Purchasing & Supply Management: Supplier Selection (Part 1 - The Process)
Summary
TLDRThis lecture by Professor Finn Winstram of the Rotterdam School of Management covers supplier selection within purchasing and supply management. It details the processes and criteria for supplier selection, tendering, and contracting, emphasizing the importance of developing category-specific sourcing strategies. The lecture also explores different tendering procedures and selection methods, highlighting the impact of purchasing situations and objectives. Key concepts include problem definition, criteria formulation, supplier qualification, and final selection, along with various tools and techniques used in these processes.
Takeaways
- 📚 Supplier selection is a critical process within purchasing and supply management, involving identifying, evaluating, and contracting with suppliers.
- 🔄 The tendering process follows the sourcing strategy development and results in category-specific sourcing strategies.
- ⚙️ Tendering involves a buying organization putting its needs up for bidding by different suppliers, often using competitive procedures.
- 🏆 Supplier selection criteria often include price, quality, and delivery, but other factors like sustainability and effectiveness are also considered.
- 🌍 The supplier selection process can differ based on the buying situation, such as new tasks, modified rebuys, or straight rebuys.
- 📊 The process can be divided into problem definition, criteria formulation, qualification, and final selection, with different tools used at each stage.
- 🔍 Requests for information (RFI), proposals (RFP), and quotations (RFQ) are common steps in the tendering process to gather market intelligence and assess supplier capabilities.
- 🏢 The purchasing situation and objectives influence the choice of tendering procedures and selection methods, including non-competitive purchases, informal negotiations, closed tenders, and open tenders.
- ⚖️ Criteria for supplier selection can be categorized at the supplier level, product/service level, and condition level, each with varying degrees of uncertainty and information availability.
- 🔄 The supplier selection process and criteria can vary significantly depending on the purchasing situation, such as routine items, leverage items, bottleneck items, or strategic items.
Q & A
What is the main focus of this lecture?
-The main focus of the lecture is on supplier selection, which is one of the main processes within purchasing and supply management.
Who is the lecturer and what is their affiliation?
-The lecturer is Finn Winstram, a professor in purchasing and supply management at the Rotterdam School of Management, Erasmus University.
What is the definition of tendering according to the lecture?
-Tendering is defined as the process by which a buying organization puts up its needs for bidding by different suppliers.
What are the four major steps in the tendering and supplier selection process?
-The four major steps are problem definition, criteria formulation, qualification, and choice.
What are the three main levels of supplier selection criteria?
-The three main levels of criteria are supplier organization features, product or service performance, and conditions including price and delivery.
Why might a buying organization need new suppliers?
-A buying organization may need new suppliers if it starts offering new products or services, if supply markets or technological conditions change, or if it needs to reconsider existing supplier relationships.
What is the difference between closed tenders and open tenders?
-Closed tenders are by invitation only, whereas open tenders are open to any supplier willing to bid.
What are the three types of requests a buying organization may send to suppliers?
-The three types of requests are Request for Information (RFI), Request for Proposal (RFP), and Request for Quotation (RFQ).
How does the purchasing situation affect the supplier selection process?
-The purchasing situation, classified as new task, modified rebuy, or straight rebuy, affects the definition of the problem, criteria formulation, qualification, and choice steps in the supplier selection process.
What role does a category sourcing strategy play in the supplier selection process?
-A category sourcing strategy helps to effectively and efficiently conduct a tendering and supplier selection process by defining objectives and criteria for each sourcing category.
Outlines
📚 Introduction to Supplier Selection
This paragraph introduces the lecture on supplier selection by Professor Finn Winstram, who outlines the importance of this process within purchasing and supply management. It is positioned as the fourth process in the PSM wheel, following sourcing strategy development. The lecture will reference various sources, and supplier selection is defined as a process encompassing identification, evaluation, and contracting with suppliers. The paragraph also touches on the reasons why organizations might seek new suppliers, such as new product offerings, market changes, or technological shifts, and emphasizes the need for cross-functional collaboration in the selection process.
