PURCHASING FLASHCARDS

Competitive bidding was the primary method for awarding purchase

contracts.

In the past, it was sufficient to obtain three bids and award the
contract to the supplier offering the lowest price.

Enlightened purchasers now commit major resources to evaluating a

supplier’s performance and capability across many different areas.
The supplier selection process has become so important that teams
of cross-functional personnel are often responsible for visiting and
evaluating suppliers. A sound selection decision can reduce or
prevent a host of problems.
If a firm has reduced its supply base to a much
smaller level, and if remaining suppliers
usually receive longer-term agreements, the
willingness or ability to switch suppliers is
diminished.
 The Supplier Evaluation and Selection Process
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).
 Recognize the Need for Supplier Selection
The first step of the evaluation and selection process usually involves
recognizing that there is a requirement to evaluate and select a
supplier for an item or service.

A purchasing manager might begin the supplier evaluation process in

anticipation of a future purchase requirement. Purchasing may have
early insight into new-product development plans through
participation on a product development team.

Engineering personnel.
Most common ways that result in a need to evaluate sources
of supply.
 Identify Key Sourcing Requirements
It is important to understand the requirements that are important to
that purchase.

These requirements, often determined by internal and external

customers within the value chain, can differ widely from item to item.

Although different requirements may exist for each evaluation,

certain categories—supplier quality, cost, and delivery performance
—are usually included in the evaluation.
 Determine Sourcing Strategy
No single sourcing strategy approach will satisfy the requirements of
all purchases.
The purchasing strategy adopted for a particular item or service will
influence the approach taken during the supplier evaluation and
selection process.
There are many decisions that a purchaser initially makes when
developing a sourcing strategy.
The considerations developed during the strategy phase need to be
re-evaluated during the selection process.
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