Identifying Preferred Suppliers

1. Identifying Preferred Suppliers A Training Tool on Supplier Selection By Kira Connell Bus M 361 Identifying Preferred Suppliers

2. What Will Be Covered • Supplier Selection Defined • Brainstorming Exercise: How Can This Tool be Used in Your Organization? • Important Criteria in Supplier Selection • Application: Supply Base Reduction • Example and Exercise for Supplier Selection Identifying Preferred Suppliers

3. 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 Identifying Preferred Suppliers

4. 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? Identifying Preferred Suppliers

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

6. 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 Identifying Preferred Suppliers

7. 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 Identifying Preferred Suppliers

8. 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? Identifying Preferred Suppliers

9. 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 Identifying Preferred Suppliers

10. 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 Identifying Preferred Suppliers

11. 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 Identifying Preferred Suppliers

12. 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 Identifying Preferred Suppliers

13. 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 Identifying Preferred Suppliers

14. 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? Identifying Preferred Suppliers

15. 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 Identifying Preferred Suppliers

16. 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 Identifying Preferred Suppliers

17. 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 Identifying Preferred Suppliers

18. 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 Identifying Preferred Suppliers

19. 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 Identifying Preferred Suppliers

20. 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 Identifying Preferred Suppliers

21. 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? Identifying Preferred Suppliers

22. 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 Identifying Preferred Suppliers

23. 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 2005. • 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. Identifying Preferred Suppliers