2. Agenda
Importance of Supplier Selection
Supplier Selection Process
Benefits of Supplier Selection Process
Supplier Evaluation Criterias
Supplier Evaluation Methods
CASE STUDY
CONCLUSION
3. Importance of Supplier Selection
One of the most important processes performed in
organizations today is the evaluation, selection and
continuous measurement of suppliers.
Selecting a vendor is now as important a process as
developing new products.
4. Importance of Supplier Selection
Supplier selection process is a multi-criteria problem,
which includes both qualitative and quantitative factors.
Relatively small cost reductions gained in the acquisition
of materials can have a greater impact on profits.
A sound supplier selection decision today can
reduce a host of problems tomorrow
5. Supplier Selection Process
Steps in Supplier Selection Process
Evaluating Needs and Defining Objectives
Gathering a Limited Pool of Vendors
Interviewing with Vendors
Selecting and Applying the Method
6. Evaluating Needs and Defining Objectives
What need you are looking to satisfy?
Increase product quality
Which evaluation categories you will use?
What are your business, technical and usability requirements?
What are the must requirements?
Max price, min performance, etc
How will you score the requirements?
7. Gathering a Limited Pool of
Vendors
Evaluating all potential vendors takes
much time
Basic screening and elimination due to
lack of must requirements
8. Interviewing with Vendors
One by one interview with vendors
Gap analysis between your requirements,
objectives and vendor properties
Scoring each criteria
9. Benifits of vendor rating system
Helping minimize subjectivity in judgment and make
it possible to consider all relevant criteria in assessing
suppliers.
Providing feedback from all areas in one package.
Facilitating better communication with vendors.
Providing overall control of the vendor base.
Requiring specific action to correct identified
performance weaknesses.
Developing a performance-based culture.
10. Supplier Evaluation Criterias
The evaluation criterias are fundamental to choose the
best supplier. They are specific to each firm, because
they vary according to the needs.
The criteria exposed are the most common ones.
Six categories of criteria selected
11. Supplier Evaluation Criterias
The six classes for the suppliers’evaluation
Measurement:
FINANCIAL HEALTH
EXPERTISE
OPERATIONAL PERFORMANCE METRICS
BUSINESS PROCESSES & PRACTICES
ENABLING BEHAVIORS OR CULTURAL
FACTORS
RISK FACTORS
12. Financial Health
In order to evaluate if a potential supplier is in good
financial position, a buyer can use indicators such as:
Sales
Profitability
Liquidity
Transparency of finances
13. Expertise
The purchasing department of the firm should choose
its suppliers according to its capabilities:
Network capabilities
Quality and production capabilities (dedicated
level?)
Technical level compared to sector average
Spread of technical creation
Investment in R&D
14. Operational Performance
There are a large number of criteria in this category,
such
as:
On-time delivery
Lead time
Responsiveness
Inventory management and control: reorder
management, forecasting capabilities…
Order acceptance, processing & fulfillement
Customer service
Preventive maintenance
Hours of operators training in Total Quality Control
(TQC) or JIT
15. Business Processes and Practices
How does supplier provide a product or service at the
best value, on time and exactly as required from the
buyers?
Best practice and quality based information.
This evaluation business can help get at the root causes of
supplier problems.
16. Behaviors and Cultural factors
The evaluation criteria of such a category focus on the
long term sustainability of potential suppliers:
What is the improvement culture of the supplier?
Are his information capabilities always up-to-date?
What is his intention of coordination?
17. Risk Factors
A supplier’s risks are risks for the buyer. Indeed, if a
supplier takes too much risk, it can have a great impact on
his customer.
Risk factors can be uncovered in the previous criteria
exposed, but also in criteria such as: trade relations,
currency exchange, insurance, legislations.
18. Criteria Selection
In reality, these mesures of supplier performance are
difficult to obtain (financial publications,
questionnaires, surveys, site visits).
Whichever criteria chosen, the assessment system
must be optimal for good decision making.
19. Selecting and Applying the Method
Select one among various methods
THE CATEGORICAL METHOD
THE WEIGHTED POINT METHOD
THE COST-RATIO METHOD
Calculate overall vendor score using selected
method
Select the vendor with best score
20. The Categorical Method
Basically, it is a procedure whereby the buyer relies on
a historical record of supplier performance.
Initially, a list of evaluation criteria is identified.
The buyer then assigns a grade to each supplier, for
each criterion, based on past experience.
A simple marking system of plus, minus, and neutral
grades may be used.
Evaluation lists are often provided to other
departments involved, such as quality control,
engineering, production, and receiving
21. The Categorical Method
Vendors with composite high or low ratings are noted,
and future supply decisions are influenced by them.
Although this system is non-quantitative, it is a means of
keeping systematic records of performance.
It is also inexpensive and requires a minimum of
performance data.
However, the process relies heavily on the memory and
judgment of the individuals providing the ratings, and the
ratings may become routinely performed without much
critical thought
22. The Weighted Point Method
Weighted-point method quantifies the evaluation criteria.
A number of evaluation factors can be included, and their
relative weights can be expressed in numerical terms so that a
composite performance index can be determined and supplier
comparisons made.
For example, following evaluation criteria have been chosen:
quality of shipments, accuracy of delivery, and price.
Assuming that quality and delivery are the most significant, a
point rating system such as the following might be used:
quality, 40 points; delivery, 40 points, and price, 20 points.
23. The Cost-Ratio Method
The cost-ratio method relates all identifiable purchasing
costs to the value of the shipments received from the
respective suppliers.
The higher the ratio of costs to shipments, the lower the
rating for that supplier.
What cost categories are used depends on the products
involved.
Quality, delivery, service, and price are the overall
categories, and respective costs are accumulated for each.
24. The Cost-Ratio Method
For example, costs associated with quality normally
include
the costs of unusual visits to a vendor's plants,
unusual inspection costs of incoming shipments,
and
all costs associated with defective products,
including rejected parts and the resulting
manufacturing losses.
25. The Cost-Ratio Method
Vendor__________________________ January, 20__
Visit to vendor plant 200
Sample approval 300
Incoming inspection 75
Manufacturing losses 0
Reworking costs 0
Value of rejected parts 425
Other 9
Total costs 1,000
Total value of purchases 100,000
Quality cost ratio:
(total cost / purchases) 1%
26. Case study
This study was conducted on pressure die-casting ancillaries
supplying common parts to a light engineering industry situated
near pune. The study aimed to find out best vendors from present
four,
ASK , RAJ ,BIRARI and , PATEL. to chose best 1
As product being seasonal, ancillaries do not get sufficient
business during off-season. Criteria for evaluation were cost,
quality, schedule adherence, system adaptability and general
cooperation
28. Supplier 1= (0.46*0.48) + (0.30*0.24) + (0.14*0.12) + (0.11*0.16) = 0.32
Supplier 1 0.32
Supplier 2 0.35
Supplier 3 0.34
Supplier 4 0.29
Result – According to the previous results, the higher weight belongs to
supplier 2,and is judge to be the best overall
29. CONCLUSION
Choosing the best vendor from a group of qualified
service providers can be a daunting task. Determining
specific requirements in advance and communicating
factors for success with potential providers creates an
equitable and decisive way to subjectively make a
decision
