How to select the right suppliers for your supply chain? (Part 2)
In the previos blog, you have learnt to match the right suppliers in each phase of the market maturity. Now, it comes to the question of how to evaluate and manage them? Good thing is there are lots of useful existing articles over this topic, so the rest of this blog will summarise the similar ideas concluded from these articles briefly, and provide you an example of how a company evaluates its suppliers.
For the first step, please find it here.
#2: Pre-qualify and evaluate suppliers (see Table 1 above)
First, I would like to share a list of methods and websites of searching suppliers worldwide (table 1). You can identify who may potentially be able to meet your requirements and then shortlist them by more resource-intensive methods (e.g. supplier audit, site visit, etc.) Some ideas to shortlist the potential vendors are via recorded performance or appraisals, which can be found on some websites mentioned in table 1. A few questions that you should ask to narrow down your lists:
- Can I speak to some of your other customers?
- Can I see your financial statements and credit report?
- Can I inspect your site?
The suppliers’ answers will then depend on your position against them (if you are critical to them or not). Besides, you need a cross-functional team to approve or reject those suppliers. Some situations when supplier assessment is essential are purchase of outsourced services (e.g. IT), purchase of construction, capital equipment and ICT system, global sourcing, when long-term product support is required, when a current strategic supplier is encountering adverse trading conditions, and so on.
#3: Solicit quotations
After supplier appraisal and evaluation, you have some recognized suppliers that are going to be received a Request for Quotation (RFQ). This form aims to obtain something to meet your specification, including specific information about prices, quantities and specifications. Once the deadline is reached, you receive and evaluate the quotation from different pre-qualified suppliers, and finally move forward to negotiation and contracting. Besides the RFQ, there are two other forms for potential suppliers needing not to be pre-qualified (they do not require the suppliers to be pre-qualified, and support the process of pre-qualifying suppliers), as follows:
- Request for information (RFI) – is used to conduct research about a product/service (capabilities, capacity) and therefore pre-qualify a supplier. This form is issued in advance of a RFP.
- Request for Proposal (RFP) – is used to solve a specific business problem. The RFP is more detailed, mainly focusing on “how can the supplier help your business with this problem?”. In addition, this form is a way to inform potential suppliers that the selection process is competitive, thus encouraging them to make their best effort.
The most fundamental key here is to ensure fairness among all suppliers. So, if a bidding supplier requests additional information, your organization should supply this information not only to that supplier, but all bidders (Blood Rojas, 2017).
#4: Supplier selection
Congrats! You reached the last step of selecting the right supplier. After receiving suppliers’ replies upon your request, you and your team now determine the most suitable supplier via a list of selection criteria for example. An overview of some supplier selection criteria is shown below (figure 1).
Figure 1. Criteria of suppliers selection
You may give weighting for each criterion depending on the level of importance to you. Besides, you would prefer to prioritize criterion “Quality” as it is the ability of a supplier to meet customers (buyers)’ order requirements. Furthermore, it is possible to perform supplier selection process with Machine Learning Algorithms. More information can be found via “Exploring Machine Learning for Supplier Selection: A case study at Bufab Sweden AB. Independent” (Allgurin, A. and F. Karlsson. 2018).
Case study: How Volvo evaluated its suppliers?
Below is an illustration of how a company (Volvo – a car manufacturer) evaluated its suppliers (Table 2).
As seen from the table 2, people with different expertise from several departments are required to engage in the evaluation of the supplier’s performance. Also, there are multiple sub-criteria which can be assessed via quantitative and qualitative ratings.
Table 2. Volvo’s supplier performance evaluation model (Fredriksson and Gadde, 2005)
Self-learning reflection for you: “Imagine you need a new personal laptop. What criteria do you use to make your purchase most beneficial to you?”
To conclude this topic, let’s review all key steps of the supplier selection process. First, your supply and contract terms must be tailored according to your position in the market maturity curve. Once you characterize the potential suppliers, you start looking for those matching your requirements, followed by sending them requests (RFQ/RFI/RFP) and evaluating them as well as their replies based on your selection criteria. Finally, ensuring to assign a cross-functional team to perform the whole process.
Thank you for reading and don’t forget to comment how you buy your new personal laptop (or other things that you have recently purchased)!
Book “Procurement and supply chain management” (Lysons, 2016)
Supply chain digitalisation, procurement and inventory management
Find the balance between your organization and suppliers by using Supplier’s Analysis Model.
Selection of the right suppliers for your supply chain (Part 2): suppliers evaluation and criteria of suppliers selection.
Selecting the right suppliers for your supply chain using Market maturity curve model.
Procurement process, the Maturity Curve model, the Supplier’s analysis model, and the Kraljic Portfolio.
Supply chain digitalisation via an IT platform which connects different companies’ ERP systems while improving the focal company’s supply chain performance.