Supp Evalu

PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e
Presentation on
Supplier Evaluation and Selection
By Pradeep Owalekar
Based on the cited Book
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
Coverage of Topic
 Supplier evaluation and selection

process
 Key supplier evaluation criteria
 Developing a supplier evaluation and
selection survey
 Critical supplier selection issues
 Reducing supplier evaluation and
selection cycle time
2
Evaluation and Selection Process
 No “one best way”

 Overall objective is to reduce sourcing
risk and maximize value to the buyer
 Need to select suppliers for the long-
term
3
Supplier Selection and Evaluation
4
Scenarios requiring Supplier Evaluation and Selection
Decisions
 During new product development

 Due to poor existing supplier
performance
 At the end of an existing contract
 Buying new equipment
 Expanding into new markets or product
lines
 Receiving internal user requisitions
5
Scenarios requiring Supplier Evaluation and Selection
Decisions
 Performing market tests

 Facing countertrade requirements
 During outsourcing analysis
 Consolidating volumes
 Conducting a reverse auction
 When current suppliers have insufficient
capacity
 Reducing supply base size
Pradeep B. Owalekar
6
Identify Key Sourcing Requirements
 May be determined by internal and

external customers
 Supplier quality
 Cost
 Delivery performance
 Other
 Vary widely from item to item
Pradeep B. Owalekar
7
Determine Sourcing Strategy
 Single vs. multiple sourcing

 Short-term vs. long-term contracts
 Design support vs. operational support
 Full-service vs. non-full-service
suppliers
 Domestic vs. foreign-based suppliers
 Collaboration vs. arm’s length
relationship
Pradeep B. Owalekar
8
Identify Potential Sources
 How well existing suppliers can satisfy

cost, quality, and/or other performance
objectives
 Strategic importance of purchase
requirement
 Technical complexity of purchase
requirement
Pradeep B. Owalekar
9
Information Search Requirements
High Capability of Low Capability of

Suppliers Suppliers
High Strategic Minor to Moderate

Major Information
Importance to Information
Search
Buyer Search
Low Strategic Minor to Moderate

Minor Information
Importance to Information
Search
Buyer Search
Purchasing & Supply Chain Management, 4e

10
Sources of Information
 Current suppliers  Trade journals

 Preferred suppliers  Trade directories
 Sales  Trade shows
representatives  Second-party or
 Information indirect information
databases  Internal sources
 Experience  Internet searches
Pradeep B. Owalekar
11
Sourcing Alternatives
 Manufacturer vs. distributor

 Vendor-managed inventory
 Integrated supply
 Local, national, or international suppliers
 Large vs. small suppliers
 Capability
 Multiple vs. single sourcing

12
Method of Evaluation and Selection
 Evaluation from supplier-provided

information
 Supplier visits
 Use of preferred suppliers
 External or third-party information
Pradeep B. Owalekar
13
Key Suppliers Evaluation Criteria
 Price, quality, and delivery

 Management capability
 Employees capabilities
 Cost structure
 Total quality performance, systems,
and philosophy
 Process and technological capability
Pradeep B. Owalekar
14
Key Suppliers Evaluation Criteria
 Environmental regulation compliance

 Financial stability
 Production scheduling and control
systems
 E-commerce capability
 Supplier’s sourcing strategies, policies,
and techniques
 Longer-term relationship potential
15
Management Capabilities
 Does management practice long-range
planning?
 Has management committed to total
quality management and continuous
improvement?
 How high is management turnover?
 What are the professional and
educational backgrounds of key
managers?
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16
 What is the organization’s vision?

 Is the company customer focused?
 What is the history of labor-
management relations?
 Is the organization making necessary
capital investments?
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17
 Is the organization prepared to face

future competitive challenges?
 Does management fully understand the
importance of strategic sourcing?
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18
Employee Capabilities
 Degree of commitment to quality and

continuous improvement
 Overall skills and abilities
 Employee-management relations
 Worker flexibility
 Workforce turnover
 Willingness to contribute to improved
operations
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19
Total Cost Structure
 Direct labor costs

 Indirect labor costs
 Material costs
 Manufacturing or process operating
costs
 General overhead costs
Pradeep B. Owalekar
20
Challenges of Total Cost Analysis
 Supplier may not understand its true

costs
 Unsophisticated cost accounting system
 Cost data is considered proprietary
 Buyer’s knowledge may undermine
supplier’s pricing strategy
 Supplier is concerned about potential
misuse of its cost data
Pradeep B. Owalekar
21
Total Quality Performance
 Management commitment
 Use of SPC techniques
 Level of defects
 Safety, training, and maintenance
 Use of ISO 9000 criteria

22
Process and Technological Capability
 Level of technology, design capability,

methods used, and equipment
 Current vs. future capabilities
 Resources committed to R&D
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23
Environmental Compliance
 Disclosure of environmental infractions

 Hazardous and toxic waste generation
and management
 Recycling management
 ISO 14000 certification
 Control of ozone-depleting substances
Pradeep B. Owalekar
24
Financial Stability
 Often used as a screening process in
the initial selection phase
 Risks of a financially weak supplier
 Supplier will go out of business
 Insufficient resources to invest in
improved plant and equipment
 Supplier may become too dependent on
buyer
 May be an indicator of other problems
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25
Production Scheduling and Control
 Does the supplier use MRP?

 Does the supplier track material and
production cycle times?
 Can the supplier support the buyer’s
JIT initiatives?
 What are the supplier’s real lead times?
 What is the supplier’s on-time delivery
performance?
Pradeep B. Owalekar
26
E-Commerce Capability
 Web-based B2B vs. EDI systems

 Does the supplier have CAD capability?
 Does the supplier use bar coding?
 Does the supplier use RFID?
 Can the supplier provide ASNs?
 Can the supplier accept EFT transfers?
 Does the supplier utilize e-mail?
Pradeep B. Owalekar
27
Supplier’s Supply Base Strategies
 Tier 1 vs. Tier 2 vs. Tier 3 suppliers

 Sharing of information
 Level of supplier development
activities in the supplier’s own supply
base
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28
Potential for Long-Term Relationships
 Is the supplier willing to participate?

 Can the supplier commit necessary
resources?
 When in the design phase can the
supplier participate?
 How is the supplier unique?
 Can the supplier participate in joint
problem solving and improvement?
Pradeep B. Owalekar
29
 Will there be free and open information

sharing?
 Will the supplier engage in future
planning?
 Can the supplier maintain the buyer’s
need for confidentiality?
 What is the general level of comfort
between the parties?
Pradeep B. Owalekar
30
 How well does the supplier understand

the buyer’s industry and business?
 Will the supplier share cost data?
 Is the supplier willing to share innovation
data early?
 Can the supplier commit to dedicated
capacity?
 What is the supplier’s commitment level?
Pradeep B. Owalekar
31
Evaluation and Selection Surveys
 Identify supplier evaluation categories