📈 Criteria and Procedures in Supplier Selection
This section delves into the criteria and procedures involved in supplier selection. It mentions that price, quality, and delivery are common criteria, but other factors like sustainability may also be considered. The paragraph discusses the importance of the relative importance of these criteria and the procedures to be followed, which may vary based on public procurement legislation. It also highlights the need for input from the purchasing situation and objectives, which can influence the criteria and procedures. The lecture distinguishes between different tendering processes and mentions the two-stage process of qualification and selection to reduce workload for both buyers and suppliers.
🔍 Distinguishing Supplier Selection Criteria
The third paragraph focuses on the different levels of criteria used in supplier selection, including organizational, product or service, and condition levels. It explains the relevance of distinguishing between these levels due to varying degrees of ambiguity and uncertainty. The paragraph also discusses the types of tendering procedures, such as non-competitive purchases, formal negotiations, closed tenders, and open tenders, and how the choice between these depends on the purchasing situation and objectives. Additionally, it outlines the types of requests that may be sent to suppliers during the tendering process.
📋 The Role of Requests in the Tendering Process
This paragraph explains the role of different types of requests in the tendering process: Requests for Information (RFI), Requests for Proposal (RFP), and Requests for Quotation (RFQ). It describes these as a funnel process, though not all steps are mandatory for every tendering situation. The paragraph details how RFIs are used for market intelligence, RFPs for proposals on fulfilling requirements, and RFQs for exact specifications of goods or services. It also touches on the negotiation process that may follow these requests and how the steps may vary based on the type of buying situation.
🎯 Supplier Selection in Different Purchasing Situations
The final paragraph provides a framework for how different purchasing situations may affect the steps in supplier selection, including problem definition, criteria formulation, qualification, and choice. It classifies purchasing situations based on new tasks, modified rebuys, and straight rebuys, and relates these to the sourcing portfolio quadrants proposed by Kraljic. The paragraph concludes with a summary of the key takeaways from the lecture, emphasizing the four major steps in tendering and supplier selection, the application of criteria at different levels, and the variation in criteria and processes based on purchasing objectives and situations.
Mindmap
Keywords
💡Supplier Selection
💡Tendering
💡PSM Wheel
💡Sourcing Strategy
💡Contracting
💡Criteria
💡New Suppliers
💡Qualification Stage
💡Selection Stage
💡Purchasing Situation
💡Tendering Procedures
💡Requests to Suppliers
Highlights
Supplier selection is one of the main processes within purchasing and supply management.
Tendering can be defined as the process by which a buying organization puts up its needs for bidding by different suppliers.
After category strategy development, it is possible to effectively and efficiently execute a tendering and supplier selection process.
Supplier selection involves identifying, evaluating, and contracting with suppliers.
Many studies emphasize the value of long-term buyer-supplier relationships, but new suppliers may be needed due to new products or changing supply markets.
Purchasing and supply management is essentially a cross-functional business process.
Price, quality, and delivery are the most prevalent criteria in supplier selection, but other criteria like sustainability are also important.
Different tendering processes and selection methods exist, influenced by the purchasing situation and objectives.
Tendering procedures range from non-competitive purchases to formal open tenders, each with varying levels of formality and time investment.
Request for Information (RFI), Request for Proposal (RFP), and Request for Quotation (RFQ) are common steps in the tendering process.
Supplier selection processes vary by purchasing situation, such as new tasks, modified rebuys, and straight rebuys.
Qualification and selection stages in supplier selection aim to reduce the workload for both the buying organization and suppliers.
Supplier selection criteria can be applied at the level of the supplier organization, the product/service involved, and the conditions (price and delivery).
Different types of requests (RFI, RFP, RFQ) serve as a funnel process to narrow down suitable suppliers.
The purchasing situation affects the supplier selection process, influencing problem definition, criteria formulation, qualification, and choice.
Tendering and supplier selection criteria and processes vary by the objectives for the purchase item or sourcing category.
