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Procedure On Selection And Evaluation Of Supplier And Communication With The Supplier

Accordingly, in procuring a variety of materials, services, and types of equipment, a purchasing department is likely to pursue several purchasing strategies at once. Selection and management of the right supplier is the key to obtaining the desired level of quality, on time, and at the right price; the necessary level of technical support; and the desired level of service. Buyers must take six important supplier-oriented actions in order to satisfy this responsibility. 1. Develop and maintain a viable supplier base 2. Address the appropriate strategic and tactical issues 3. Ensure that potential suppliers are carefully evaluated and that they have the potential to be satisfactory supply partners 4. Decide whether to use negotiation as the basis of source selection 5. Select the appropriate source 6. Manage the selected supplier to ensure timely delivery of the required quality at the right price.

The Process Of Supplier Selection:

Supplier selection is central to the work of all buyers, and is probably the most important function in the purchasing process. The need to identify and select a new supplier can arise from a number of reasons. A source used in the past may have gone out of business. Its price may have risen unreasonably or its quality slipped to unacceptable levels. Its technology may be outdated.
Sources of Supplier Information
Published Sources Internal Sources Personal Contacts International Source

Candidate List

Formulation of Selection Criteria Information from Market Research

Elimination of Unqualified Candidates

Preliminary Screening

Identification of Qualified Candidates

Financial Information

Detailed Study Selected Supplier

Rejected Suppliers

Supplier Visits

Non-approved Suppliers Approved Supplier List

Whatever the reason for a supplier search, purchasing managers go through an important and complex selection process to identify and obtain the source best suited to satisfy the firms requirements. It begins with a scan of available information sources and finishes with the selected supplier to the firms approved suppliers list. In most cases, where such decisions are made, the selection process is comprehensive. Included among the criteria used by one company was the requirement that the supplier should have the 'necessary capabilities and experience' was viable in the longer term financially, technically, and in production terms; would be able to participate in the early phases of product design and development as a full partner in the process; would openly share information on the functional, assembly and the services requirements of parts, including cost and quality targets; would be orientated towards taking cost out of product and improving total system performance to mutual benefit; would be able to develop prototypes as well as manufacture volume production; would be prepared to agree to cost structure targets; would work with the buying company so as to increase their flexibility in meeting changing demands and operate on a pull rather than a push basis, in the process, reducing their own wastes such as inventory holding, unnecessary inspection and excess work in progress as well as those of the buying company. Another multinational company, seeking partner suppliers of the same kind, formulated the following criteria. The supplier should have: Sound business sense and attitude. A good track record in supplying the market in which the buyer operates (or similar). A sound financial base. A suitable technical capability with modern facilities. A total quality orientation. Cost effective management. Effective purchasing acquisition and control. Good morale among the workforce. Effective logistical arrangements. A customer service mentality.

Once the selection criteria have been established, exploratory information is collected in an informal fashion to weed out obviously unqualified supplier candidates early in the process. Properly executed, a supplier selection process is expensive and time consuming. Exploratory information will come primarily from published sources and a few phone calls to well-informed persons within the organisation, or in other firms.

Careful weighing of the evidence by the team members then produces a winner, who is subsequently added to the firms approved supplier list. Common courtesy requires that the losing suppliers be notified about the selection decision and be given reasons for their rejection.

Supplier Evaluation:
The organisation (buyer) is in a much better position to evaluate an existing supplier, based on his past performance than is the case with a new supplier. The techniques and methods of this evaluation usually tend to concentrate on performance in regards to different factors. Task variables which determine the choice of supplier are traditionally stated as: quality, quantity, timing, service, and price. Good management is also important. Well managed suppliers improve methods, reduce costs, develop better products, deliver on time, have fewer defective products, and build high morale in their workforce.If the supplier's establishment is to be visited for evaluation purposes, most purchasers prepare in advance a checklist to remind investigators of what to look for and to record their findings. Many firms use multiple page checklists, asking many questions. Finally, the supplier is evaluated for named products or processes as fully approved, approved, conditionally approved, or unapproved. Variations of the checklist approach are legion, and changes and improvements are incorporated as the needs of the organisation change. Typical checklist questions are: Do they trade with our competitors Are confidential documents properly controlled? Does the buyer have technical support? How do they search the market and how often? How long have they been established? What are their investment plans? The contents of such checklists are devised to suit individual requirements. For checking the quality capability of a supplier it is, however, possible to standardise checklists. The international company Gorenje has different factors for evaluating the existing domestic and international suppliers. The most important are: 1. 2. 3. 4. 5. 6. 7. 8. 9. Quality of purchasing materials Delivery schedules Price Terms of payment Confirmation of the purchase order Packaging Standardisation Location of plant Services