 Assign a weight to each category
 Identify and weight subcategories
 Define a scoring system for categories
and subcategories
 Evaluate supplier directly
 Review results and make decision
Pradeep B. Owalekar
32
Initial Supplier Evaluation
Score (1 Weighted
Category Weight Subweight Subtotal
- 5 scale) Score
Quality Systems 20
Process control systems 5 4 4.0
Total quality commitment 8 4 6.4
PPM defect performance 7 5 7.0 17.4
Management Capability 10
Management/labor relations 5 4 4.0
Management capability 5 4 4.0 8.0
Financial Condition 10
Debt structure 5 3 3.0
Turnover ratios 5 4 4.0 7.0
Cost Structure 15
Costs relative to industry 5 5 5.0
Understanding of costs 5 4 4.0
Cost control/reduction efforts 5 5 5.0 14.0
Delivery Performance 15
Performance to promise 5 3 3.0
Lead-time requirements 5 3 3.0
Responsiveness 5 3 3.0 9.0
Technical/Process Capability 15
Product innovation 5 4 4.0
Process innovation 5 5 5.0
research and development 5 5 5.0 14.0
Information Systems Capability 5
EDI capability 3 5 3.0
CAD/CAM 2 0 0.0 3.0
General 10
Support of minority suppliers 2 3 1.2
Environmental compliance 3 5 3.0
Supply base management 5 4 4.0 8.2
Total Score 80.6
Critical Supplier Selection Issues
 Size relationship
 Use of international suppliers
 Competitors as suppliers
 Countertrade requirements
 Social objectives

34
Reducing Selection Cycle Time
 Map the existing process

 Integrate with internal customers
 Data warehouse with supplier
information
 Third-party support
35
Reducing Selection Cycle Time
 New organization design features

 Preferred supplier list
 Electronic tools
 Predefined contract language and
shorter contracts
Pradeep B. Owalekar
36
A Good Supplier Does the Following:
 Builds quality into the product, aiming

for zero defects
 Makes delivery performance a priority
 Demonstrates responsiveness to a
buyer’s needs
 Works with the buyer to reduce lead
times
Pradeep B. Owalekar
37
A Good Supplier Does the Following:
 Provides the buyer with capability and

workload information
 Creates the future
 Reinvests part of its profits into R&D
with a long-term view
 Meets stringent financial stability
criteria when evaluating new
customers
38
Vendor Management Function
Overview & Structure
July 2009
1
Need for Centralized VM function @NJM
• Vendors often don’t communicate changes in processes/technology/services

which can impact NJM business
( This is happening quite frequently)
• 1000+ Contracts to manage

( Too many to manage)
• Vendor service levels/performance monitoring – No structured process to

make vendors accountable for outcomes.
(Difficult to measure the value of a vendor to NJM)
• Too many vendors

( No categorization of vendors to focus on few )
2
Vendor Management Process – Touch Points
3
Key Players
Players Responsibilities
Vendor Various Categories of Service providers to NJM
●
Hardware
●
Software
●
Telecom
●
Services
Business Unit Various Business Units in NJM who need products/services

●
IT, Admin Services, HR, etc.
●
Business units ( Claims, U/W, Finance, Statistical etc )
VMO – Vendor Dedicated centralized function to co-ordinate between key players of NJM
Management Office ( Business Units, Contract Management, Purchasing ) with Vendors.
Key functions of VMO
●
Vendor Management Policy & Guidelines (Standard Templates)
●
Assist business units in Vendor Selection
●
Contract Management (Coordinate/Negotiate Contracts with support from
LoB sponsor and Corporate Legal)
●
Vendor Service Level Management (Performance Management)
●
Vendor Relationship management (LoB sponsor, Corporate Legal, Vendors)
Corporate Legal Contract Management
Purchasing Vendor Payments
4
Vendor Management Office (VMO)
5
Vendor Management Function/Office
Vendor Management
Overview & Structure
Vendor
Vendor Management
Management
Function Build Out
Office
Define Components
Select Function
Owner Build out component
processes and supporting
templates where needed
Name function Integrate into existing

owner to work models as needed
organization (e.g., PMLC/SDLC/
Contract Mgmt)
Leadership/ Define structure for

Function owner housing and using VM
define agree on Materials
function mission,
goals and
objectives
Define Roll- Out Program
6
Vendor Management Office
Who?
“A dedicated group of staff who focus on providing the governance and
processes to oversee and manage suppliers pre and post contract”
What Vendor Relationship should this group manage?

6. Hardware – mainframe, servers, storage and PC’s (IBM, HP, EMC, Lenovo, Dell, etc)
7. Networking equipment (Cisco, Checkpoint, etc)
8. Software Vendor / Products (Guidewire, Oracle / Peoplesoft, Hyland, StoneRiver, etc)
9. Telecom Services (AT&T, Verizon, Tricomm, etc.)
10. IT Consulting & Systems Integration services (HCL, Beacon, etc)
11. IT research services (Celent, Gartner, etc)
12. Data Services (Lynx, MVR, etc )
13. Other Non IT services
Vendor Management Office @ NJM – Current State
Current Practice @NJM Gap/Desired Practice

VMO as a separate  Doesn’t Exist  TBD
function
Vendor  IT, Business units perform vendor  *** Need for Centralized process
Management management function and hence no repository consisting of policies,
Function centralized policy guidelines, templates…
 Vendor Selection Process exists but is  Process variations or missing for other
mostly used for and specific to types of vendors – Professional Services,
software vendor / product selections Business services, etc, and needs to be
built
Contract  Contract Management – Corporate  VM function owner (VMO) needs to

Negotiations legal recently (May 2009) rolled out interface with vendors – by collaborating
NJM contract policy with Corp Legal and Business units
Master List of  Categorized “master” list of vendors  Need to create a master list of vendors
Vendors doesn’t exist with key attributes
*** One of the objectives of this exercise is to create a framework for a centralized VM processes
Master List of Vendors - Proposed
p
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at e
a li
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NJM
Re
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Sta
Cri
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En
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pla
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ss
act
act
to
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in
tu r
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lue
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nu
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si
SLA
Na
An
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Vendor Category Vendor
Bu
Co
Co
Ot
1 Hardware
1
2
3
2 Networking Equipment
3 Software
1
2
4 IT Consulting Services
5 Telecom Services
6 Data Services
7 IT Research Services
8 Other Non IT Vendors
High High Strategic >1M Yes

Med Med Tactical 500K -1M No
Low Low Operational 100K-500K
Other 25K-100K
<25K
VMO Vendor Classification - Proposed
 Vendor Classification – helps

define Vendor Management
policies tailored to specific types of
vendors
 NJM can spend more time and

attention with strategic vendors
driving more value through
controlled service level agreements
 Vendor consolidation can be

considered
VMO and Key Functions - Proposed
11
Vendor Management Life Cycle
12
Vendor Management Life Cycle
13
Vendor Management Policy Key Components
Vendor Management
Policy
Vendor Selection
Process
Contract This presentation and attached Visio files – provide
Management a high level framework for drafting a detailed
Vendor management policy.
Relationship
Management
Service Level
Management
14
Vendor Selection Process
15
Vendor Selection Process
16
Vendor Selection Process NJM Artifacts/Templates
Artifacts Current State/Gaps Desired State
Vendor Selection Vendor Selection Process exists This needs to be expanded to

Process for Software vendors accommodate other types of vendor
selection (Business Services, Data
Services, etc)
Vendor Evaluation Vendor Evaluation Template exist Templates need to be developed for other
Template for Software Vendors categories of vendors
RFP/RFI Template Exist for Software Vendors only Templates need to be developed for other
categories of vendors
• NJM existing templates can be refined and improved to evaluate multiple

additional parameters like – vendor financials, business risk, vendor acquisitions,
customer references, site visits, etc
Software Vendor RFP Template Vendor Selection

- Evaluation Process
17
Contract Management
18
Contract Management Touch Points
19
Contract Management NJM Artifacts
Artifact Current State Desired State

NJM Contract Policy Available TBD
May 2009 – Rolled Out
Referral to Contract Available TBD

Management
Contract review guidance Law & Regulation Vendors often provide contracts favorable to
them. Hence it is important to have a check
list of items – which should be part of NJM
contracts.
NJM Contract Management function could

build awareness with NJM Officers and
Manager regarding – “What to look for when
reviewing a contract?”
20
Contract Management
Essentials of Formal Contracts
1. Security Requirements
2. Business continuity requirements
3. Mandated Technical standards
4. Migration plans (Agreed pre-scheduled change)
5. Disclosure agreements
21
Vendor Service Level Management
Performance Metrics
22
Service Level Management
23
Service Level Management
Does Vendor have these in place?

