supply chain management – Source Selection Process

The selection of the supplier for the goods and services needed by an entity involves various considerations. For instance, since the purchase of such goods and services usually takes almost half of the entity’s revenues (Beil, 2009), selection of the supplier usually involves the evaluation of the supplier who will offer the ‘best value’ for the entity. Such a best value is company-dependent, based on the goals that the entity seeks to attain through its supply chain. As such, the buyer might need to evaluate aspects such as the technical competence, financial position, and legal status of the supplying entity, to ensure that he or she collaborates with a supplier who meets his or her specific supply needs. The process through which the entity making the purchases identifies, evaluates and awards the supply contract to the supplier forms the subject of this section.

The source selection process involves five core activities as discussed by Beil (2009). Firstly, the buying organization identifies the potential firms that can meet their supply needs, and, secondly, starts evaluating these suppliers by sending formal requests for information from the identified suppliers. In the third stage, the potential suppliers respond to the buyer’s request for information, typically by bidding for the supply contract, indicating their offer and their terms such as price, quality and lead times. Depending on the type of contract, various contract terms may be required. In the next stage, the fourth stage, negotiation processes are initiated leading to the evolution of the offers provided by the potential suppliers. On arriving at the final offers, the final stage encompasses the award of the contract to the selected supplier and the monitoring of such a supplier to facilitate future supplier-selection decisions.

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