January 10th, 2018
supply chain management – Supplier Identification
Finding potential suppliers is vital for an entity to enhance its chances of sustaining its growth in a market where current suppliers may be lured away by competitors. Similarly, new suppliers could offer opportunities for the entity to explore further gains that the current suppliers may not enable. Beil (2009) identifies various reasons why an entity may search for new suppliers. Among such reasons include, development of technology or process that significantly reduces the production costs for the buyer compared to the predecessor technology, and the entry of a supplier who offers cost advantages due to their structural superiority from aspects such as low labor costs or favorable operating environment. Additionally, an existing supplier could go into bankruptcy thus forcing the buyer to search for new suppliers.
The search for new suppliers could also be based on other business considerations that seek to provide the buyer with a competitive advantage over his peers. For instance, according to the Michael Porter’s five forces model for assessing industry competitiveness, an entity that has a better competitive status is one that can lower the bargaining power of its suppliers, relative to that of its competitors (Porter, 2008). In this respect, new suppliers could serve to lower the dependence on a single supplier, which, not only increases such supplier’s bargaining power, but also reduces the risk of disruption for the buyer, in the event the supplier failed to meet the buyer’s needs (Beil, 2009). Accordingly, a prudent practice would be for the buyer to identify a number of potential suppliers for ones products or services to avoid the risk that could arise with the reliance on a single supplier.
Screening of supplier’s ability to meet the needs of the buyer is core to the supplier selection process. Where the supplier fails to perform even on a simple attribute, the buyer may fail to realize the gains of supply chain management that he/she had envisages in searching for the appropriate supplier (Biel, 2009). Examples of such cases are documented in literature. For instance, Spencer and Casey (2007) reported of how Mattel Inc. had experienced tumultuous periods following the discovery of toxic lead paint in toys, a failure that was attributed to the failure by its Chinese suppliers to meet safety requirements. Welch (2007) documented a second example of how supplier failure to meet buyer’s needs may lead to the failure of the buyer’s business. In this case, a Mexican tire retailer had to recall massive tires sourced from a Chinese manufacturer, following such tires’ implication in multiple accidents.
The supplier screening process purposes to lower the risk of a buyer engaging a supplier who will not perform to the required level. Such non-performance includes non-delivery or late delivery of the products contracted for, and/or delivery of products that do not conform to the quality or other terms agreed on before awarding the contract (Biel, 2009). As such, screening for supplier quality provides the information that the buyer would need to take proactive steps that reduce the chances of engaging a non-performing supplier. In other cases, the screening seeks to identify whether the supplier shares the same values as the buyer and whether he or she will be a responsible partner with whom to conduct business (Hedderich, Giesecke, & Ohmsen, 2006).
The screening process involves various audits evaluating diverse attributes of the supplier. For instance, a reference check could evaluate whether the supplier is honest about his performance by inquiring, from previous customers, about aspects such as the supplier’s delivery performance and his observance of the terms delineated in contracts (Beil, 2009). A second evaluation is of the financial status of the supplier. In this respect, the buyer needs to ensure that the supplier can meet the financial obligations of the contract by assessing the supplier’s short-term and medium-term financial status (Biel, 2009). Where, for instance, the supplier is significantly leveraged, the ability to make investments for the contract may be significantly lower. A third consideration is the capacity of the supplier to enhance supply quantities in the event of increased demand for the supplies (Biel, 2009). In this respect, the buyer evaluates the suppliers surge capacity by assessing the underutilized or unutilized facilities that may be used in the event that the buyer needs delivery of larger quantities.
Another benchmark for screening suppliers concerns their ability to deliver the required quality. In this respect, the buyer can rely on supplier certifications on the assumption that suppliers who receive such certification have the resources and competence to deliver the quality demanded (Biel, 2009). Where such certifications are misleading, the buyer would need to evaluate the supplier’s processes to ensure that they are capable of facilitating the level of integration needed. Closely related to quality, is the supplier’s ability to meet the specifications that the buyer demands. In this respect, the buyer would need to evaluate the supplier’s sample products, tour the supplier’s facilities and engage the supplier’s technical staff to ensure they have the skills needed to meet the specifications that one needs (Biel, 2009). Another screening process involves the verification of the supplier’s service or products by the internal customers of the buyer entity. In this respect, the procurement manager or the person designated to source suppliers, needs to ensure that the individuals in his organization, who will be using the products supplied, have confidence in and are agreeable to working with the supplier (Biel, 2009). Failure to generate such a relationship could strain the supply contract following subsequent resistance from the internal customers.
A buyer can create a pool, from the list of suppliers who pass the screening process, from which to source subsequent supply candidates. In this respect, such suppliers, the pre-qualified suppliers, can prove a worthy resource for the buyer by developing a competitive bidding environment that provides the buyer with the opportunity to select many suppliers for diverse small contracts (Biel, 2009). Additionally, such a pool lowers the buyer’s administrative costs since, by such supplier’s virtue of passing the screening process, the buyer could use a standard contract for any of the suppliers hired from the pool (Biel, 2009).
Go to part five here.