What is the best way to source suppliers?

by Next Level Purchasing SPSM® Certification

Supplier sourcing or selection is a Mission Critical Process that impacts various Supply Chain metrics including Total Cost of Ownership.

Sourcing is a small part of procurement that is concerned about the selection of suppliers to support business operations.

Following is the Sourcing Process as articulated by Next Level Purchasing Association’s Body of Knowledge via the course: Global Procurement Management | Learn Global Sourcing Strategy

7 Critical Steps of Effective Supplier Selection

Step 1: Identify Supplier Selection Criteria

Supplier selection criteria are attributes that a procurement department values in its arrangements with suppliers.

There are eight common criteria for supplier selection:

1. Cost, Value and Total Cost of Ownership Proposition

2. Quality & Safety

3. On Time Delivery

4. Service Responsiveness

5. Degree of Social Responsibility, including treatment of employees and ecology

6. Simplicity of doing business including Process Capability and Technology

7. Risk Impact or Risk Priority Number (RPN)

8. Agility, ability to quickly adjust to your organization’s needs and requirements.

Step 2: Determine Supplier Selection Constraints

Supplier Selection Constraints (SSC) are Critical to Quality (CTQs) Criteria that if not satisfactorily met, will lead to suppliers being disqualified from being considered for contracts or orders.

Step 3: Develop the Hierarchy of Constraints & Criteria

The Hierarchy of Constraints & Criteria is a list of supplier selection constraints and criteria that sorts them in order from most important to least important.

Step 4: Weight Your Constraints & Criteria

In most sourcing situations, the importance of each supplier selection constraint and criterion is not equal. Therefore, constraints and criteria must be “weighted” or given different degrees of significance. These “weights” will come into play when comparing suppliers who have different strengths. Applying different weights to scores is referred to as using weighted average scoring.

Step 5: Develop A Scoring Scheme

Supplier scorecards include scores for all the supplier selection criteria (e.g., Cost & Value, Quality & Safety, Delivery, etc.) that the supplier selection team has decided to apply to a procurement. Typically, each criterion is scored on a scale of 0 to 100, with 0 being the worst rating and 100 being the best. This rating is called a “raw score.”

Step 6: Analyze Proposals

All the work done to this point should have been done prior to issuing the RFP. Then, you just need for proposals to roll in. Once you’ve received proposals, you can continue with this step.

The first thing you do after receiving proposals is to review them to identify any suppliers’ inability to comply with constraints.

Step 7: Apply Common Sense

Now, despite developing such a scientific way to select the best supplier, remember that suppliers should be selected by people, not spreadsheets. There is a chance that there was a fundamental flaw in how you developed your criteria, weighting, or scorecard. If there was, you don’t want your organization to be victimized by that flaw. Again, supplier selection is a critical decision, so you want to get it right. Apply common sense and select the right supplier for the order, contract, or project.

Ideally, your scorecard will determine the best supplier. But, when you first implement the methodology you just learned, there may be some lessons you encounter along the way where a scorecard helped a little, but you must override the outcome with common sense.