Professional Documents
Culture Documents
Past experiences Interviewing with the salesperson of the supplier Catalogs published by the vendors Trade Directories
Classifies suppliers according to the products they make Includes names of company personnel, financial status, and location of sales offices
2
Information sources
Trade Journals or Business Magazines
Types of Suppliers
In the search for suppliers, all available types (that is,
considered.
Trade-offs between price, delivery, and service and
community relations and goodwill must be weighed when selecting various types of vendors.
4
suppliers:
1. National concerns may offer lower prices because of their ability to produce in mass quantities for large numbers of customers. 2. Technical assistance may be better from large firms that provide extensive research and development support. 3. Continuity of supply may be more certain with largervolume producers, which exercise considerable raw material purchasing power and maintain large inprocess and raw materials inventories.
6
disadvantages.
unprofitable, considering the expenses involved, and charge a premium price to compensate.
of smaller quantities.
handle rush orders as well as visit the buyer's facility frequently and provide personal services.
inventory levels.
inventory, and the buyer can utilize it, making smaller, more frequent buys.
9
Foreign Sources
The increasing industrialization of third-world
countries, coupled with lower labor costs, has made foreign purchasing increasingly attractive in recent years.
The quality problems formerly associated with foreign
goods have in many instances been transformed into quality standards that challenge domestic firms.
However, the drawbacks of foreign sources
Foreign Sources
The first problem is long lead times. In addition to the actual travel time of the goods, time
is spent in customs.
11
Foreign Sources
Another problem is currency fluctuation. With such long lead times, the price agreed upon may
rise or fall between purchase and payment simply because the foreign currency exchange rate fluctuates against the buyer countrys currency.
12
developing countries.
Countries tend to develop in a structured way. First, a major multinational will move into a
This factory will be mainly an assembly plant and will The components will be imported.
13
Country Development
Next, and with varying degrees of speed, supporting
suppliers will grow up around the multinational and replace the imports.
Eventually local employees will leave the
developed country, there is good chance that the multinational may be able to offer lower prices quickly.
15
JIT and blanket orders lead to single sourcing. In other instances the total amount needed may be too
small to justify splitting the order among suppliers because it would increase per-unit handling and processing costs. supplier are those of parts made by processes employing expensive tools or dies.
16
multiple suppliers has greater assurance of uninterrupted supply in the event of fire, flood, or strikes, which might disrupt the operations of a single plant.
17
questions about how many suppliers to use and on what basis to allocate the business.
Although these questions cannot be answered
universally, these decisions are influenced primarily by the amounts required, the relative size of the suppliers, and their past performances.
Most buyers split orders between two or three
suppliers.
18
specialized meaning, referring not only to the total amount required but also to the schedule according to which the goods must be received.
19
desired quantity during the specified period, but could not supply this quantity on specified dates, would not be a satisfactory supplier.
In purchasing, price is meaningless when considered
Location
The geographical location of the supplier is an important
disadvantages by providing pool car shipments, branch warehouses, and make-and-hold services.
21
number of small orders from a given geographical region and combining them into one shipment, thereby economizing on freight by obtaining the full-car rate rather than the much higher less-than-carload (LCL) rate.
branch warehouses that act as distributing points for shipments originating at the home plant.
anticipation of a buyer's needs and stores the merchandise. from the buyer, minimizing total order time.
Reserve Capacity
The reserve facilities of a supplier are another
business booms.
A supplier with an adequate reserve of
Technological capabilities
The stage of a supplier's technological development
and its ability to keep up with current methods are other considerations affecting service. outreach research.
Technological capabilities give the buyer access to Buyers rely on vendors to suggest design and
material changes as new concepts are perfected. service as an extension of its own research and development facilities.
24
Inspection
The inspection methods and quality control
procedures used by the prospective supplier are also considered. goods will ship items that must eventually be rejected and returned as unsatisfactory for their purpose. production quality, the problem is aggravated, because some imperfections may not be discovered until the item has been incorporated into the finished product.
