1December 14, 2006Identifying Preferred Suppliers A Training Tool on Supplier Selection By Kira Connell Bus M 361

2December 14, 2006Identifying Preferred Suppliers What Will Be Covered 1.Supplier Selection Defined 2.Brainstorming Exercise: How Can This Tool be Used in Your Organization? 3.Important Criteria in Supplier Selection 4.Application: Supply Base Reduction 5.Example and Exercise for Supplier Selection

3December 14, 2006Identifying Preferred Suppliers Supplier Selection Defined Supply chain: “a network of manufacturers and service providers that work together to convert goods from the raw materials stage to the end user” (Bozarth and Handfield, 4) Supplier: an entity that supplies goods or services ; network of suppliers combine to form a supply chain Supplier selection: the process of identifying and choosing an appropriate supplier

4December 14, 2006Identifying Preferred Suppliers Brainstorming Exercise Why is a reliable and quality supplier important to your organization? What are the major effects of a poor supplier on your business? How does this affect the final customer?

5December 14, 2006Identifying Preferred Suppliers Ray Carter’s 10 C’s to Supplier Selection Competency Capacity Consistency Control of process Cost/price Commitment to quality Cash/finances Clean Culture and relationship Communication

6December 14, 2006Identifying Preferred Suppliers Competency Supplier must have core skills associated with the goods or services they are providing Look for the following: –Internal systems to ensure competence/effectiveness –Appropriate number of staff in each skill area –Adequate supervision ratio of managers to employees

7December 14, 2006Identifying Preferred Suppliers Capacity Supplier must have sufficient resources to provide adequate amount of goods or services Look for: –Flexibility in volume changes –Percent of annual turnover your contracts comprise –Subcontracting

8December 14, 2006Identifying Preferred Suppliers Consistency Supplier should consistently provide accurate, timely, and quality products Consider the following: –Does the supplier have adequate facilities and updated technology? –Does the vendor frequently ask for concessions or require rework? –Is the supplier ISO 9000 certified?

9December 14, 2006Identifying Preferred Suppliers Control of Process Supplier must have control over the systems and people that control resources, inventory, budgets, and processes Assess whether: –The vendor can adapt these systems when necessary –The supplier monitors actual performance against the process –The vendor has a corrective program in place

10December 14, 2006Identifying Preferred Suppliers Cost/Price Supplier should provide their goods or services at a competitive and reasonable price Also consider: –Payment and interest terms –Additional costs –An unusually low price which may indicate a misunderstanding of the scope of the work or an intention to cut corners on quality or safety

11December 14, 2006Identifying Preferred Suppliers Commitment to Quality Supplier should be committed to providing a quality product Also look for: –Management inspections, quality control standards, evaluation mechanisms –Operating and maintenance instructions, quality plans, certificates of conformity –Service record with other buyers

12December 14, 2006Identifying Preferred Suppliers Cash/Finances Supplier should have sufficient cash funds to ensure that it will remain in business Look for: –A company’s financial records and ratios –Evidence of having “a challenging year” or “a year of consolidation” –Willingness to provide a financial guarantee

13December 14, 2006Identifying Preferred Suppliers Clean A supplier should be environmentally sound and a safe workplace Look for evidence of: –Compliance with government regulations –Accident statistics –Regular safety inspections –Safety awards

14December 14, 2006Identifying Preferred Suppliers Culture and Relationship Supplier should be able to match the requirements of your contract Consider: –Is the supplier committed to an open working relationship built on trust? –Does the contractor understand what benefits you are seeking and what value they can add? –Is the contractor able to work within your cultural barriers?

15December 14, 2006Identifying Preferred Suppliers Communication Supplier should be fully integrated with information and communication technology Look for: –Whether the company has the technology to immediately receive information regarding changes in an order

16December 14, 2006Identifying Preferred Suppliers Supply Base Reduction Defined as “the process of and activities associated with reducing the number of suppliers that an organization utilizes” (Odgen, 30) Many companies now using supply base reduction as a method to improving supplier selection

17December 14, 2006Identifying Preferred Suppliers Pros/Cons of Supply Base Reduction Pros –Closer relationship with supplier –Easier to communicate –More reliable Cons –Prevents competition which may raise prices –Less flexibility in volume

18December 14, 2006Identifying Preferred Suppliers Real World Example: Harley-Davidson Example of effectiveness of supply base reduction –Reduced its less-than-truckload (LTL) carrier base from 68 to 7 –Trimmed $1.5 million in transportation costs –On time performance up 2.5 percent –Service failures substantially reduced

19December 14, 2006Identifying Preferred Suppliers Practical Exercise Assignment: break up into groups of 4-5 students and rank the four suppliers you are given, identifying the preferred supplier Instructions: –Consider the following five suppliers –Identify most important criteria for supplier selection –Rank each of the five suppliers based on criteria and justify reasons for preferred supplier Note: you manufacture wooden tables and chairs and are looking for a vendor to supply wood

20December 14, 2006Identifying Preferred Suppliers Suppliers for Practical Exercise Supplier #1: good cost and quality; bad consistency and control Supplier #2: good consistency and capacity; bad quality Supplier#3: good competency and cash; bad cost and culture Supplier #4: good clean and communications; bad cash

21December 14, 2006Identifying Preferred Suppliers Discussion Q’s for Exercise Which supplier is preferred and why? Should your organization consider using more than one of the suppliers? What effect does the industry have on which criteria you consider most important? What are the pros and cons of having a limited number of suppliers? Of having multiple suppliers?

22December 14, 2006Identifying Preferred Suppliers Summary Identifying and selecting preferred suppliers is an objective process –There is no formal solution or process –There are important criteria that can be used to help identify the best supplier –Using these criteria still involves value judgment

23December 14, 2006Identifying Preferred Suppliers Readings Introduction to Operations and Supply Chain Management, by Cecil C. Bozarth and Robert B. Handfield, Pearson Prentice Hall, 2006 Making the Right Choice, by Alan Oxenbury, Supply Management, July 2006 The Final Countdown, by Alan Oxenbury, Supply Management, August 2006 How Many ‘C’s in Partner?, by Neil Fuller, Supply Management, September Supply Base Reduction: An Empirical Study of Critical Success Factors, by Jeffrey A. Ogden, Journal of Supply Chain Management: A Global Review of Purchasing & Supply, November 2006.