Supplier selection is a critical decision-making process that aims to identify the most suitable supplier. The supplier selection process is essential and can impact an organization’s competitiveness whilst mitigating supply risks. Therefore, procurement professionals need to develop and deploy an effective supplier selection method, aligned to their organization to ensure the most appropriate suppliers are selected.
Supplier selection needs to assess both qualitative and quantitative criteria to find the most suitable supplier. There are many competitive advantages that can be realized with a supplier that aligns well, some of these are:
- Strengthening the buying organization’s competitiveness
- Reducing an organization’s acquisition costs
- Improving an organization’s profits
- Reducing supply issues
- Increasing customer satisfaction
A poor choice can lead to contrasting outcomes, which can directly affect the performance of the organization. Therefore, the goal of the supplier selection process is to identify the right supplier who can offer the right quality goods or services at an appropriate price based on the requirements of the organization.
It is to be noted, however, that there is no set standard for supplier selection since it’s difficult to follow the same strategy across different organizations, even if they’re producing products with exact same specifications and quality. This is due to factors such as different financial status, brand value of the buyer, etc. Moreover, while the steps of supplier selection might not be stringent for a particular product, for another product it can take shape of a complex framework which has to be managed carefully by procurement professionals.
Supplier Selection Criteria
The advantages of an organizationally aligned set of suppliers far exceed the effort that goes into the selection process. Therefore, identifying the right criteria for an organization is a very important as part of supplier selection . These criteria can be divided into quantitative and qualitative attributes, and should be used as required by the situation. Some commonly used criteria for the supplier selection process are:
The successful definition of these attributes when selecting a supplier requires a well-rounded and organizationally specific policy. Procurement should then collaborate across all key stakeholders to ensure the best organizationally aligned selection criteria.
Setting the Selection Criteria
The ability to apply the attributes in each supplier selection situation correctly has a direct impact on the success of that supplier relationship. Using Supplier Indexing can help with identifying the suppliers that best fit organization in terms of relationship, but the criteria must also be clear on the importance of each specific requirement the supplier will be providing.. After all, effective purchasing must be centered around the business specific needs.
The following steps should be followed to ensure the best criteria fit.
Step 1 – Obtaining requirements from stakeholders
Procurement professionals should identify key stakeholders for a particular category and solicit their requirements for the category. The requirements would provide specific detail in the below areas:
Product or Service Specification
- Product or Service Requirement
- Price
- Delivery
- Quality
Due Diligence
- Performance history
- Production capacity
- Financial stability
- Ease of communication
- Reliability
- Geographical location
- Supplier Indexing alignment
Contractual Requirements
- Organizational policies – HR, CSR, Climate Change, etc
- Legal & regulatory considerations
Step 2 – Documenting requirements
Once these requirements have been sought, procurement professionals should organize them in a clear, well-documented manner which would serve as the single source of information about the goals of supplier selection.
Step 3 – Ensuring collective understanding of requirements
These documented requirements should be then presented to the stakeholders to ensure a shared understanding amongst everyone. Once confirmed, purchasing
managers will have the supplier selection criteria that’s relevant to the specific procurement activity.
Conclusion
Supplier selection is a strategic organizational activity for the procurement department. A well-selected group of suppliers can aid the organization’s efforts to continually increase customer satisfaction, and bolster company’s reputation in the market. Each selection criteria can be wholly different and should be considered at the beginning of any new sourcing exercise.
Key Takeaways
- Procurement professionals should use both quantitative and qualitative attributes when devising supplier selection criteria, and not just focus on quantitative ones.
- The attributes should fit the requirements of the specific procurement activity.
- Selection criteria should be agreed at the beginning of the sourcing process and be aligned with the business strategy and associated organizational requirements for the specific purchase.