Transcripts
welcome to this lecture on supplier
selection my name is finn winstram
professor in purchasing and supply
management at the Rotterdam School of
Management Erasmus University and holder
of the chair endowed by the Dutch
Association for purchasing management
Navy this elector was originally
developed for the course purchasing and
supply management a core course in
supply chain management master's program
at RSM during the presentation I will
refer to a number of sources you will
find the full references of these
sources at the end of the presentation
this elector deals with supplier
selection one of the main processes
within purchasing and supply management
in the PSM wheel which we often use as a
reference framework in structuring our
teaching supplier selection in
combination with the tendering process
is the forth process within the upper
half of the wheel the sourcing part
tendering can be defined as the process
by which a buying organization puts up
its needs for bidding by different
suppliers tendering and supplier
selection follows sourcing strategy
development which who results in
category specific sourcing strategies
such as for instance advocated by the
crowd each portfolio only after a
category strategy has been defined
is it possible to effectively and
efficiently execute a tendering and
supplier selection process after the one
or several suppliers have been selected
the next sourcing process is contracting
I have been referring to supplier
selection but what is it exactly Bale
defines it as the process by which the
buying firm identifies evaluates and
contracts with suppliers note that this
is a slightly broader definition than in
the PSM wheel of the previous slide
where contracting is a separate process
if you interpret barrels contracting to
me picking the winner or winners there
is still room for a separate contracting
process identifying imbalance definition
refers to listing potential irrelevant
or illegible suppliers evaluating in
this definition refers to scoring the
qualities of suppliers and/or their
offerings it will be clear that supplier
selection is an important process within
purchasing and supply management and in
this quote from the work of grousing
colleagues supplier selection and by the
way retention is primarily framed as the
manifestation expression of the
purchasing functions competitive
priorities I would add in relation to
what I said on the previous slide that
such priorities are not only defined at
the level of the PSM function as a whole
but also a most importantly at the level
of each sourcing category
why new suppliers while many studies
have emphasized the value and the actual
existence of long-term buyer supplier
relationships every now and then a
buying organization may need new
suppliers and hence needs to enter into
a supplier selection process this may be
because the buying firm has started to
offer new products and services to its
customers and has decided to not fully
produce those offerings in-house or
supply markets or technological
conditions change any of the listed
conditions and perhaps some more may
lead to the need for new suppliers or at
least the need to reconsider the
selection of suppliers with whom the
buying organization is doing business
when starting a supplier selection
process fetish choices need to be made
in some of these choices the purchasing
department may be in the lead but as we
argue for most of the processes
purchasing and supply management is
essentially a cross-functional business
process what could argue that there are
two main areas in which choices need to
be made which criteria to apply and
withstanding and selection procedures to
follow as described in the bottom half
of the slide viola refers to studies
that have identified price quality and
delivery as the most prevalent criteria
and supplier selection but other
criteria apply as well in effectiveness
sustainability another important choice
is obviously the relative importance of
the different criteria regarding the
procedures to follow
buying firms have a choice of different
tendering processes to follow and
selection methods to use organizations
that fall on the public procurement
legislation however have less freedom
which procedures to follow later on in
the SI lecture I will say a few words
about different tendering processes in
general the choices regarding criterion
procedures should be guided by two
groups of inputs reflected in the upper
half of the slide the purchasing
situation in terms of demand the supply
and purchasing objectives the objectives
are obviously closely related to the
criteria to be used but partly also go
beyond that the objectives could also
pertain to the number of supplies to be
selected and their geographical spread
for instance as discussed earlier these
objectives are typically defined in a
category sourcing strategy which helps
to effectively and efficiently conduct a
tendering a selection process however
not all organizations may have explicit
category sourcing strategies or not for
all of their buying needs and the
objectives may then need to be
identified during the tendering process
defining the purchasing situation
basically refers to the analysis of
business demand and supply market the
second process in the sourcing part of
the PSM wheel from slide 2
what are the qualitative and
quantitative needs of the buying firm
what is the current and future capacity
of the supply market etc many studies
argue that it is helpful to define the
buying situation for which the supplier
selection process needs to take place
and the marketing and organizational
buying behavior literature data merged
in the 1960s referred to three main
situations new tasks modified rebuy and
straight rebuy new task refers to
situation where a buyer has a new need
and it cannot or very limited Lee so
