Supplier Selection and Approval Process Analysis
Supplier selection and evaluation is the process whereby a firm is able to identify, assess and build contracts with suppliers. The process usually begins with identifying suitable suppliers based on a number of factors such as quality, reliability, value for money, etc.
What are the steps involved in selecting suppliers for supply chain management? First, identifying suitable suppliers should begin with the following things which you must look out for in a supplier: e.g a new supplier selection process in procurement for automotive industry.
Supplier Selection Process Flowchart
Quality: The quality of your supplier is very important, and it is what your customers will also associate with you.
Reliability: Your suppliers must have to be reliable. If they are not reliable, you too will not be reliable to your customers.
Value for Money: You must make sure to always get good value for what you are paying your suppliers for.
Clear Communication and Strong Service: You will have to require your suppliers to be prompt with their deliveries. If there would be any sort of changes, they must make sure to notify you beforehand.
Financial Security: Also, you want to make sure that your supplier has a reliable and strong cash flow to be able to deliver whenever you require them to. Getting a credit check is needed just to make sure your supplier will not stand a risk of going out of business when it matters the most. e.g. supplier selection risk management process.
Below are several steps which you must have to take so as to achieve a successful supplier selection:
Creation of a Supplier Selection Scorecard
The first thing you want to do in regards to supplier selection is to create a supplier selection scorecard. The supplier scorecard basically carries the most important elements you would need in a supplier. What should be included in the scorecard?
- The supplier attributes or characteristics
- The strategic alignment factors which are of the most value to you
- Any supplier selection process policy which is applicable
- Constraints worthy of note such as government regulations, contracts in place, management directives, current relationships and commitments
It is very important that you prioritize the above mentioned elements, as some of them would be actually more important than others depending upon your needs. For instance, quality is far more important than prompt deliveries.
Also, cost is often times a very low priority when compared to the others. In a case whereby a supplier offers late deliveries, low quality, etc; would the cost really matter? Irrespective of how low it may be, it certainly will not matter.
Look For Suitable Suppliers
Now you have your criteria for selection right in place, the next thing you will want to do is to create a pool of selection where suppliers would be selected from. You will have to consider the following:
- Current Suppliers: You should begin with the suppliers whom you already have good business relationship and business experience with.
- Previous Suppliers: You also want to consider some of your previous suppliers too.
- Competitors: Sometimes, you could be in a position where buying from your competitors is the most ethical and low-risk thing to do.
- Industry Groups
- Other business relationships and recommendations
- The internet: You could make the most use of the many available opportunities in the internet to search for and contact prospective suppliers.
Rank Suppliers based on Scorecard
The next step is to make sure to gather enough information from all the suitable suppliers you have identified in step 2 above, either in the form of Request for Proposal (RFP) or Request for Quote (RFQ). Next, organize the collected information using the scorecard to rank the prospective suppliers.
How you would go about the selection may depend upon how complex or critical the product or service is. All the same, you may have to:
- Select the supplier who ranks the highest. This does not mean the supplier who ranks the highest according to your scorecard ranking is the most suitable supplier. Other suppliers a little down the list could be suitable too. However, you must avoid going too far down the list.
- Select a number of suppliers which you would subject to further screening and qualification such as site visits, interviews, etc.
You must make sure you are very diligent and meticulous with the selection and qualification process so as to get the most suitable supplier from the selection. At the end of the selection analytical hierarchical process, you should have a clear-cut winner. Otherwise, you may have to consider reviewing the criteria and expanding the search.
If you have followed the above steps one and two, by now you should be in a position where you have narrowed down your list of suppliers, possibly to just one supplier. Now it is time to get started with the negotiation phase.
Your negotiation will have to start with the highest ranking supplier even though you may have other prospective suppliers in your scorecard list. This will however depend on how critical the product or service is.
Creation of Contract and Activation of Purchasing System
The contract is signed as soon as an agreement has been reached by both you and your supplier. Depending on the complexity, there are times when a lawyer would be required to be present. However, in the case of a simpler transaction, the purchase order becomes the contract.
Finally, you will have to proceed with the activation of your procurement system.