Chapter 13: Supplier Evaluation and Supplier Relationships

What is a weighted point evaluation system? Why is it used?

Includes a pre-established set of evaluation criteria with weight (which signify importance) assigned to each. For example, the weights assigned to each criterion must equal 100 percent. The goal is to increase the probability that the process is unbiased. It includes identify factors or criteria for evaluation, determine the importance of each factor, and establish a system for rating each supplier. Should be determined in the context of the purchase and the sourcing strategy for that item. ABC sources (C- low-dollar value, high-volume). It is used to ensure congruence between the organization's priorities for this product class and the rating scheme's ability to identify superior suppliers correctly. For different product classes, different factors, weights, and measures should be used to reflect varying impact on the organization.

Co-location refers to placing:

a key supplier's personnel in a department at the buyer's location. (this personnel can functions as buyer, planner, and salesperson and improve buyer-seller communications and processes, absorb work typically done by the organization's employees, and reduce administrative and sales costs.

Suppliers that meet current operational needs as required by contract, but provide no basis for competitive advantage and could easily be replaced by another supplier, are called:

acceptable. Acceptable suppliers meet current needs as required by contract, provide a performance that other suppliers could easily match.

Exceptional suppliers

anticipate operational and strategic needs of buyer and capable of meeting and exceeding them. Mutual breakthroughs mean significant competitive advantage

On the purchasing-supplier satisfaction model, if the perceptions of buyer and supplier fall along the "fairness and stability" diagonal line, this means:

both parties are at least equally well-off. Line goes from lower right hand corner (both are dissatisfied) through the mid-point (both are marginally satisfied) to the upper right hand corner (both are satisfied).

Unacceptable suppliers

fail to meet operational and strategic needs of buyer. discontinue business because could cause greater problems for purchaser.

Preferred Suppliers

have a system or process orientation. Integration that avoids unnecessary duplication, speeds up transactions. Both work toward mutual improvements to eliminate non value-adding activities. Meet all operations and some strategic needs of buyer

One of the main concerns about buyer-supplier partnerships is:

if cooperative relationships will get better results than competition. (threat of taking away business from a supplier is a better motivator for performance than working cooperatively)

Supply chain management is:

internally focused to align with other functions and externally focused upstream (back to the original source) through the supplier network and downstream (toward the final customer) through the customer

Acceptable suppliers

meet current operations needs as required by contract. Easily matched, no basis for competitive edge.

Strategic alliances:

reinforce the idea that supplier relationships contribute to organizational success. Purpose of strategic alliance is for both organizations to gain sustainable competitive advantage from the mutual benefits derived form the relationship.

Buyer-supplier partnerships:

result in early supplier and supply involvement in design and description. The opportunity to affect value in the acquisition process is significantly greater in the early stages (need recognition and description). Involving the supplier and the buyer in these early stages can lead to improvements in processes, design, redesign, or value analysis.

If the buyer perceives a buyer-supplier relationship to be in the desirable region on the purchaser-supplier satisfaction matrix, but there are problems, the buyer is most likely to:

share information to find a mutual solution. If the relationship is strong, both are more likely to work together to resolve problems. (if they are dissatisfied, they use "crunch tools"-refuse to pay bills, accept shipments, sever purchases without advanced notice, legal action)

Strategic supply management is founded on the conviction that a significant contribution to competitive edge is made by:

suppliers, supply systems and buyer-supplier relationships. Supply management and suppliers contribute operationally and strategically. The desire to satisfy customers and to provide continuing improvement in customer service is dependent on suppliers, supply management, and supply systems and processes.

The supplier evaluation process that includes: (1) factors or criteria for evaluation, (2) the importance of each factor, and (3) a system for rating each supplier on each factor is called a:

weighted point evaluation.

Why are buyer-supplier relationships important? Why create a partnership?

Purchaser-Supplier Satisfaction Matrix: ABCD, bottom left to top right, top right quad= total satisfaction, bottom left quad= total dissatisfaction. Partnerships= preferred suppliers. It started with the Japanese who thought it was important for companies to maintain close relationship with their suppliers. One of the key elements in the achievement of quality, fast delivery, and continuous improvement. They used to be focused on collaborating for mutual benefit (operational). Now, they have become a network oriented with an emphasis on building efficient and effective multi-tiered supply chains and global networks. The focus has shifted to building and maintaining resilient and sustainable supply chains. (Total cost of ownership, end customer-driven, long term, opportunity maximization, cross-functional teams and top management involvement, strategic, share risk and opportunity, standardization, joint ventures, share data).

What is a strategic alliance and why is it used?

Strategic alliances reinforce the idea that supplier relationships contribute to organizational success. Purpose of strategic alliance is for both organizations to gain sustainable competitive advantage from the mutual benefits derived form the relationship. Buyer and seller share the conviction that it is in the best interest of both to formalize the relationship beyond the standard mode of trade. Reinforces that supplier relationships are of strategic concern to any org. Success depends on alignment between the organization's management in terms of quality, continuous improvement, and customer service, commitment and involvement at multiple levels of both organizations, the implementation and use of appropriate technology applications, negotiated agreement on goals, key performance indicators, allocation of risks and rewards, and commitment to problem solving and continuous improvement.