25
Labor Relations
Another source of interference with the continuity of
production in a supplier's plant may be the workers themselves. there may be strikes or slowdowns in production.
If relations of the supplier with its workers are poor, The possibility of such delays can sometimes be
projected by determining the morale of the workforce, and reviewing the labor policies as expressed by general management. contract also reflects the labor management climate.
26
Warranties
Service also includes the kind and form of warranties
Vendor Sources
Vendor relations also influence a supplier's service rating. A good supplier has well-developed sources of raw
materials and components that will ensure continuity of production during periods of fluctuating business conditions.
sources of supply, the firm will be able to produce effectively during business booms.
28
Plant visitations
Buyers perceive risk when deciding upon a choice
29
plants of suppliers are an important means of initial evaluation and periodic examination of existing vendors. production or engineering departments to accompany the buyer on such visits, especially if the products are highly technical.
30
financial standings.
regarding the vendor's financial stability, pricing policies, and general operating efficiency by applying the tools of ratio analysis to the vendor's balance sheet and income statements.
32
liabilities.
The usual rule-of-thumb acceptable ratio is two to one. Because current assets and liabilities are those that can
be turned into cash within a short period of time (a year or less), this ratio measures the financial ability of the firm to continue in the short run.
often maintained current ratios less than two to one to avoid idle and unproductive assets, this ratio should not be overemphasized. 33
An acceptable ratio here is one to one. Like the current ratio, it is a reflection of a company's
34
accounts receivable.
This ratio is related to the seller's standard terms of payment. For example, if the terms are 90 days, not much more than
this amount of total sales should be in receivables. A firm with annual sales of $6 million and 90-day terms should not have much more than $1.5 million in accounts receivable.
35
36
to depreciation charges, which are allocations against profits that do not reflect actual cash outflow.
It measures the amount of dollars the firm is
receiving.
Cash flow assists profit evaluation because it is a
measure of how much cash a company is likely to require for meeting short-term expenses.
37
undersold.
one.
38
Supplier Goodwill
Developing supplier goodwill is a vital part of
emergencies and helps ensure adequate levels of supply during periods of shortages.
39
Quality Management
Quality is the last, but the most important, factor on the
evaluation list.
not be acceptable.
company passes an audit showing it follows the specifications, it can obtain an ISO certification.
quality system.
There are two problems to consider. First, the specification guarantees consistency, not quality. The specification could state that a defined level of quality
41
It may not be good enough for you. Second, once granted an ISO certification, the supplier may
There can be years between auditors' visits. For these reasons, even an ISO-qualified supplier needs
or AQLs.
An AQL of 0.4, for example, means that a lot with 4,000 parts
per million (0.4 percent) faulty parts has a 95 percent chance of being shipped.
performance record.
of objective standards and procedures for evaluating and comparing existing suppliers.
categorical method.
It relies heavily on the experience and ability of the
individual buyer.
44
Initially, a list of evaluation criteria is identified. The buyer then assigns a grade to each supplier, for each
may be used.
performance data.
judgment of the individuals providing the ratings, and the ratings may become routinely performed without much critical thought.
46
relative weights can be expressed in numerical terms so that a composite performance index can be determined and supplier comparisons made.
chosen: quality of shipments, accuracy of delivery, and price. significant, a point rating system such as the following might be used: quality, 40 points; delivery, 40 points, and price, 20 points.
47
(A) %40 36 32 28
% Perf. Delivery 70 60 80
(B) %40 28 24 32
48
number of evaluation factors can be used with relative weights corresponding to the needs of the firm, thereby minimizing subjective evaluation.
If this individually assigned plan is used in
conjunction with the categorical method, suppliers can be evaluated on a quantifiable basis and many of the intangible aspects of service can still be considered.
49
purchasing costs to the value of the shipments received from the respective suppliers. the rating for that supplier. products involved.
The higher the ratio of costs to shipments, the lower What cost categories are used depends on the
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.
51