rely on previous information and
experiences straight rebuy o refers to a
situation where a buyer buy something
that is already very familiar with it
and modified rebuy is a mixture of the
two other extreme situations think for
instance of an organization that needs
to buy a familiar item but now from a
different supply market for instance
because it opens a production location
elsewhere and it needs to use local
suppliers for political or trade set of
reasons one can imagine that the supply
selection process is different for these
three types of situations as we will
argue in more detail later on in this II
lecture within the overall process of
tendering a supplier selection we can
make a distinction between the
qualification stage and the selection
stage this two-stage process is mainly
meant to reduce the workload both for
the buying organization and the supplies
suppliers that are not suitable for
instance because they do not have the
necessary quality management processes
in place or excluded before the final
bidding process this two-stage process
is by no means Universal sometimes
buying organizations go straight into
the final selection for instance when
only a few suppliers are expected to or
invited to but
paid in the tender process as you can
see in the slide the board and
colleagues argue that there are two
steps before qualification and final
selection problem formulation and
formulation of criteria this amounts to
identify the situation objectives and
criteria as we discussed in the previous
slide the borin colleagues also indicate
that in the first two steps qualitative
decision-making tools are most
appropriate while in the phases of
qualification and final selection
quantitative tools can be used we will
discuss these tools in more detail in
part two of our a lecture on supplier
selection
when thinking about supplier selection
criteria it may be helpful to
distinguish three main levels of
criteria even though in publications
such as Bell and the board at all these
three levels are not explicitly
distinguished first at the most
aggregate level we have the criteria or
features of the supplier organization
this could include its financial
stability or location for instance
second we have the product or service
involved including its performance and
sustainability for instance thirdly we
can distinguish the conditions including
price and delivery you will recognize
these different levels of supplier
product and conditions for instance when
Bale refers to studies that have
identified price quality and delivery is
the most important selection criteria
which are affect product or condition
level criteria well also refers to
production capacity flexibility
information and communication systems
these are all supplier level criteria
while the product and condition level
are perhaps not always clearly separated
distinguishing supplier level versus
product level characteristics is
relevant it is relevant because the
ambiguity or uncertainty regarding these
characteristics may differ scores for
supplier performance dimensions are
perhaps less precise and information is
particularly for new suppliers more
difficult to gather in some situations
the information on one of the three
levels is simply not there think of
selecting a supplier that will become
involved in collaborative product
development there is no product yet to
select on most importantly perhaps is
that in the qualification process as
described earlier buyers typically look
at supplier features and only in the
final selection will look at product
features and conditions
at the start of this lecture I have
defined tendering as the process by
which a buying organization puts up its
needs for bidding by suppliers and in
slide five we have argued that the
choice for specific tendering procedure
depends on the purchasing situation and
the objectives but what main alternative
procedures does one have regarding
tendering there is no universally
accepted classification of different
tendering procedures but from vaillar
discuss distinguishes four varieties
which capture most of the variety in
practice please note that we are not
referring to former formal tendering
procedures on the public procurement
legislation such as in the European
Union most of the four varieties have a
specific equivalent in public
procurement law let's review the four
varieties from left to right from low
formality and time investment to high
formality and time investment
non-competitive purchase means absence
of competitive procedures or formal
evaluation of supplier bits one or
several suppliers are directly
approached to close a contract although
some negotiations of terms may still
take place in formal negotiations the
second alternative are somewhat more
competitive where some suppliers may not
get an order in the end then there are
two main varieties of what are called
tendering procedures in the more narrow
sense closed tenders are on the
invitation only
whereas open tenders are open to
everyone well open tenders are mostly
known from the public sector they can
and are also applied in the private
sector the choice between these four
varieties depends on the purchasing
situation for instance non-competitive
tendering may be chosen when one is
dealing with a very small order and the
supplier is an exclusive owner of a
baton or there is already a very
successful relationship in place an open
them there is typically chosen for large
volume purchases a better buying firm is
not fully knowledgeable about suitable
suppliers for instance because it is a
new task by as part of the tendering
process various requests may be sent out
to suppliers particularly in the closed
and open tender procedures as just
discussed while there is no agreed-upon
terminology in general we can
distinguish three different types of
