SUPPLIER SELECTION

Supplier selection is the process by which firms identify, evaluate, and contract with suppliers. The supplier selection process deploys a tremendous amount of a firm’s financial resources. In return, firms expect significant benefits from contracting with suppliers offering high value. This article describes the typical steps of supplier selection processes: identifying suppliers, soliciting information from suppliers, setting contract terms, negotiating with suppliers, and evaluating suppliers. It highlights why each step is important, how the steps are interrelated, and how the resulting complexity provides fertile ground.

Importance of new suppliers

Several factors make new suppliers important. First, there may exist new suppliers that are superior in some way to a firm’s existing suppliers. For example, a new supplier may have developed a novel production technology or streamlined process which allows it to significantly reduce its production costs relative to predominate production technology or processes. Or, a new supplier may have a structural cost advantage over existing suppliers, for example, due to low labor costs or favorable import/export regulations in its home country.Second, existing suppliers may go out of business, or their costs may be increasing. Third, the buyer may need additional suppliers simply to drive competition, reduce supply disruptionrisks, or meet other business objectives such as supplier diversity.In recognition of these reasons, buyers and their internal customers may be obliged by company policy to locate a minimum number of viable, potential suppliers for every product or service procured.

Information requests to suppliers

Once the buyer has identified potential suppliers, the next step in supplier selection is to formally request that the suppliers provide information about their goods or services. While there is no agreed-upon terminology, generally the buyer makes one of three types of information requests to suppliers. The request types, each appropriate for a different situation, are described below.

Request For Information (RFI) :

 is issued when the buyer seeks to gain market intelligence regarding what alternatives and possibilities are available to meet the buyer’s needs.Typically the buyer asks suppliers what goods and services they could potentially provide,what differentiates them from other vendors in the marketplace, etc. With an RFI the buyer does not state a particular intention to award a contract. However, since responding to an RFI is time-consuming for suppliers, generally suppliers will only respond to the RFI if they expect that the buyer will eventually issue an RFP or RFQ, which is discussed below.

Request For Proposal (RFP) :

 is issued when the buyer has a sense of the marketplace and has a statement of work which contains a set of “performance” requirements which it needs fulfilled. For example, the RFP may describe a formed part with certain strength, flexibility, and fire resistance requirements, but not specify the particular composition of the material. Suppliers respond to the RFP with details on how they would satisfy the buyer’s performance requirements and the price they would be willing to accept to do so.

Supplier Evaluation

                          Supplier Evaluation

    

    Supplier evaluation is a term used in business and refers to the process of evaluating and approving potential suppliers by quantitative assessment. The purpose of supplier evaluation is to ensure a portfolio of best in class suppliers is available for use. Supplier evaluation is also a process applied to current suppliers in order to measure and monitor their performance for the purposes of reducing costs, mitigating risk and driving continuous improvement.

    Supplier evaluation is a continual process within purchasing departments and forms part of the per-qualification step within the purchasing process; although in many organizations it includes the participation and input of other departments and stakeholders. Most experts or firms experienced in collecting supplier evaluation information prefer doing so using five-step processes for determining which to approve. Their processes often take the form of either a questionnaire or interview, sometimes even a site visit, and includes appraisals of various aspects of the supplier's business including capacity, financials, quality assurance, organizational structure and processes and performance. Based on the information obtained via the evaluation, a supplier is scored and either approved or not approved as one from whom to procure materials or services. In many organizations, there is an approved supplier list (ASL) to which a qualified supplier is then added. If rejected the supplier is generally not made available to the assessing company's procurement team. Once approved, a supplier may be reevaluated on a periodic, often annual, basis. The ongoing process is defined as supplier performance management.

      There are various benefits associated with an effective supplier evaluation process such as mitigation against poor supplier performance or performance failures. The benefits typically include sourcing from suppliers that provide high standards of product and service levels whilst offering sufficient capacity and business stability. Supplier evaluation can help customers and suppliers identify and remove hidden cost drivers in the supply chain. The process of evaluating performance can motivate suppliers to improve their performance.

     Associated challenges with supplier evaluation include resource and cost commitments in establishing and maintaining a robust and effective system, challenges with specifying and gathering meaningful and relevant information, data integrity, scorecards that do not get at the root causes of supplier problems, and subjective or inconsistent scoring which may result in inaccurate assessment. Another challenge is making sure that evaluation of current suppliers goes beyond measurement to actual performance improvement by providing feedback to suppliers on their performance and working on continuous improvement opportunities. Thus, management commitment to and support of a supplier evaluation process is essential.

      Some of the challenges associated with supplier evaluation may be mitigated by the use of appropriate tools. For simple projects a spreadsheet can be used. But as evaluations become more complex or more frequent data management and data integrity issues become significant. Web Electronic REP / Tendering systems are often used for initial selection projects. Some products provide functionality for combining both initial selection and ongoing evaluation and bench-marking.