1 Disaster recovery plan in place
2 Internal procedures to track service requests from NJM
3 Single Point of Contact (SPOC) for NJM Relationship
Does Vendor Communicate the following?

1 Vendor roadmap and changes which can impact NJM business
Status reports/Metrics on how they are performing on agreed SLA's in
2 the contract? (At Agreed Frequency)
Does Vendor provide these performance metrics?

1 Performance
Delivery Timelines
Estimation Accuracy
Number of Change Requests
Productivity
Connectivity Analysis
Actual/Planned delivered work requests
2 Quality
Defect Density
Defect Density during UAT
Post implementation defect density
24
Vendor Relationship Management
25
Vendor Relationship Management
1. Identify “single point of contact” at Vendor organization
2. Communication at agreed frequency

●
Monthly/Quarterly
3. Vendor to keep NJM informed of all the events which can impact NJM
business
4. Vendor to encourage / arrange knowledge sharing sessions with other

customers (Best Practice sharing)
5. Vendor to provide access to NJM to training materials, forums, events
6. NJM to treat – Strategic vendors as partners – by sharing information on

initiatives and plans
26
Change Management @NJM
How to implement the VMO framework with minimum impact to NJM operations?
27
Change Management How to implement VMO framework
1. Select VM leader
2. Have leader develop communications plan regarding creation and roll-
out of vendor management function at NJM
3. VM leader works with corporate communications developing ongoing
information communication events, articles, and testimonials as
experiences are acquired
4. VM leader works with Corporate Legal, Contract Management function,
Communications, and Learning & Development to create a
comprehensive awareness-building, and training video on the key
concepts of vendor management
5. VM leader works with NJM leaders and LoB leaders to establish
oversight guidelines for adhering to Vendor Management best practices
28
Supplier Selection
Training for Selecting the Right Supplier
by
Scott Mathusek
10 April 2010 Supplier Selection 1

What will be covered
• Supplier Selection Defined
• Brainstorming Exercise
• Supplier Evaluation and Selection Process
• Real World Example
• Practice Exercise

Supplier Selection Defined
• Supplier: “External entity that supplies relatively
common, off the shelf, or standard goods or
services” (Business Dictionary)
• Supplier Selection: “The stage in the buying
process when the intending buyer chooses the
preferred supplier or suppliers from those
qualified as suitable.” (Westburn Dictionary)

Brainstorming Exercise
• Why is supplier selection so important to
your organization?
• What can result in your company from
having the incorrect supplier?
• What is important to you when finding a
supplier?

1. Recognize the need for supplier selection
2. Identify key sourcing requirements
3. Determine sourcing strategy
4. Identify potential supply sources

5. Limit suppliers
6. Determine method of supplier evaluation
and selection
7. Negotiate and select supplier

Recognize Need for Supplier Selection
• Why are you looking for a supplier?
– End of contract
– Problems with current supplier
– Have new product

Identify Key Sourcing Requirements
• What do you require from your suppliers?
• Are your requirements in alignment with
company goals and mission?
• Consider Carter’s 10 C’s of Supplier
Selection

Carter’s 10 C’s of Supplier Selection
• Competency • Commitment to quality
• Capacity • Cash/finances
• Consistency • Clean
• Control of Process • Culture and relationships
• Cost/Price • Communication

Determine Sourcing Strategy
• How many suppliers are you going to need?
– Single Source
– Multiple Source

Identify Potential Supply Sources
• Where can you find your suppliers?
• Simple brainstorming activity will generate
a long list of possibilities

Limit Suppliers in Pool
• Narrow down your choices
33%
33% 40%
40%
75%
75% 43%
43%
100%
100% 36%
36% 22%
22%
25%
25% 57%
57%
31%
31% 18%
18%
A
10 April 2010 B C
Supplier Selection D E12
Determine Method of Supplier
Evaluation and Selection
• Choose what you would like to evaluate
• Decide where you will gather your
information from
• Make selection from your evaluations

Negotiate and Select Supplier
• Perform negotiations with supplier
• Choose supplier and agree to terms

MFG.com
• Moves to India to better position themselves
as a buyer
• Looks to specifically increase competency,
commitment to quality, and capacity and
lower cost/price

Practical Exercise
• You and three others have narrowed the search
down to four companies
• Using Carter’s 10 C’s you have chosen four factors
you will use to evaluate and have also assigned each
factor a weighted percentage
• Perform a weighted factor analysis to decide which
company to is the best option

Column1 Danny Ryan Jane Helen Mode Average
Competency 40% 30% 25% 30% 30% 31%
Capacity 30% 30% 25% 20% 30% 26%
Consistency 20% 20% 25% 30% 20% 24%
Control of
10% 20% 25% 20% 20% 19%
Process
A B C D
Competency 77 90 76 85
Capacity 85 85 85 90
Consistency 95 86 95 87
Control of Process 90 95 90 90
MODE A B C D
Competency 23.1 27 22.8 25.5
Capacity 25.5 25.5 25.5 27
Consistency 19 17.2 19 17.4
Control of Process 18 19 18 18
Total 85.6 88.7 85.3 87.9
AVERAGE A B C D
Competency 24.1 28.1 23.8 26.6
Capacity 22.3 22.3 22.3 23.6
Consistency 22.6 20.4 22.6 20.7
Control of Process 16.9 17.8 16.9 16.9
Total 85.8 88.7 85.5 87.7
Summary
• The evaluation and selection process is
much based off of company goals, missions,
and preferences
• Use Carter’s 10 C’s to have a more
encompassing evaluation

Readings list
All information used for this presentation is based from information from the following sources:
• Fuller, Neil. “How Many C’s in Partner?” All Business. Supply Management, 8 Sept. 2005. Web. 5 April
2010.
• Hadaway, Jordon. “Supplier Selection.” 12Manage The Executive Fast Track. 12Manage. 6 January
2010. Web. 7 April 2010.
• “Home: Sourcing Platform MFG.com Launches India Operations.” NetIndian, 3 April 2010. Web. 8
April 2010.
• “Supplier.” Business Dictionary. Online Business Dictionary, 2010. Web. 5 April 2010.
• “Supplier Selection.” Westburn Publishers. The Westburn Dictionary of Marketing, 2002. Web. 5 April
2010.
• Oxenbury, Alan. “Making the Right Choice.” Supply Management. Supply Management, 20 July 2006.
Web. 6 April 2010.
• Oxenbury, Alan. “The Final Countdown.” Supply Management. Supply Management, 3 August 2006.
Web. 6 April 2010.
• Wallin, Cynthia. “Supplier Selection.” Brigham Young University. Microsoft PowerPoint file. 9
February 2010.