Suppliers are evaluated for all these factors. The scoring system is 0-5 points for the first five factors and 0-3 points for the next five factors. Total possible points are 40. 0 - 15 points - supplier not accepted, 16-30 points - supplier accepted conditionally 31-40 points - supplier accepted SUPPLIER: On time Delivery 5 Excellent Quality 5 The lowest Price 5 Terms of payment 90 days 5 For all materials 5 Confirmation the Purchase order Standardisation 3 Excellent Services 3 To specification 3 2 Sometimes to spec. 2 1 Not to specification 1 2 Good 1 Poor 4 75 days 4 For most materials 4 Always 3 Always 3 60 days 3 For some materials 3 After urge 2 Sometimes 2 Letter of credit 2 In procedure No attest to get 1 2 Never 1 Never 1 Less then 60 days 1 4 Low 3 Average Earlier 4 Good 1x delay 3 Acceptable 2x delay 2 1x reclamation 2 High More delay 1 2x reclamation 1 The highest



0-100 km Location of supplier 3

101- 500 km 2

More than 500 km 1

TOTAL POINTS: On the basis of these factors, the evaluated supplier is accepted or rejected. Evaluation for all suppliers must be at least once a year.

CommunicationWith Supplier:
1. Tell about your projects and changes in time The supplier has time to organize things and to reserve the necessary resources and capacity. 2. Use communication channels, methods and methodology agreed on Suppliers have their reasons to use agreed channels. Suppliers process is built around these channels. 3. Train and meet with suppliers operational staff Get to know them personally and working with them will be easier in the future. 4. Communicate changes that is made in-house or by a third part It is better to hear about changes from the customer than find out it itself and use unnecessary time for the settlement. Sometimes you need to made changes very quickly, but remember to inform every time you can. 5. Prioritize and rush the supplier only when there is a real need for it The supplier shall retain supervision and systems to prioritize work. Do not hurry every meaningless ticket, remember the big picture. This will guarantee that you will get help when you need it sorely. 6. Publish a summary of your annual report to strategic suppliers Strategic account managers should already be dissecting customers annual reports and quarterly statements, however in my experience only a minority do. So why not proactively notify your top suppliers that the new annual report and/or quarterly statement is available. If you can spare the time highlight the sections which are most relevant to the suppliers. The outcome should be a more informed supplier base with an understanding of your current business strategy and the business environment. These communications would be best sent on behalf of the Chief Procurement Officer. 7. Communicate your organisations definition of supplier innovation and innovation strategy For suppliers to deliver your business innovation, they need to know what innovation specifically means to your organisation. This can be achieved by defining and sharing your organizations definition of supplier innovation, innovation strategy and workflow. This way suppliers can understand your internal processes and where they fit in. I would suggest the communications always be sent from the Chief Procurement Officer (CPO) and where possible with a comment from the CEO on the importance of innovation and the suppliers contribution.

8.Publicise supplier innovation success stories With the definition of supplier innovation and innovation strategy communicated, its time to share the success stories. An email and/or one page pdf explaining how your business worked with a supplier, bringing new innovation into the business will do wonders for driving others to do the same. Where possible try to spread the case studies across different categories of supplier innovations and also supplier categories. These success stories should also be linked into your supplier awards, but be careful not to make the sharing of these innovation case studies an annual event as innovation needs to be seen as an ongoing process. Monthly or bimonthly case study reminders will show your companys commitment to the supplier innovation programme, and the internal ability to take the ideas to execution. These communications should come from the Supplier Innovation lead and/or CPO. Where possible other senior executives from your business should provide comment on what the innovation has brought to the business, so suppliers understand the contributions and are recognised and valued beyond the procurement function. This, ultimately, gives more strength and backbone to your cause. 9. Share your future product roadmap Where possible share your future roadmap and changes in strategy. As with the annual reports the more the supplier knows about your future business direct, the more chance they will be able to support and innovate your business. Where these communications are delivered from, will be specific to the case in hand, but you need coordination of the team to ensure continuity. 10. Create a monthly supplier newsletter As the supplier communications become more of a habit, why not try producing a monthly newsletter to your top suppliers. The content of the newsletter should include; Relevant company press releases & articles where with contribution from your senior executives Articles related to business environment which will affect your own organisation Updates on changes of personal or roles within the procurement and other functions that will be relevant to the suppliers The effort to formalise a supplier communication as above is not a small ask, however increased trust and openness provided to your suppliers should show a considerable increase in volume of supplier innovations.

Purchasing is an essential business function that should make the same level of contribution to a firms success as the other major business functions. Purchased materials consume more than a half of the average manufacturing firms sales revenue. There is no doubt that the most important purchasing decisions are concerned with selecting the right sources of supply. If the correct source decision is made in a particular instance, then the buying companys needs should be met perfectly. Finally, the buyer should evaluate developments in the suppliers performance. The objective of supplier assessment is to determine the extent to which a particular supplier will be able to meet his delivery obligation, both now and in the future.