Collaborative Logistics

Understanding Collaborative Logistics - What You Need To Know

        

    Collaborative logistics is said to be achieved when two or more organizations enter into a partnership for the purpose of optimization of operations related to transportation by sharing of equipment, vehicles, information or carriers to reduce the costs and overcome situations when the carrier that contains their concerned shipment is almost empty or at less-than-usual capacity. It is also beneficial for controlling inventories and thereby eliminating stock-outs that are likely to impact customer service.

The modern day collaborative logistics are powered by state-of-the-art advanced electronic media and software systems which help organizations with the expansion of these networks on a big scale. This is believed to be the best of both worlds as there is a flow of information, resources, service providers and saving of money.

         Nowadays, organizations are forming traditional and web-based partnerships with an aim to lower the transportation costs along with reducing inventories and thereby raising the existing levels of customer service. Collaborative logistics is meant for fostering new, innovative and different solutions for business problems and acquiring new businesses. It can be of optimal use when it is effectively executed to derive high efficiencies in supply chain, while also lowering costs and placing the trading partners in a better position by providing them with flexibility for addressing variances in the demands of their customers.

      

      The current highly competitive business environment encourages organizations to switch to collaborative logistics, which benefits them by raising collective visibility between the transportation service providers, vendors and organization for the purpose of realizing the goals of supply chain in an optimal way.

      Collaborative supply chain trading partners must together decide on the selection of the proper infrastructure and systems. This may include an existing system or a collaborative system or the services of a third-party service provider to successfully plan and implement these systems. The evaluation of cost is vital in order to insure that all trading partners perceive equity and to make sure that the costs do not in any way exceed the projected benefits of the shared logistics.

   

      This approach to logistics is slowly and steadily becoming the perfect choice to doing business for many organizations formerly wedded to the traditional logistics approach. It usually involves utilization of logistical planning software tools for benefiting organizations to re-engineer their existing domestic and international supply chains with regard to transportation.

      This method facilitates breaking down of the barriers that supposedly exist between the supply chain partners. Only an effective and efficient flow of real-time information between the trading partners can effectively remove these barriers. Logistics technology can considerably improve collaboration and provide effective management of supply chain by providing efficient flow of promotional plans and real-time load data, thereby allowing the use of collaborative logistics to lead to the achievement of cost reduction and efficiency in the supply chain.

supply chain

Why it pays for manufacturers and retailers to work together throughout the supply chain.

                               When consumers requested specific products, retailers didn't always pass along the information to suppliers, in part because the adversarial relationship that had developed between major retailers and CPG manufacturers wasn't conducive to it. Controlling the flow of information as well as the shelf space allowed retailers to maintain the upper hand, while manufacturers had to glean consumer insights on their own. But the advent of technology and a prolonged slow-growing economy are encouraging a new mindset. Increasingly, retailers and manufacturers are collaborating throughout the supply chain, though most experts say plenty of work still lies ahead.

         "There's a huge need for [collaboration]," says Steven Gold, managing director at Alvarez & Marshal, a global professional services firm with offices in Chicago. While CPG manufacturers might meet with retailers to discuss ways to innovate together for improved efficiency or to meet consumers' needs, most companies are too busy managing day-to-day operations to act on the ideas, says Gold, who is also a former chief supply chain officer at Peps i Co. "The idea of strong collaboration with retailers is something nice to talk about, but very few do it well?"

      Even when some participants say they're willing, collaboration often requires a dose of change management. "Global CPG and retail companies find it difficult to deploy the new processes and systems across the chain because of chain management and training factors," says Niles Auti, general manager of the CPG and manufacturing industry group at Mind Tree, an IT and product engineering services company with offices in Warren, N.J., and Bangalore, India. "While new IT solutions are promising to add value, adaptation and deployment at a fast pace is a challenge," Auti says.

      But taking time out to implement a collaborative logistics program might be the most effective use of a company's resources. In fact, companies that encourage participants throughout the supply chain to work toward the same goals managed to grow during the recession, according to a 2010 report by Kurt Salmon for the Trading Partner Alliance, a joint industry leadership group formed in January 2009 by the Grocery Manufacturers Association and the Food Marketing Institute.

Logistics and supply chain management.

       Are logistics and supply chain management the same thing?

Transportation, logistics, supply chain management, materials handling, and inventory control continue to evolve. This evolution has created cross-fertilization among these functions, driven by factors both conceptual matching demand to supply and technological an enhanced ability to communicate and collaborate.

This cross-fertilization has also blurred the definition of some terms. For example, is logistics the same thing as supply chain management?

People working in different functional areas of logistics often define supply chain management (SCM) as it relates to what they do. A recent survey of Inbound Logistics readers supports this. Some respondents say SCM is the same old thing with a new handle, while others note it is more encompassing than logistics.

Many logistics veterans believe we have progressed from transportation to physical distribution to logistics to supply chain management. By contrast, purchasing managers have evolved their thinking from purchasing management to procurement and now to supply management (SM). Some couch supply management as SCM. Others don't want to give up the term purchasing, and now refer to this functional area as purchasing and supply management.