Supplier Performance Criteria
The Case of SME’s in Former Yugoslavian Republic
of Macedonia (FYROM)
Fotis Missopoulos, Shpend Imeri, Ioanna Chacha
International Conference for Entrepreneurship, Innovation and

Regional Development, 2009
Overview
Suppliers’ Evaluation Methods
Key Performance Indicators
Approaches to Evaluate Suppliers
Methodology
Findings
Conclusion
Areas of Investigation
1.Suppliers’ Evaluation Methods
According to the Institute of Supply
Management team and Weber’s study, there are
three fundamental models to identify and
evaluate suppliers.
1. Categorical Model
2. Weighted-Point Model
3. Cost-Ratio Model
1.1 Suppliers’ Evaluation Methods
Categorical Model
Advantages Disadvantages Users
Easy to implement Least reliable Small firms

Requires Minimal Less frequent

data generation of Firms in the
Different personnel evaluation process of
contribution Most subjective developing an
Good for firms with Usually manual evaluation
limited resources system
Low-cost system
Weighted-Point Model
Flexible system Tends to focus on Most firms

Allows supplier unit price can use it
ranking Requires some
Moderate computer skills

implantation costs
Combines
qualitative &
quantitative factors
into a single
system
Cost-Ratio Model
Provides a total Cost – accounting Large firms

cost approach required Firms with a
Identifies specific Most complex large supply

areas of supplier implementations base
nonperformance High costs
Allows objective Computer resource
supplier ranking required
Greatest potential
for long- range
improvement
(Selection of the suitable method)
As different models have different pros and cons

but still there is a trade-off between the method’s
simplicity and accuracy.
It is important to know which criteria will be used

in order to chose the best approach that fits best
company’s strategy
2.Key Performance Indicators
Dickson’s Supplier evaluation criteria
Weber’s Supplier evaluation criteria

2.1 Key Performance Criteria
Dickson’s Supplier evaluation criteria
Rank Criteria Evaluation
1. Quality
2. Delivery Extreme
3. Performance History
4. Warranties and claim policies importance
5. Production facilities
6.
7.
Net Price
Technical capability
Considerable
8.
9.
Financial position
Procedural compliance
importance
10. Communication system
11. Reputation and position in the industry
12. Desire to do business
13. Management and organization
14. Operating controls
15.
16.
Repair services
Attitude
Average
17.
18.
Impression
Packaging ability
importance
19. Labor relations record
20. Geographical location
21. Amount of past business
22. Training aid
23. Reciprocal arrangements
Slight
importance
2.2 Key Performance Criteria
Weber’s supplier evaluation criteria
Ran Criteria Evaluation
k
1. Net Price Extreme
2. Delivery Importance
3. Quality
4. Production facilities&cap.
6. Technical capabilities
7. Management & organization
8. Reputation & industry position
9. Financial Position
10. Performance History
3. Approaches to Evaluate Suppliers
Methodologies for evaluating are also
known as quantitative approaches and are
used as a tool for the final phase.
The most popular approaches that are

used by innovative companies are:
• Linear Weighting Models

• Total cost of ownership (TCO) Model
• Mathematical Programming Models
• Statistical Models
• Artificial Intelligence (AI) based Models
3.1Approaches to Evaluate Suppliers
Linear Weighting Models
It weights each given criterion by indicating the highest and
least importance.
Analytical Hierarchy Process (AHP) is the most used method
because it manipulates multi-criteria.
3.2 Approaches to Evaluate Suppliers
Total Cost of Ownership (TCO) Models
Very complicated approach
Requires from the buyer to indicate which are
the imperative costs
It entail more than price in a purchasing
situation
Focuses on the costs related to the chain and
created by the suppliers
The approach can be practiced in every kind
of purchase, depending on the type of
product or service
Mathematical programming Models
Select a variety of suppliers by analyzing
mostly multi criteria.
Utilizes a mixed program integer that can
reduce the number of items not received,
delivery and unit price
Hyper LINDO is an integer linear program
solve
Data envelop analysis is also known
mathematical programming method
Statistical Models
The least used model for suppliers’

evaluation
Emphasizes on uncertainty and its time
consuming
It of great importance to employ it as
assessment of buyer-supplier relationship
to dictate their performance
Artificial Intelligence (AI) based Models
It’s a computer system that provides data

information from historical data
Employs Neural Network method
Can cope with difficult and uncertain
situations
AI models are difficult to use
4. Methodology
Aims and objectives of this research:
- Identify if the available theory is applicable and

relevant for this marketplace
- Compare between the main performance
criteria from the literature with those obtained
from SME’s in FYROM
- Clarify the advantages that SME’s could gain
when implementing a structured model for
selecting and evaluating suppliers
4. Methodology cont.
Grounded theory is used as methodology in order
to obtain both primary and secondary data
The primary data was collected through
structured questionnaire and interviews
Companies were selected according to their size,
market share and industry sector.
The questionnaire incorporates both qualitative
and quantitative data in order to answer the
research questions of the study
5.Findings
Industry Sector
Position of respondents
Size of companies
Companies holding quality certification
Evaluation process
Key Performance Criteria in FYROM’s
SME’s
Importance of other factors
5.1 Findings
Industry Sector
Industry Frequency Percent
Manufacturing 23 71.9
Commercial 6 18.8
Services 1 3.1
Other 2 6.3
Total 32 100
5.2 Findings
Position of respondents
Position Frequency Percent
Owner 9 28.1
General 10 31.3
Manager
Purchasing 5 15.6
Manager
Employee 8 25.0
Total 32 100
4.3 Findings
Size of Companies
Number of Frequency Percent
Employees
<50 13 40.6
51-100 13 40.6
101-150 4 12.5
>150 2 6.3
Total 32 100
4.4 Findings
Companies holding quality certification
Certification Frequency Percent
Yes 19 59.4
No 13 40.6
Total 32 100
5.5 Findings
Evaluation process
Certification Frequency Percent
Yes 27 84.4
No 5 15.6
Total 32 100
5.6 Findings
Key Performance Criteria of SME’s in
FYROM
1. Net Price
2. Operational Control
3. Close Relationships
4. Desire for Business
5. Production Facilities and capacity
6. Quality
7. Technological capabilities and innovation
9. Delivery
10. Technical Capability
11. Vendor’s industry position
12. Repair Service
13. Flexibility in changes
14. Management commitment
15. Clear communication paths
16. Warranties and claim policies
17. Procedural compliance
18. Impression by vendors
19. Attitude
20. Packaging
5.6 Findings
Importance of other factors
6. Conclusion
The current research provides knowledge
for improvement performance
Addresses the need of SME’s in FYROM to
collaborate with suppliers
Provides a solid ground for further
research in the area and can serve as to
develop a suppliers evaluation model that
will assist in the selection process
Questions and Answers
Thank You !
Shpend Imeri
Vendor Selection -
A Roadmap to Success
Decision Interface, Inc.

