Chapter 8 - Supplier selection and evaluation. Supplier selection is addressed in Chapter 8. The selection of suppliers is a complex and demanding question that has no real correct answer. Each firm must weigh the benefits and risks of single and multiple sourcing.
Chapter8: SupplierSelection andEvaluation PurchasingandSupplyChainManagement 3rdedition PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. PurchasingandSupplyChainManagement,3rdedition,Copyright2013,W. CurrentGlobalTrends ã Producequalityproductsatreasonableprices ã Buyingorganizationsarereducingthesupplierbase ã Increasinglyimportantroleforthepurchasingand professionalpurchasingmanagers PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. StrategicMakevs.Buy Decision • • The Process: Determine what product or service is under consideration. Consider the inhouse capability Key MakeorBuy Mistakes • Not being proficient at identifying own core capabilities • Waiting too long to assess the value of consultants or strategic partners • Not recognizing that the product or service is approaching maturity • Not recognizing that there are always new competitors with new technology PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. BenefitsofOutsourcing ã ã Verticalintegration ã Expandingintoareasthatareatdifferentpointsonthesame productionpath ã Morecontrolvs.Greatercompetencerequirementineachofthe areas Outsourcing ã Adelegationofproductioncapabilities ã Concentrateontruecorecapabilitiesvs.lossofcontrolandnonư corecapabilities PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. OutsourcingandSupplierSelection • The selection of the correct supplier is the most important purchasing activity • The buying firm must spend extensive time analyzing and carefully selecting the correct supplier • Periodic supplier evaluations are needed to ensure continuous supplier performance achievement PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. SupplierRelationshipManagement(SRM) ã Factorsforstrongersupplychainrelationship management: ã Businessespurchaselargerpercentageofproductvalue ã Theshrinkingsupplierbases ã Increasingshortagesofskilledsuppliercapabilitiesandresources PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. The4PureSupplyManagement Relationships Counterưproductiverelationships ã LoseưLose Transactionalorcompetitiverelationships • WinLose Cooperative relationships • WinWin Collaborative relationships • WinưWin PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. SRMand3SupplierCategories Strategicsuppliers ã Supplydifficulttoreplaceessentialmaterialsandcapabilities ã Maintainingandstrengtheningtheserelationshipsareamajor concern Preferred suppliers • Important but replaceable with alternative suppliers Transactional suppliers • Provide easily to replace noncritical resource Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. The 3 Common Supplier Evaluation Systems The categorical method The costratio method The linear averaging method Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Strategic Supplier Relationship Management • For each strategic supplier, a key contact within the buying firm must be established • • Owner of a specific strategic supplier relationship Management Methods: • Supplier profiles • Strategic Supplier Performance Review Process • Supplier development 10 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. The Strategic Supplier Performance Review Process • • A process for managing performance and giving feedback to the strategic suppliers Requirements: • Consistent measurements for evaluating current performance of existing strategic suppliers • Must have a standard template for a customized review process • The template should include a personal meeting with the functionalmanager ã Thegeneralreviewprocessshouldtakeapproximatelytwo workdaystocomplete 11 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. SupplierDevelopment ã ã Providethesupplierwithopportunityto: • Take advantage of the learning opportunities • Improve its overall performance with the buying firm and with its other customers Steps of supplier development program (SDP): Supplier evaluations Communicate the problem and motivate the supplier to changeitsresults ã Supplierevaluationreportcard ImplementSDP 12 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. SupplierReduction ã Itisrecommendedtoreducetheoverallsupplybase • Guides to supplier reduction analysis: • Grade methods • • Based on a score or grade given to the supplier by the buyer for some attribute Hurdle • • Suppliers are required to “jump” over higher and higher hurdles to win the buyer’s business E.g., certification 13 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. Questions? 14 Purchasing and Supply Chain Management, 3rd edition, Copyright © 2013, W. C. Benton Jr., All rights reserved. ... continuoussupplierperformanceachievement PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. SupplierRelationshipManagement(SRM) ã Factorsforstrongersupplychainrelationship management: ... Suppliersarerequiredtojumpoverhigherandhigherhurdlestowin thebuyersbusiness E.g.,certification 13 PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. Questions? 14 Purchasing? ?and? ?Supply? ?Chain? ?Management, 3rd edition, Copyright © 2013,? ?W.? ?C.? ?Benton? ?Jr., All rights reserved. ... Increasingshortagesofskilledsuppliercapabilitiesandresources PurchasingandSupplyChainManagement,3rdedition,Copyrightâ2013,W.C.BentonJr.,Allrightsreserved. The4PureSupplyManagement Relationships Counterưproductiverelationships