commitment of resources (such as time and travel). This section addresses the many
issues and decisions involved in effectively and efficiently evaluating and selecting suppliers
to be part of the purchaser’s supply base. Exhibit 7.1 highlights the critical steps involved in
the supplier evaluation and selection process
Supplier Evaluation and Selection Process
Key Supplier Evaluation Criteria

Purchasers usually evaluate potential suppliers across multiple categories using their own
selection criteria with assigned weights. Purchasers that need consistent delivery
performance with short lead times to support a just-in-time production system might
emphasize a supplier’s scheduling and production systems. A high-technology buyer might
emphasize a supplier’s process and technological capabilities or commitment to research
and development. The selection process for a distributor or service provider will emphasize
a different set of criteria.
Most evaluations rate suppliers on three primary criteria: (1) cost or price, (2) quality, and
(3) delivery. These three elements of performance are generally the most obvious and most
critical areas that affect the purchaser. For critical items needing an in depth analysis of the
supplier’s capabilities, a more detailed supplier evaluation study is required. The following
presents the wide range of criteria that a purchaser might consider during supplier
evaluation and selection.
Management Capability
It is important for a buyer to evaluate a supplier’s management capability. After all,
management runs the business and makes the decisions that affect the competitiveness of
the supplier. A buyer should ask many questions when evaluating a supplier’s management
capability:
• Does management practice long-range planning?
• Has management committed the supplier to total quality management (TQM) and
continuous improvement?
• Is turnover high among managers?
• What are the professional experience and educational backgrounds of the key managers?
• Is there a vision about the future direction of the company?
• Is management customer focused?
• What is the history of labor/management relations?
• Is management making the investments that are necessary to sustain and grow the
business?
• Has management prepared the company to face future competitive challenges, including
providing employee training and development?
• Does management understand the importance of strategic sourcing
Employee Capabilities

This part of the evaluation process requires an assessment of non-management personnel.

Do not underestimate the benefit that a highly trained, stable, and motivated workforce
provides, particularly during periods of labor shortages. A purchaser should consider these
points:
• The degree to which employees are committed to quality and continuous improvement
• The overall skills and abilities of the workforce
• Employee-management relations
• Worker flexibility
• Employee morale
• Workforce turnover
• Willingness of employees to contribute to improved operations
Cost Structure
Evaluating a supplier’s cost structure requires an in-depth understanding of a supplier’s
total costs, including direct labor costs, indirect labor costs, material costs, manufacturing
or process operating costs, and general overhead costs. Understanding a supplier’s cost
structure helps a buyer determine how efficiently a supplier can produce an item. A cost
analysis also helps identify potential areas of cost improvement.
Collecting this information can be a challenge. A supplier may not have a detailed
understanding of its costs. Many suppliers do not have a sophisticated cost accounting
system and are unable to assign overhead costs to products or processes. Furthermore,
some suppliers view cost data as highly proprietary. They may fear that the release of cost
information will undermine its pricing strategy or that competitors will gain access to its
cost data, which could provide insight into a supplier’s competitive advantage. Because of
these concerns, buyers will often develop reverse pricing models that provide estimates
of the supplier’s cost structure during the initial supplier evaluation
E-Commerce Capability
The ability to communicate electronically between a buyer and seller is fast becoming a
requirement during supplier selection. In the past, many considered electronic data
interchange (EDI) a primary condition for doing business. However, more and more
companies are moving to web-based business to business (B2B) platforms for their
transactions. In early 2000, relatively few companies had implemented B2B electronic
commerce platforms, but the rate of technology change in this area has now escalated
rapidly.
IBM now states that the majority of its purchases (by dollar spent) occur via the Internet.
However, such statements entail that suppliers have the required ability to adopt an e-
commerce approach. In contrast to EDI, electronic commerce requires a relatively low
investment on the part of suppliers. Besides the efficiencies that B2B e-commerce
provides, these systems support closer relationships and the exchange of all kinds of
information.
Developing a Supplier Evaluation and Selection Survey
Supplier evaluation often follows a rigorous, structured approach using formal surveys. An
effective supplier survey should have certain characteristics. First, the survey should be
comprehensive and include the performance categories considered important to the
evaluation and selection process. Second, the survey process should be as objective as
possible. This requires the use of a scoring system that defines the meaning of each value
on a measurement scale.
A third characteristic is that the items and the measurement scales are reliable. This refers
to the degree to which different individuals or groups reviewing the same items and
measurement scales will arrive at the same conclusion. Reliable evaluations require well-
defined measures and well-understood items.
Supplier Evaluation and Selection Survey Development
SUPPLIER QUALITY MANAGEMENT
SUPPLIER MANAGEMENT AND DEVELOPMENT:
CREATING A WORLD-CLASS SUPPLY BASE
WORLDWIDE SOURCING