Gary Rinehart
January, 2005
Selecting a Technology Partner
 Vendor selection is a key strategic issue

over the life of an assessment project
 The selection process must involve the
key members of the utilities’ user
communities’ management team
 IT can coordinate the selection process,
but does not have to. Decision Interface recommends
a senior management team comprised of the CIO and
the manager’s of the user community.
 The CIO must drive the technology planning process from the top!
 There is no single correct vendor answer. Each has pros and cons
depending on the strategic vision, competitive position and existing
operations of each client.
2
Milestones in the Vendor Selection Process
Contract Negotiation
Vendor Selection
Demos/Due Diligence
Bid Evaluation/Finalists
RFP
Needs Analysis
Tech Assessment
3
Selecting a Core Systems Vendor - Criteria
Category Explanation
 The current features and benefits of the system and the ability of these features to
allow the client employees to do their jobs better
FUNCTIONALITY  The users’ perception of future systems migration and the impact it will have on the
client
 The ability of the system to support the sales and service goals set by the client
 The ability of the vendor to support and enable the strategic goals of the client
 The ability of the vendor to deliver promised systems and programs on time and
with consistent high quality
 The track record of the vendor in supporting other utilities
VENDOR STRENGTH  The perception of client management that the vendor understands the client and its
unique strategy and will proactively aid in its realization
 The financial strength of the vendor and the ability to continually invest in system
upgrades and enhancements
 The base unit prices that will be charged
 The structure of price increases over five years in various growth scenarios
PRICE  The additional products and services that are included as part of the base price
 The value the client will receive in products and services for the money paid
4
Selecting a Core Systems Vendor - Criteria
Category Explanation
 The technical design of the system and the underlying hardware and software used to
support it
 The ability of the vendor platform to support the continual upgrade and improvement of
ARCHITECTURE the core systems
 The vendor’s stated technology plan and its funding to support the plan
 The ability of the platform to incorporate and maximize the benefits provided by new
technologies
Risk is divided into three categories:
 Technology Risk – The potential that newer, unproven or undeveloped technology will
cause problems in the operating units. Conversely, the risk that older technology will lack
the functionality and flexibility needed by the client
RISK
 Conversion Risk – The possibility that the conversion to new systems will negatively
impact the ability of the client to execute plans and attain goals
 Operations Risk - The possibility that back office and other client operations will be
negatively impacted, either during or after conversion
5
Present a Project Plan to Your CEO
Planning/RFP Development
 Review strategic plan to determine key
technology and information implications
for the future
 Survey employees to discern user system
requirements and operational plans for the
future
 Develop request for proposal (RFP) soliciting bids from
the vendor community
 Develop vendor short list to receive RFP
 Decide upon desired delivery as early as possible
 Have RFP approved by senior management team
6
Decision Interface RFP Philosophy
 Articulate what’s important strategically to the organization

 Include an organized, complete summary of the current systems
environment:
• Applications
• Infrastructure
• Third-party systems and interfaces
• Account and transaction volumes
 Include the client’s technical standards
 Do not prepare 300 pages of “check the box” requirements
 Challenge your vendor with 6 – 8 critical “essay” questions
 Share the evaluation and selection criteria
 Give vendors 4 – 5 weeks to respond
7
Review of Vendor Background and Experience
Recommended Approaches:
 Article search/industry reports on vendor
 Annual report/financial statements of vendor
• Demand financial statements even from private companies
 # of installs by delivery channel and asset size
 Evaluate market momentum
 Ask for a long list of references with contact information
 Ask to see information concerning:
• R&D budget
• Training and user group offerings
• Current interfaces!
8
Review of Vendor Technology
 Ask for technology “white paper” from vendor
 Ask for product architectural details in RFP
• Product name
• First and last installation dates
• Original developer
• Programming languages
• Data structure and database product
• Operating system
• Hardware
• Communications
9
Review of Financial Proposals
 Build a five-year cash flow projection
 Ensure that each proposal includes the same products
and services to compare fairly
 Build a 10% - 20% contingency into each proposal
 Identify any “variable” charges that may
become expensive as transactions
and/or accounts grow
 Don’t forget COLA!
10
Review of Financial Proposals
 Attempt to negotiate fixed arrangements as much as
possible
 Ensure that any required additional hardware,
software, communications and staffing investments
have been identified
 This is especially important when comparing in-house
proposals to service bureau/ASP proposals
 Integration experience
• The difference between “Can do” and “Have done” can easily
be six figures
 Calculate a total five-year cost and an annual cost for
accounting purposes
11
User Demonstrations and Due Diligence
 Live demo at client site
 Written questions to vendor
 Active phone campaign with peers
 Live demo at vendor client site
 Visit to vendor corporate office
Recommended Evaluation:
 Devise a score sheet for each system user
 Use a worksheet to evaluate conversion,
support and operational risks
12
Sample Vendor Score Sheet
Rate vendors on a scale of 1 (poor) to 10 (excellent)
Product A Product B Product C

Weightin
g Raw Weighted Raw Weighted Raw Weighted
Functionality X%
Vendor
X%
Strength
Architecture X%
Price X%
Risk X%
TOTAL
100%
SCORE
13
 Decision Interface understands the myriad issues that can

arise in the Vendor Selection process.
 Decision Interface's Contract Negotiation Services
include:
• A thorough review of key pricing and service terms
• An examination of the proposed vendor contract
• Close coordination with you to resolve documented issues
• Interface with the vendor (as directed by you)
14
Contact Negotiation
 Decision Interface's Contract Negotiation Services are

entirely client-directed.
• We can act as Lead Negotiator
– Saving you time and preserving the client/vendor relationship.
• We can provide "behind the scenes" assistance
– Supplying you with a detailed issues list that you can use as the
foundation for negotiations with your vendor.
 In every contract negotiation, Decision Interface can be

available for insight and advice.
15
 Decision Interface conducts a comprehensive evaluation

of every element of your proposed contract, including:
• Price, initial costs, license fees, conversion and training costs,
operating expense, etc.
• Term
• Business issues
• Payment terms
• Service level agreements
• Conversion timing
• Termination penalties
• Performance warranties
• Ownership of custom enhancements
• Escrow arrangements
• Bank and vendor responsibilities
16
 The terms of the contract you sign with your vendor will
be with you for years to come.
 Decision Interface can help ensure you the best possible
advantage.
17
Contract Negotiation Tips
 Keep contract to a five-year maximum for core

processing, less for newer technology
 Real time versus batch interfaces
• Vendors often “forget” to mention when it’s a batch interface
• Cost difference can be dramatic
 Set a hard cap on COLA or guaranteed revenue growth
to vendor
 Aggressive SLA’s in the contract help to set the tone of
the upcoming relationship early
18
Questions?
Vendor Selection -
A Roadmap to Success
19
OUTSOURCING AND VENDOR MANAGEMENT
SUBMITTED BY
GROUP#9 MBA-IT 2012-14
AGENDA
• Introduction to Outsourcing
• Reasons for Outsourcing
• Types of Outsourcing
• What can be Outsourced
• When to Outsource
• How to Implement Outsourcing
• Model Of Outsourcing
• Vendor Management
• Case Study Vendor management
• TCO
• Conclusion
INTRODUCTION
Services
COMPANY OUTSOURCER
Organization Service
Level Level
Agreement Agreement
Outsourcing denotes the continuous

procurement of services from a third
party, making use of highly integrated
processes, organization models and
information systems
3
REASONS FOR OUTSOURCING
• Traditional role - reaction to

problem
• Reduction and control of costs
• Avoid large capital investment
costs
• Insufficient resources available
• Modern role – business strategy
• Allows company to focus on
their core competencies
• Keeping up with cutting-edge
technology
• Creating value for the
organization and its customers
• Building partnerships
TYPES OF OUTSOURCING
Outsourcing models:
Business
processes BPO: Business Process Outsourcing
BPO
Administrative APO: Administrative Process Outsourcing
processes
ASP: Application Service Provider
AMO Application Development
DBRO: Design, Build, Run & Operate
and Maintenance
ADM: Application Develop. & Maintenance
IT-infrastructure ITO: IT Infrastructure Outsourcing