Manufacturing professionals hold yet another perception of SCM: as the task of allocating and committing resources for obtaining necessary supplies and capacity, handling, and positioning products to meet customer demands. MRP and ERP systems now address resource commitments that go beyond manufacturing to include other enterprise and supplier resources, ultimately directed to satisfying customer demands with limited and efficient use of resources.

Other departments in the company also wonder about SCM and its orientation. In marketing as well as the broader functionality that includes business and consumer research, promotions, and sales SCM addresses the needs and market potential of not only immediate customers and consumers who buy products and services, but also end users. Naturally, market research analyses of end product usage are extremely important.

Many professionals perceive SCM in terms of a conceptual flow model, with goods flowing from the beginning source of raw materials to their end use. Within this context, my peers and I define SCM as "the integration of processes composed of materials, services, information, and cash within a company and in a network of companies or organizations that manufacture and deliver products and services from initial sources to end users."

By its nature, SCM encapsulates inter-enterprise, cross-functional processes that target end users of products and services. It requires integrated teams who are open and trustful in their value engineering and activities analysis.

Initially, logistics practitioners focus on supply chain applications that interface with immediate customers, suppliers, and intermediaries. Economic functional "activity" trade offs are analyzed in terms of who can best perform functions that are for the good of all trading partners. The long-term vision is inter-enterprise teams working seamlessly across all functions and activities to meet end user needs

Risk in purchasing

Risk management, a subject on which CIPS has developed a separate practice document, are techniques that can be applied separately or together to ensure that contracts are successful. CIPS encourages all purchasing and supply management professionals to constantly exercise a ‘what-if’ in relation to the procurement of goods, services or works. The ‘what-if’ mind-set will enable purchasing and supply management professionals to determine the potential outcome of risk management by testing assumptions, propositions and approaches under consideration.

For undertake risk management, the purchasing and supply management professional should have:

• Knowledge of the risk management techniques available

• An analytical mind-set

• Objectivity

• Confidence to ask the right questions

• Knowledge of their employer's business and market.

Like many skills, effective risk management improves with experience and so, with practice, knowing how far to analyses and assess risks will become easier, if not intuitive.

 Organizations are increasingly aware of the importance of managing risk and high profile reports such as that by Turnbull, September 1999 (Internal Controls: Guidance for Directors on the Combined Code) have contributed to the interest. CIPS believes that purchasing and supply management professionals can add value to any risk management process within an organization, whether or not it is directly related to purchasing and supply management.

This practice document has stated that risk management is another invaluable technique; CIPS believes that an awareness of risk should be regarded as a positive trait in the successful buyer - it needs to be seen not as an expectation that things will go wrong but rather as alertness to the fact that they might do so, coupled with an readiness to take positive steps to prevent undesirable outcomes.

CIPS recognizes that not all buyers are equal. Significantly, the skills and competencies identified in this policy a being necessary for the management of risk are generally viewed as being of pivotal importance in other areas of purchasing and supply management.

Risk from the Viewpoint of the Supplier

If the supplier perceives risk to be high he will naturally build in extra safety and extra margin. An effective buyer will try and identify and ameliorate areas of concern. Often this can be done in discussion with the supplier and involves little if any cost or compromise on behalf of the buyer.

the purpose of logistics

The purpose of logistics

 

Logistics is the art and science, goods, energy, information and other resources, such as products, services, and people, from the source of production to the market with the aim of to optimize the use of capital. Manufacturing and marketing will be difficult to do without logistical support. Logistics also includes the integration of information, transportation, inventory, warehousing, reverse logistics and packaging.

Based on the above understanding, the logistics mission is "to get the right goods, at the right time, with the right amount, at the right condition, at reasonable cost, to maintain its profit contribution of logistics service providers".

As a result, logistics is always dwell in finding the right balance for two things very difficult for synergized, that reduce your cost as low as possible but still maintain high quality of service and consumer satisfaction. In an ever-changing business world, good logistics management is a necessity.

In the logistics also necessary leaching perfect and efficient way to manage any work. The logistics management is part of the supply chain process that works for planning, implementing, and controlling efficiency and effectiveness of the storage and flow of goods, services and related information from the starting point (point of origin) to the point of consumption (point of consumption) in the aim to meet the needs of customers.

Management functions of also asthe process formulating goals and determine the steps that must be implemented to achieve the objectives identified. The logistics is logistic needs of the implementation plan done by all candidates wearer or user then asked in the groove happens in each of these organizations.

As a conclusion, a plan should be supported by all parties. Plan will be forced even difficult to get support would result in not smooth in implementation. In the an activity of the preparation, implementation and achievement to the goal (target) is required for their continued cooperation between the leaders, planners, implementers and monitors with each activity performed in accordance with their job description. All activities directed at achieving the aim of achieving organizational goals.