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Supplier Selection: Information Sources, Single vs Multiple Sourcing, and Supplier Development

This chapter explores various potential sources of information for supplier selection, including online sources, catalogs, trade journals, trade directories, visits to suppliers, and more. It also examines the decision of using single or multiple sources, choosing between manufacturers or distributors, and considering the location and size of the supplier. Additionally, the chapter discusses the arguments in favor of single and multiple sourcing, as well as the possibility of utilizing supplier development.

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Supplier Selection: Information Sources, Single vs Multiple Sourcing, and Supplier Development

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  1. Chapter 12 Supplier Selection

  2. Numerous Potential Sources of Information Online sources Catalogs (online and printed) Trade journals Trade directories Visits to suppliers Supplier and commodity databases Sales contacts and interviews Colleagues, networking, professional contacts Your own records

  3. Identification of Potential Sources

  4. Supplier Selection Decisions Should we use a single source, dual sources, or more than two? Should we buy from a manufacturer or a distributor? Where should the supplier be located? Relative to our organization, should he supplier be small, medium, or large? If no supplier can be found, should we use supplier development?

  5. Arguments in Favor of Single Sourcing Exclusivity: The supplier may be only available source patent protection, exclusive distributorship Outstanding quality or service  value Order too small to split Opportunities for discounts or lower freight costs More important customer  more attention from supplier Cost of duplication prohibitive Easier to schedule deliveries JIT, stockless buying or EDI arrangements Focus on one, not many suppliers Prerequisite to partnering

  6. Arguments in Favor of Multiple Sourcing Traditional practice Keep suppliers “on their toes” Assurance of supply Capable of dealing with multiple suppliers efficiently Avoid supplier dependence on one customer Obtain a greater degree of volume flexibility Strategic considerations; e.g., military preparedness Government regulations Limited supplier capacity Opportunity to test a new supplier Supply market volatility

  7. Supplier Development Initiative The Marketing Context Marketing Initiative Supplier Purchaser Supply Response The Supplier Development Context Supplier Purchaser Sales Response Supply Initiative

  8. Three Levels of Supplier Evaluation Level 1 – Strategic Level 2 – Traditional: quality, quantity, delivery, price and service Technical, engineering, manufacturing and logistics strengths Management and Financial Evaluation Level 3 – Current Additional: financial, risk, environmental, regulatory, innovation, social and political

  9. Evaluation of Potential Sources Technical, Engineering and Operations Quality systems and performance Engineering and technical strengths Capacity and flexibility to meet demand (lead time) Process capabilities Management and Financial Mission, corporate culture, values and goals Organization structure and decision-making Management controls, information systems, policies and procedures Qualifications and background of managers Financial analysis; e.g., profit, inventory turns, receivables, current ratio Procurement systems

  10. Formal Supplier Evaluations Quality Price Delivery Service Good Performance Fair Performance Unsatisfactory Performance

  11. Supply Risks and Dollars Extended • Strategic • Continuous availability essential • Custom design or unique specifications • Supplier technology important • Few adequate suppliers • Changing source of supply difficult • Substitution difficult • Bottleneck • Unique specification • Supplier technology important • Production-based scarcity • Substitution difficult • Usage fluctuates • Potential storage risk High Risk Source: Peter Kraljic, Purchasing Must Become Supply Management,” Harvard Business Review, September-October, 1983 • Non-Critical • Standard or commodity type • Substitute products available • Competitive supply market • Leverage • Unique cost management important • Substitution possible • Competitive supply market Low Low Value High

  12. Weighted Point Evaluation Systems Identify suppliers Important suppliers and/or critical goods and services Identify factors or criteria for evaluation Determine the importance of each factor Establish a system for rating each supplier on each factor

  13. Evaluation of Potential Sources: Two Key Questions Is this supplier capable of supplying our requirements satisfactorily in both the short- and long-term? Is this supplier motivated to supply these requirements in the way we expect in the short- and long-term?

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