SDO
ITS: IT Services, Managed Hosting
AMO - Application Management
Outsourcing
SDO – SERVICE DELIVERY OUTSOURCING
• Security
Client Operations Management • End-to-end security services
Security Data Technical Network Desktop Supplier including firewall
Delivery
capabilities
Centers Support Services Mgmt. Mgmt. management, intrusion
&
detection, identity management
Mobility
and security policy
• Data Centers
• Remote and on-site managed
Sales Support and Mobilization server hosting
• Data centers
Hosting • Technical Support
Technical Support
• - Help desk, desk-side and self-
service support
Network Management • - Global hubs
Services
• Network Services
Security Operations • Managing data and voice
networks
Desktop Management & Mobility
• Desktop Management and
Messaging & Collaboration Mobility
• PC, laptop, hand-held, distributed
7
• Supplier Management
BPO-BUSINESS PROCESS OUTSORCING
WHAT CAN BE OUTSOURCED
• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• Maintenance/repair
• Applications development
• E-commerce
• End-user support system
WHEN TO OUTSOURCE
Strategic Non-Strategic
Competitive Not Grey

Outsourced Area
Non-Competitive In House
Outsource
if Possible
PricewaterhouseCoopers Model
HOW TO IMPLEMENT OUTSOURCING
• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementation
• Transferring staff
• Service Level Agreement (SLA)
• Establish communications
between partners
• Actual transfer of the service
• Establish management
procedures
• Contract agreement
• Contract fulfillment
LEAD SUPPLIER MODEL
• LEAD SUPPLIER MODEL

• Continuation of the
traditional outsourcing
model
• One supplier –
responsible for the the
activity
• Activities carried out by
subcontractors
• Cooperation and
coordination between all
the suppliers
COLLABORATIVE PARTNERING MODEL
• COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, roles, and
responsibilities
• Usage of sub-suppliers for
specifics activities
• Cooperation and exchange
of knowledge
• Competitive environment
7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carry out a SWOT analysis to evaluate the risks the company is exposed to
• Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive
• research
• Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing
etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify
processes and procedures as well backup, recovery, and business continuity
plans
• Set clear SLAs, Set KPIs and ROI evaluation systems
• Evaluate carefully the expenditures on the outsourcing partnerships
CORPORATE GOVERNANCE
• Focus on outcomes not on

transactions
• Focus on the WHAT, not the
HOW
• Agree on clearly defined and
measurable outcomes
• Optimize pricing model
incentives for cost/service
trade-offs
• Governance structure provides
insight, not merely oversight
PREPARING FOR OUTSOURCING
DO NOT FORGET TUPE
• TUPE stands for The Transfer of Undertakings (Protection of
Employment) Regulations 1981. The Regulations were
introduced to safeguard employees’ rights in the event of a
transfer of an undertaking, business or part of a business. This
includes:
– The obligation to inform and consult all employees in

scope transfer
– Transferee inherits all claims and statutory rights
– Continuity of employment is preserved for employees
– Employees transfer on their existing terms and conditions
of employment
– Transfer connected dismissals are automatically unfair
CASE STUDY
Insurance Company’s outsourcing challenge
• Multiple company locations across geographies

• Lack of accountability due to inadequate and unclear
• support delegation
• High Turnaround Time (TAT)
• Unclear support procedures
• Customer dissatisfaction
• Employee frustration
• Growing resource costs due to delay
• High incidence of repetitive and abandoned calls
• Burden of regular training and technology updates for
support functions
• Absence of data capture on requests, solutions
provided and follow-up
ac
k
of
ac
co
un
ta
bil
ity
du
e
to
RESULTS
Some of the key result areas identified were:

 Annual revenue savings close to 60 percent
 Better process standardization using a detailed manual
on process maps / flow charts
 Leveraging core competencies and reducing onshore load
 Better efficiency at lower delivery cost following a
continuous process improvement model
 Improved TAT through implementing a TAT monitoring
system and access provisioning
 More flexibility to changing technology environment
 Specialized and continuous training programs to help
staff stay current
 Value-add in business model through customer relationship building
VENDOR MANAGEMENT
• Vendor management is a discipline that enables organizations to

control costs, drive service excellence and mitigate risks to gain
increased value from their vendors throughout the deal life cycle –
“Gartner”
• Vendor management allows you to build a relationship with your
suppliers and service providers that will strengthen both
businesses.
• It is not negotiating the lowest price possible but it is constantly
working with your vendors to come to agreements that will
mutually benefit both companies.
• A well managed vendor relationship will result in increased
customer satisfaction, reduced costs, better quality, and better
service from the vendor
FOUR STEPS FOR SUCCESSFUL
VENDOR MANAGEMENT
Due Diligence
Risk Analysis in Vendor
selection
Documenting
Supervision
the Vendor
and
Relationship
Monitoring of
Contract
Vendors
Issues
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, the nature of the activities the vendor
will perform, and the inherent riskiness of the activity.
- What would be the effect on the company if the function failed or

was not adequately performed ?
- Will outsourcing this function cause dependency on the third-party

provider for an essential function?
- Are there other potential vendors that could quickly provide the
same service if the current vendor fails?
STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operationally meet the requirements for the proposed service
and an inquiry into the vendor's financial ability to deliver on its
promise
• Company should question operational

issues, staffing, expertise, and the vendors internal control
• The Company must consider the financial condition of the vendor. It

should analyse any available audited financial statements or
balance sheets.
STEP 3: DOCUMENTING THE
VENDOR
RELATED CONTRACT ISSUES
All contracts should be in writing and, to the extent applicable, should cover
• Expectations and responsibilities
• The scope of work and fees
• Type and frequency of reporting on the status of work involved
• Process for changing scope of work
• Ownership of any work product
• An acknowledgement that the vendor is subject to regulatory review
• privacy and information security, and supervision and dispute resolution
Legal counsel should review all significant contracts
If the contract is a technology contract, a service level agreement (SLA) is essential. An

SLA will establish the performance standard and service quality expected under the
agreement.
The term of the contract is another essential factor.
STEP 4:ONGOING SUPERVISION AND
MONITORING OF VENDORS
• To adequately supervise a vendor, an officer must review
and be accountable for the performance of the vendor
• Monitoring and supervision should include ongoing (at

least annual) review of the vendor's financial condition and
insurance coverage
• The vendor's contingency plans should be reviewed to be

certain that they remain in place and have been adequately
tested.
VENDOR MANAGEMENT – CISCO
CASE STUDY
CHALLANGE SOLUTION
• More than 35000 employees, 100’s of • Global vendor Management
locations, Huge IT Infrastructure Office(VMO) within CISCO that supports
Budget, Each office has complex strategic vendor relationships across IT
requirements Organizations
• Cisco uses its own products and services
wherever possible, but still spends • VMO has Defined Seven Phases of
US$500M a year globally on other IT CISCO Vendor Management
products and services. ENGAGE
• Lack of Consistent Processes and INVESTIGATE
Strategic Planning cost CISCO significant EVALUATE
amount of money NEGOTIATE
• It had signed multiyear contracts for CONTRACT
products that became obsolete as they COMPLIANCE
moved to new technologies RENEW
CASE STUDY
S
ENGAGE : When changing business climates or

technologies generate the need for products or
services within Cisco, the VMO leads the
engagement of vendors to help ensure
consistency and fairness of communications
INVESTIGATE : The VMO also works with sales,

marketing, development, business units,
finance, and procurement to identify potential
vendors, and investigate possible solutions.
EVALUATE : The VMO initiates a bid process.

