Selecting the supplier is the first step of supplier management. The core question that must be answered in the context of supplier selection is where and especially how the right partners for the company can be found. As shown in Fig.4.3, in-depth procurement market research, pre-selection, and analysis of suppliers must precede supplier selection properly if the supplier that bests suits the company is to be found.
4.3.1 Supplier Identification
The selection of potential new suppliers starts with a supplier identification process that can be designed individually according to the respective procurement
Supplier market
Supplier identification / selection
Supplier identification
Supplier preselection
Supplier analysis
Supplier selection
•Industry
•Product
•Production process
•Supplier self-disclosure
•Rating
•Visit to supplier
•Rapid Plant Assessment NDA, QAA
General terms Audit
•Procurement market research
Fig. 4.3 Progress of supplier selection
objective. The task is to identify potential suppliers that can satisfy a concrete demand or would be able to do so. At first, the appropriate procurement markets must be identified, located, and selected.
In order to do so, a general requirement profile is defined that will be taken into consideration during the supplier search and pre-selection. This profile contains general requirements such as industry, size, product portfolio, dependency on competitors, or technological know-how. At this stage, supplier management is closely linked to procurement market research since information on the respective procurement markets and their suppliers must be obtained. Information can be gained by primary procurement market research (direct contacts to potential suppliers, visiting fairs or production facilities, and so on) or by secondary market research (research in catalogues, trade magazines, or the internet). A detailed description of procurement market research will be given in Sect. 7.1. On the basis of the predefined criteria, a pre-selection follows during which the potential suppliers can be identified and analysed in detail.
4.3.2 Supplier Analysis
Supplier analysis encompasses the identification, editing, processing, and represen-tation of information regarding the preselected suppliers. First, the information is compiled and ordered. The aim of supplier analysis is to gather concrete informa-tion on the capability of the potential suppliers in order to guarantee that only the best suppliers will be admitted. To find the necessary information, several tools can be used:
Supplier Self-Assessment With the help of a catalogue of criteria, several data are requested directly from the supplier. These data may refer to areas such as organisation, production, financial resources, quality assurance, logistics, service, and communication. The subjectivity of self-assessments is a problem as suppliers under certain circumstances will always be tempted to present themselves as better than they really are. Often, the supplier’s lists of customer references can serve as an indicator of the supplier’s proficiency levels; furthermore, these lists can be checked easily.
Company Reports Such reports compiled by agencies or credit insurers offer the opportunity of obtaining objective insights into the structure of the potential supplier. Apart from general company data, company reports as a rule contain information on responsible persons and capital structure as well as a risk assessment that allows for estimating the economic stability of the supplier. Hence, the company report is a complement to supplier self-assessment and at the same time a tool to verify the information given by the supplier.
Certification Certifications give suppliers the possibility of demonstrating the capability of their processes. One of the most important standards for realising a
QA system for all industries is the ISO 9000 series. In the ISO 9001 standard, a process model that goes beyond the company is given including the requirements of leadership responsibility, resources management, product realisation, as well as measurability, analysis, and amelioration.
Criteria for Exclusion With the help of criteria for exclusion, which are deter-mined cross-departmentally, suppliers that do not fulfil certain minimum requirements can be filtered out. These criteria are company-specific and vary depending on the procurement objective.
4.3.3 Supplier Selection
Within the scope of the tender phase concrete selection, criteria such as quality, capacity, effectiveness, and price can be fixed and weighted cross-departmentally.
In order to draw up an objective and above all reproducible shortlist, the use of pertinent selection methods such as the ABC analysis (see Sect. 7.3) or a cost-benefit analysis will be advised. The latter is a quantitative decision-making instrument, with the help of which an issue can be analysed and evaluated according to a scoring system. As shown in the following field, example criteria describing the requirement profile are established and weighted according to their different relevancies. Subsequently, points within a previously fixed scale are awarded that show the estimated degree of fulfilment with regard to each criterion. By summing up the score numbers in due consideration of their weights, a rating can be established that will serve as a basis for the ongoing decision-making process.
Before the supplier selection procedure is concluded, general contractual aspects such as purchasing, quality assurance, and non-disclosure agreements should be safeguarded in order to fix the general framework conditions. Ideally, this has already been done during the tender phase.
The supplier selection procedure ends in a joint decision-making process of all involved functions that in most cases will include commissioning first samples. As a result, the supplier is included in the list of released suppliers, and a separate parts release process is beginning.
Practical Tip
In the project shown in Fig.4.4, the task was to identify suppliers for optomechanical components that in a break from tradition should have been capable of supplying not single parts but complete components and sub-assemblies while satisfying the highest demands in quality, look, and feel. The respective companies should be found in the Low Cost Country (LCC) areas of Asia (in which context one must not forget that “low” cost does not automatically mean “best” cost). Due to the expected know-how in combination with low wage structures, we chose Asia as the most favourable procurement region for this project. Furthermore, the supplier should not be too big; they should bring sufficient development potential as future system suppliers, and they should be independent. At first, in concert with our procurement
office in Shanghai, we identified seven suppliers in Japan (which certainly is not a low cost country but has production facilities in such countries), Malaysia, China, and South Korea from whom we wanted to request a proposal. Then we spent several weeks on developing a 12-page, internationally comprehensible catalogue of questions in co-operation with our Development and Quality Assurance departments. Every potential supplier had to answer more than 50 questions concerning all areas of their companies in detail. As far as Japan was concerned,
“old-school” Japan experts warned: “No Japanese company will fill in this question-naire; for things like that you have to know the right people there and I do. I’ll gladly invite you to Japan and will pay the hotel bill” (I can see what you are thinking!). We stuck to our line because Japanese companies are increasingly adapting to global business conventions—not the other way round. We duly received all our questionnaires completely filled in including the one sent to the Japanese supplier.
With the help of a cost-benefit analysis, we then filtered out four potential suppliers. To do so, we had previously defined and weighted 12 criteria (see Fig.4.5) that we evaluated on the basis of the returning questionnaires and the subjective estimations of the members of our team. Although supplier F had the third highest scores in the ranking, we decided against them as the competitive context posed to high a risk.
Therefore, we shortlisted suppliers A, B, C, and D, and nowGemba was asked for.
This Japanese term means: “the scene of the event”. On a supplier visit, we could assure ourselves of the capabilities of the potential suppliers and started to build personal relationships with their decision-makers, which in Asia is at least as important.
In the end, the ranking of our pre-selection proved true. We chose two suppliers that after several months of intense supplier development supplied components in series.
Complexity
Technological requirements
first tier
Requirements
•Coating
•Asphere
•Centering
•Assembly General criteria
•Independent
•Not too big
•Second or third tier supplier
Regions
•Japan
•Malaysia
•Singapore
•China
•Korea
•Others
How or until when established?
Volume
•2012: 20.000 pcs.
•2013: 25.000 pcs.
•2014: 35.000 pcs.
•2015: 50.000 pcs.
Documents
•Technical- /Self-disclosure
•NDA aperture leaf
lens head
helical mount
objective
asphere
second tier
Fig. 4.4 Strategic supplier search for objective components