BUYING FROM THE RIGHT SUPPLIER
1. SOURCE SELECTION
supplier’s capability to perform in advance, before the requisition hits the buyer’s desk.
From the initial search, the buyer will attempt to identify several potential suppliers. The possible choices are reduced to a few of the best candidates and, after doing the homework, the selection process is completed with the negotiation, agreement, and issuing of the purchase order, possibly to more than one supplier.
1.1 Request for Quotation (RFQ)
When no established market prices are published, the first decision is to choose whom to invite to quote. Much wasted time is avoided by picking the most logical sources for inquiry, and this brings into play the experience of the buyer. For a major purchase, the buyer may choose to first issue a Request For Information (RFI) to determine both the capabilities and interest of several suppliers. Recognizing that this information is provided by the supplier and is likely to be presented in its most favorable light, this information kept in its context will be useful in both prescreening the suppliers and in determining questions to include in the ensuing Request for Quote (RFQ).
An RFQ may be prepared in either paper or electronic form, and typically includes date, control number, name of company and buyer, description of goods wanted, quantity sought, any special patterns or die requirements, any tooling now available from the buying company, delivery destination, special handling and shipment, packaging, delivery date for goods, and finally a deadline to receive a reply.
Buyers may want to include additional special requests, such as:
How long prices hold firm
Request for supplier’s blueprints or other documents Request for alternate proposals (if they will be considered) Any special or buyer-supplied materials or supplies to be used Any special tests or quality standards required
The buyer may list potential order quantities, and ask for price breaks and quantity discounts. By indicating a willingness to consider substitute items, the seller is encouraged to make creative suggestions. Ideas to save money might include grouping of items into blanket orders, packaging, or design changes. But, the buyer must take the initiative to search the market, and not wait for a sales pitch.
International purchases require special attention. Unlike a domestic inquiry, additional details need to be provided in the RFQ. ASME, UL or
other codes may have to be spelled out, along with any special tests to which parts will be subjected. The buyer may have to provide the codes themselves, as the international supplier may not be familiar with them.
Local suppliers know these things from experience, but foreign suppliers may be hesitant to admit they do not understand, since they want to please.
Comparing current quotes with past prices paid and to other competitors’
pricing is a fundamental technique of buying value. In many cases there are factors, other than simply price, to be considered in the RFQ responses.
Purchase of foundry castings provides an example of a weighted comparison of prices and other factors. A chart is prepared showing all suppliers under consideration, price quoted by each, shipping costs, pattern charges, tool cost, and any other factors. Each factor is weighted in advance based upon its importance in making the source selection. The sum of the quoted values times the weighting factor for each will provide the buyer with a single number for each supplier for comparison. If all suppliers quoted to identical specifications, the decision is simple. But usually, there are differences of brands, quality, tooling, and so on. So, judgment is needed, and such analysis clarifies alternatives and provides valid evidence in making the right source selection.
Buyers are frequently criticized, sometimes legitimately, for considering only price when making a source decision. What factors might cause a buyer to discard a low quote and select a higher price source alternative? One survey ranked the reasons based on frequency as follows: quality 84%, delivery 84%, service 38%, past experience 32%, reputation 12%, facilities 11%, technical ability 11%, financial responsibility 8%, failure to meet specs 6%, and to keep multiple source of supply 3%.
It is important to be able to clearly state how a judgment to use other than the lowest price was reached. In government buying, the justification must be in the file and in writing. In addition, the buyer maintains credibility by telling the suppliers offering lower prices why they were not accepted. As stated earlier, source decisions should be made based upon the lowest total cost. Later in this chapter we will discuss the use of total landed cost and quality and delivery factors in determining lowest total cost.
1.2 Buyer’s Checklist for Selecting New Suppliers
Before deciding on the “right” supplier, consider the specific supplier concerns below. This checklist provides questions that should be asked when considering selection of a supplier, and gives buyers some ideas to build upon. This same list can also be used for supplier evaluation that is reviewed in a later section.
Reliability
Is the supplier reputable, with a proven track record?
Have the supplier’s ability and integrity been proved by past performance?
Is the supplier giving me savings along with product improvements?
Is the supplier’s management team experienced and stable?
What is the supplier’s position in the industry? Is it a product leader?
What is the supplier’s previous delivery history with the company?
Financial and cost factors
What is the total cost of using the supplier’s product, considering quality, delivery and transportation?
How is the product priced, and have past price changes been reasonable?
How will transaction costs be affected by dealing with this supplier?
What is the supplier’s financial position and credit rating stability?
Does pricing meet internal targets?
How will inventory-carrying costs be affected by use of the supplier’s product?
Is the supplier willing to negotiate?
What, if any, cash discounts are offered?
Technical capabilities
Will the supplier provide application engineering or design assistance?
Will the supplier provide analytical engineering that will help improve the efficiency of my basic processes?
Can the supplier handle special needs and designs?
Does the supplier contribute to general technical advancement through basic research?
Does the supplier have special technical capability? What has been accomplished recently?
What are the operating technology characteristics, such as manufacturing capacity, component design, and techniques used?
Does use of this supplier’s technology limit future source decisions?
Delivery and availability
Will the supplier ensure on-time delivery?
Are stocks available locally? On short notice?
Does the supplier offer support services?
Is the supplier’s location an advantage to me?
Does the supplier plan shipments to minimize my inventory?
Can the supplier be depended upon to provide a steady flow of products or materials?
Buying convenience
Does the supplier offer a full line of related products?
Does the supplier package their product conveniently for my use?
Does the supplier have a convenient sales contact?
Are they qualified to help me? Can I call upon specialists for my difficult problems?
Will the supplier help me cut acquisition costs such as qualifying visits, telephone calls, lab tests, incoming inspections, spoilage and waste, rejects, and complaints?
Will the supplier respond promptly in answering queries?
Quality factors
Quality—does it meet the specification? Are processes controlled to ensure it will do so consistently?
Are the performance and life expectancy requirements satisfied?
What quality methods and process controls are used?
Is there an overall quality control system in place?
Sales assistance
Will queries receive the appropriate personal attention of supplier representatives?
Does the supplier help develop mutual markets? Will they recommend our products?
Will the appearance of supplier’s product enhance the value of my own product?
After-sale service
Does the supplier have a service organization available to assist when and where I may need it?
Is emergency service available?
Will replacement components be available when I need them?
Does the supplier provide training and education aids in the use of the product or services provided?
Customer service factors
Will the supplier provide timely information on fulfillment of orders?
What is the supplier’s labor relations record? What is the history of strikes?
Does the supplier value our business?
What are the warranties and claims policies?
Will the supplier respond promptly to rejected materials and provide credits, as appropriate?
Will the supplier comply with customer policies and procedures?