The VMO will issue a RFI to gain more
information from vendors if needed; or a more
detailed RFP
CASE STUDY
NEGOTIAION : Low Prices, Strong Strategic

Partnership, clear deliverables and fair prices of
product deliverable
CONTRACT: Cisco purchasing group confirms

the contract, working closely with the Cisco
legal department to resolve any contract issues.
Contract length no more than 24 to 36 months
COMPLIANCE : VMO generates quarterly

reviews that compare commitments and
performance with established criteria
RENEW : VMO proactively reengages with

vendors and Cisco client groups to restart the
process
Life Cycle Of Vendor Management
Evaluate and Select the Highest

Value Vendors
• Standardize required phases and

steps.
• Capture key documents and

information.
• Enforce review and approval

processes to ensure stakeholder
buy-in.
Manage and Measure
• Centralize vendor information.
• Track and monitor vendor

commitments — contractual or
otherwise .
• Establish alerts to ensure

commitments are met, issues
addressed, and renewals tackled.
• Systematically score vendors across

multiple categories of
performance, while allowing
stakeholders to rate vendors in the
categories that apply to them
• Conduct period-over-period
performance reviews of like vendors to
identify consolidation opportunities.
Optimize and Consolidate
Perform portfolio-level analysis and

reporting to support a fact-
based, systematic program for strategic IT
Life Cycle Of Vendor Management vendor management.
BMC Supplier Management Tool
TOTAL COST OF OWNERSHIP
TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitative cost of acquisition
of project in IT in order to
make decision.
NEED OF TCO
• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision making
• Communication of cost issues internally and with
suppliers
• Support external teams with suppliers
• Better insight/understanding of cost drivers
• Support an outsourcing analysis
METHODOLOGY TO CALCULATE TCO
Acquisition • Advisory services

• Vendor performance
Costs • Time and effort for acquiring Etc.
• Hardware
Ownership • Human resources
Costs • infrastructure
• Communication system Etc.
Post Ownership • Maintenance
Posts • Disaster recovery and maintenance Etc.

TCO BASED ON OUTSOURCING
SECTOR
CASE STUDY
CONCLUSION
• Invest in Planning
• Focus on Total cost of Ownership
• Manage costs holistically
• Use real time expertise to provide

offshore knowledge and process
management
THANK YOU
OUTSOURCING AND VENDOR MANAGEMENT
SUBMITTED BY
GROUP#9 MBA-IT 2012-14
AGENDA
• Introduction to Outsourcing
• Reasons for Outsourcing
• Types of Outsourcing
• What can be Outsourced
• When to Outsource
• How to Implement Outsourcing
• Model Of Outsourcing
• Vendor Management
• Case Study Vendor management
• TCO
• Conclusion
INTRODUCTION
Services
COMPANY OUTSOURCER
Organization Service
Level Level
Agreement Agreement
Outsourcing denotes the continuous

procurement of services from a third
party, making use of highly integrated
processes, organization models and
information systems
3
REASONS FOR OUTSOURCING
• Traditional role - reaction to

problem
• Reduction and control of costs
• Avoid large capital investment
costs
• Insufficient resources available
• Modern role – business strategy
• Allows company to focus on
their core competencies
• Keeping up with cutting-edge
technology
• Creating value for the
organization and its customers
• Building partnerships
TYPES OF OUTSOURCING
Outsourcing models:
Business
processes BPO: Business Process Outsourcing
BPO
Administrative APO: Administrative Process Outsourcing
processes
ASP: Application Service Provider
AMO Application Development
DBRO: Design, Build, Run & Operate
and Maintenance
ADM: Application Develop. & Maintenance
IT-infrastructure ITO: IT Infrastructure Outsourcing

SDO
ITS: IT Services, Managed Hosting
AMO - Application Management
Outsourcing
SDO – SERVICE DELIVERY OUTSOURCING
• Security
Client Operations Management • End-to-end security services
Security Data Technical Network Desktop Supplier including firewall
Delivery
capabilities
Centers Support Services Mgmt. Mgmt. management, intrusion
&
detection, identity management
Mobility
and security policy
• Data Centers
• Remote and on-site managed
Sales Support and Mobilization server hosting
• Data centers
Hosting • Technical Support
Technical Support
• - Help desk, desk-side and self-
service support
Network Management • - Global hubs
Services
• Network Services
Security Operations • Managing data and voice
networks
Desktop Management & Mobility
• Desktop Management and
Messaging & Collaboration Mobility
• PC, laptop, hand-held, distributed
7
• Supplier Management
BPO-BUSINESS PROCESS OUTSORCING
WHAT CAN BE OUTSOURCED
• System integration
• Data network
• Mainframe data center
• Voice
network, internet/intranet
• Maintenance/repair
• Applications development
• E-commerce
• End-user support system
WHEN TO OUTSOURCE
Strategic Non-Strategic
Competitive Not Grey

Outsourced Area
Non-Competitive In House
Outsource
if Possible
PricewaterhouseCoopers Model
HOW TO IMPLEMENT OUTSOURCING
• Program initiation
• Opinions and ideas shared to
form draft contract
• Program implementation
• Transferring staff
• Service Level Agreement (SLA)
• Establish communications
between partners
• Actual transfer of the service
• Establish management
procedures
• Contract agreement
• Contract fulfillment
LEAD SUPPLIER MODEL
• LEAD SUPPLIER MODEL

• Continuation of the
traditional outsourcing
model
• One supplier –
responsible for the the
activity
• Activities carried out by
subcontractors
• Cooperation and
coordination between all
the suppliers
COLLABORATIVE PARTNERING MODEL
• COLLABORATIVE
PARTNERING MODEL
• Choice of several lead
suppliers
• Clear
parameters, roles, and
responsibilities
• Usage of sub-suppliers for
specifics activities
• Cooperation and exchange
of knowledge
• Competitive environment
7 STEPS TO A SUCCESSFUL SOURCING
STRATEGY
• Identify the company’s needs and determine the needs of your customers.
• Carry out a SWOT analysis to evaluate the risks the company is exposed to
• Set out and carefully choose one or multiple outsourcing partners through a
thorough and extensive
• research
• Once the supplier/s is/are selected, choose on an outsourcing model that
works best for the company’s need (near-shoring,off-shoring,multi-sourcing
etc.)
• Begin talks and discussions with your outsourcing partner/s to clarify
processes and procedures as well backup, recovery, and business continuity
plans
• Set clear SLAs, Set KPIs and ROI evaluation systems
• Evaluate carefully the expenditures on the outsourcing partnerships
CORPORATE GOVERNANCE
• Focus on outcomes not on

transactions
• Focus on the WHAT, not the
HOW
• Agree on clearly defined and
measurable outcomes
• Optimize pricing model
incentives for cost/service
trade-offs
• Governance structure provides
insight, not merely oversight
PREPARING FOR OUTSOURCING
DO NOT FORGET TUPE
• TUPE stands for The Transfer of Undertakings (Protection of
Employment) Regulations 1981. The Regulations were
introduced to safeguard employees’ rights in the event of a
transfer of an undertaking, business or part of a business. This
includes:
– The obligation to inform and consult all employees in

scope transfer
– Transferee inherits all claims and statutory rights
– Continuity of employment is preserved for employees
– Employees transfer on their existing terms and conditions
of employment
– Transfer connected dismissals are automatically unfair
CASE STUDY
Insurance Company’s outsourcing challenge
• Multiple company locations across geographies

• Lack of accountability due to inadequate and unclear
• support delegation
• High Turnaround Time (TAT)
• Unclear support procedures
• Customer dissatisfaction
• Employee frustration
• Growing resource costs due to delay
• High incidence of repetitive and abandoned calls
• Burden of regular training and technology updates for
support functions
• Absence of data capture on requests, solutions
provided and follow-up
ac
k
of
ac
co
un
ta
bil
ity
du
e
to
RESULTS
Some of the key result areas identified were:

