Chapter 12
Supplier Selection
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Key Questions Addressed in
Chapter 12
• How can the supply professional match the
organization’s needs to what the market can
supply?
• Which supplier(s) should be selected?
Identification of Potential Sources
1. 2. Can a Current 3.
Can We Supplier No Find Potential
Make In-House? Meet? New Supplier
Yes No
No One Two or More
Yes Supplier Supplier Suppliers
Can Meet Can Meet Can Meet
Make Buy
One Two or More Can We Use
Supplier Suppliers Supplier
Can Meet Can Meet Development to
Create Supplier?
Yes
Yes No
Can We Make Can We
In-House? Redesign/Re-specify
No so that Yes
Existing or New Supplier
Can Meet?
Rethink
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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 the supplier be
small, medium, or large?
• If no supplier can be found, should we use supplier
development?
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Supplier Development Initiative
The Marketing Context
Marketing Initiative
Supply Response
Supplier Purchaser
The Supplier Development Context
Sales Response
Supplier Purchaser
Supply Initiative
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Key Supplier Evaluation Question
• Is this supplier able to supply the purchaser’s
requirements satisfactorily?
– strategically and operationally
– in the short and long term
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
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Formal Supplier Evaluations
• Quality Good Performance
• Price
• Delivery
Fair Performance
• Service
Unsatisfactory Performance
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Supply Risks and Dollars
Extended
Bottleneck Strategic
• Unique specification • Continuous availability essential
High • Supplier technology • Custom design or unique
important specifications
• Production-based scarcity • Supplier technology important
• Substitution difficult • Few adequate suppliers
• Usage fluctuates • Changing source of supply difficult
• Potential storage risk • Substitution difficult
Source: Peter
Risk
Kraljic, Purchasing
Must Become
Supply
Non-Critical Leverage Management,”
• Standard or commodity type • Unique cost management important Harvard Business
Review,
• Substitute products available • Substitution possible September-
• Competitive supply market • Competitive supply market October, 1983
Low
Low Value High
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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 to rate each supplier on each
factor
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Evaluation of Potential Sources:
Two Key Questions
1. Is this supplier capable of supplying our
requirements satisfactorily in both the short-
and long-term?
2. Is this supplier motivated to supply these
requirements in the way we expect in the
short- and long-term?
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