requests to suppliers
requests for the information request for
proposal and request for quotation
together these requests may be seen as a
funnel process but not all steps have to
be executed each time we follow bail in
describing these requests first a
request for information or RFI is used
when the buyer seeks to gain market
intelligence regarding what alternatives
and possibilities are available to meet
the buyer needs some suppliers may not
respond or the buyer may deem that the
supplier is not very suitable reducing
the set of potential suppliers in the
next phases second a request for
proposals or RFP is issued when this
buyer has a sense of the marketplace and
has a statement of work or
specifications containing a set of
performance requirements that the buyer
needs fulfilled supplier proposals on
how to fulfill the buyer needs could
differ for instance in terms of the
technology they want to apply based on
the proposals the binder may decide to
further narrow the set of suppliers that
is asked to make submit an actual bit or
quote this set of suppliers are the so
called qualified or approve
vendor's this was also mentioned in
slide six in general there is no rule
that disqualification states as we'll
also discussed earlier takes place only
after the suppliers have responded to
the RFP sometimes it can already take
place after the responses to the RF I
third a request for quotes or quotations
is issued when the buyer can develop a
statement of work that stays the exact
specifications of the goods or services
needed after these requests a buyer may
enter the negotiation process with one
or several suppliers but not necessarily
so in the case of an RFQ a clear winning
supplier may offer already emerged and
further negotiations are not necessary
all the three steps may be used
consecutively but not necessarily so one
could start directly with an RFQ in the
case of a standard or familiar items
this would constitute a straight rebuy
perhaps one would like to start with an
RFP in the case of non-standard or
complex items or when the buyer only has
set functional specifications and is
interested to learn about different
technological solutions finally a bear
buyer may decide to start with an RFI
when it has a completely new requirement
and is not familiar with a relevant
supplier market this would constitute a
new task by situation
[Music]
finally we go back to slide five and
provide a framework of how the
purchasing situation may affect the four
different steps defined earlier problem
definition criteria formulation
qualification and choice in the columns
you see a classification of different
purchasing situations the board and
colleagues classify these situations
based on the new task modified to be by
a straight rebuy classification from the
marketing and organizational buying
behavior literature and combine this
with a different quadrants from the
crowd each category sourcing portfolio
this results in for buying situations
what the board and colleagues are
basically suggesting is that for the
supplier selection process in a new task
buying situation it does not matter
which quadrant from the Crowder's
portfolio one is dealing with there is
just one call in the case of a new task
by the specific challenges for supplier
selections is that there is no
previously used criteria and here and
there are no historical records
available making selection process more
challenging and potentially more costly
there is a lot of uncertainty and new
task buying situations on the right hand
side you see two different straight
rebuy situations in case of a routine
item there are many suppliers that could
supply the item however because of the
low value of the items it will not pay
off too frequently search for and select
suppliers the choice of the supplier is
fixed for a reasonable period of time
and the suitability of the supplier is
typically reconsidered periodically and
if necessary a new selection will take
place in the case of bottleneck and
strategic items the choice of the
supplier is also more or less fixed
small changes in
location of the items are usually dealt
with by the existing supplier in these
cases with a high supply risk there are
virtually no supplies to choose from
immediately either because of a highly
unique specification or because of the
scarcity of the material as a result the
choice set is often much smaller the
city models are primarily used as a
means for periodic evaluation or
monitoring of the existing supplier or
suppliers leverage items finally the
second column from the left according to
the board at all typically involve
modified rebuy situations there are many
supplies to choose from while the
high-value and saving or improvement
potential of the items justifies
proactive search and frequent selection
of suppliers so in conclusion we can
summarize the takeaways from this
lecture on supplier selection the
process as follows one four major steps
in tendering and supplier selection can
be defined problem definition criteria
formulation qualification and choice
second selection criteria can be applied
at the level of the supplier and the
level of the product service and its
conditions and qualification usually
takes place using supplier related
criteria and thirdly the criteria
applied and the process adopted for
supplier selection and tendering vary
they vary by the objectives for the
purchase item or sourcing category and
they vary by the purchasing situation as
for instance classified in terms of new
tasks modified 3 - 3 3 by or classified
in terms of the purchasing portfolio
such as proposed by trolleys routine
items leverage items etc
this concludes our lecture on supplier
selection part 1 on this slide you will
see the references that have used during
this election
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