 Annual revenue savings close to 60 percent
 Better process standardization using a detailed manual
on process maps / flow charts
 Leveraging core competencies and reducing onshore load
 Better efficiency at lower delivery cost following a
continuous process improvement model
 Improved TAT through implementing a TAT monitoring
system and access provisioning
 More flexibility to changing technology environment
 Specialized and continuous training programs to help
staff stay current
 Value-add in business model through customer relationship building
VENDOR MANAGEMENT
• Vendor management is a discipline that enables organizations to

control costs, drive service excellence and mitigate risks to gain
increased value from their vendors throughout the deal life cycle –
“Gartner”
• Vendor management allows you to build a relationship with your
suppliers and service providers that will strengthen both
businesses.
• It is not negotiating the lowest price possible but it is constantly
working with your vendors to come to agreements that will
mutually benefit both companies.
• A well managed vendor relationship will result in increased
customer satisfaction, reduced costs, better quality, and better
service from the vendor
FOUR STEPS FOR SUCCESSFUL
VENDOR MANAGEMENT
Due Diligence
Risk Analysis in Vendor
selection
Documenting
Supervision
the Vendor
and
Relationship
Monitoring of
Contract
Vendors
Issues
STEP 1: RISK ANALYSIS
Risk Analysis requires the Company to identify the importance of the
function to the organization, the nature of the activities the vendor
will perform, and the inherent riskiness of the activity.
- What would be the effect on the company if the function failed or

was not adequately performed ?
- Will outsourcing this function cause dependency on the third-party

provider for an essential function?
- Are there other potential vendors that could quickly provide the
same service if the current vendor fails?
STEP 2: DUE DILIGENCE IN
VENDOR SELECTION
• Due diligence requires a reasonable inquiry into a vendor's ability
to operationally meet the requirements for the proposed service
and an inquiry into the vendor's financial ability to deliver on its
promise
• Company should question operational

issues, staffing, expertise, and the vendors internal control
• The Company must consider the financial condition of the vendor. It

should analyse any available audited financial statements or
balance sheets.
STEP 3: DOCUMENTING THE
VENDOR
RELATED CONTRACT ISSUES
All contracts should be in writing and, to the extent applicable, should cover
• Expectations and responsibilities
• The scope of work and fees
• Type and frequency of reporting on the status of work involved
• Process for changing scope of work
• Ownership of any work product
• An acknowledgement that the vendor is subject to regulatory review
• privacy and information security, and supervision and dispute resolution
Legal counsel should review all significant contracts
If the contract is a technology contract, a service level agreement (SLA) is essential. An

SLA will establish the performance standard and service quality expected under the
agreement.
The term of the contract is another essential factor.
STEP 4:ONGOING SUPERVISION AND
MONITORING OF VENDORS
• To adequately supervise a vendor, an officer must review
and be accountable for the performance of the vendor
• Monitoring and supervision should include ongoing (at

least annual) review of the vendor's financial condition and
insurance coverage
• The vendor's contingency plans should be reviewed to be

certain that they remain in place and have been adequately
tested.
CASE STUDY
CHALLANGE SOLUTION
• More than 35000 employees, 100’s of • Global vendor Management
locations, Huge IT Infrastructure Office(VMO) within CISCO that supports
Budget, Each office has complex strategic vendor relationships across IT
requirements Organizations
• Cisco uses its own products and services
wherever possible, but still spends • VMO has Defined Seven Phases of
US$500M a year globally on other IT CISCO Vendor Management
products and services. ENGAGE
• Lack of Consistent Processes and INVESTIGATE
Strategic Planning cost CISCO significant EVALUATE
amount of money NEGOTIATE
• It had signed multiyear contracts for CONTRACT
products that became obsolete as they COMPLIANCE
moved to new technologies RENEW
CASE STUDY
S
ENGAGE : When changing business climates or

technologies generate the need for products or
services within Cisco, the VMO leads the
engagement of vendors to help ensure
consistency and fairness of communications
INVESTIGATE : The VMO also works with sales,

marketing, development, business units,
finance, and procurement to identify potential
vendors, and investigate possible solutions.
EVALUATE : The VMO initiates a bid process.

The VMO will issue a RFI to gain more
information from vendors if needed; or a more
detailed RFP
CASE STUDY
NEGOTIAION : Low Prices, Strong Strategic

Partnership, clear deliverables and fair prices of
product deliverable
CONTRACT: Cisco purchasing group confirms

the contract, working closely with the Cisco
legal department to resolve any contract issues.
Contract length no more than 24 to 36 months
COMPLIANCE : VMO generates quarterly

reviews that compare commitments and
performance with established criteria
RENEW : VMO proactively reengages with

vendors and Cisco client groups to restart the
process
Evaluate and Select the Highest

Value Vendors
• Standardize required phases and

steps.
• Capture key documents and

information.
• Enforce review and approval

processes to ensure stakeholder
buy-in.
Manage and Measure
• Centralize vendor information.
• Track and monitor vendor

commitments — contractual or
otherwise .
• Establish alerts to ensure

commitments are met, issues
addressed, and renewals tackled.
• Systematically score vendors across

multiple categories of
performance, while allowing
stakeholders to rate vendors in the
categories that apply to them
• Conduct period-over-period
performance reviews of like vendors to
identify consolidation opportunities.
Optimize and Consolidate
Perform portfolio-level analysis and

reporting to support a fact-
based, systematic program for strategic IT
Life Cycle Of Vendor Management vendor management.
BMC Supplier Management Tool
TOTAL COST OF OWNERSHIP
TCO is
Philosophy, Methodology and
tool for analyzing all the
relevant quantitative and
qualitative cost of acquisition
of project in IT in order to
make decision.
NEED OF TCO
• Performance measurement
• Framework for cost analysis
• Benchmarking performance
• More informed decision making
• Communication of cost issues internally and with
suppliers
• Support external teams with suppliers
• Better insight/understanding of cost drivers
• Support an outsourcing analysis
METHODOLOGY TO CALCULATE TCO
Acquisition • Advisory services

• Vendor performance
Costs • Time and effort for acquiring Etc.
• Hardware
Ownership • Human resources
Costs • infrastructure
• Communication system Etc.
Post Ownership • Maintenance
Posts • Disaster recovery and maintenance Etc.

TCO BASED ON OUTSOURCING
SECTOR
CASE STUDY
CONCLUSION
• Invest in Planning
• Focus on Total cost of Ownership
• Manage costs holistically
• Use real time expertise to provide

offshore knowledge and process
management
THANK YOU
S
QUESTION:
• Discuss How Organisational Buyers Evaluate Potential
Suppliers.
TITLE
Supplier Evaluation Selection
PRESENTED BY
Sinqobile Ndebele L013-0961R
&
Sibonginkosi Ndhlovu L013- 1354J Supplier Selection
2 March 2017 1
CONTENT
• Supplier, Buyer Supplier Evaluation Definition.
• Brainstorming Exercise.
• Approaches to supplier evaluation.
• Importance of Suppler Evaluation.
• Mitigate Risk.
• Supplier Evaluation Selection Process and Criteria.
• The Procurement Cycle.
• Carter’s 10 C’s of Supplier Selection.
• Real World Example.
• Tender/Bids.
• Bonus – Ethics.
• References.
2
www.google.co.zw/imgres?imgurl
Supplier Evaluation
www.google.co.zw/imgres?imgurl 3
Supplier Defined
Supplier: “External entity that supplies relatively
common, off the shelf, or standard goods or
services” (Business Dictionary)
A supplier is a business or individual that
supplies one’s business with products or services
that one uses in his or her business. For example
for chicken inn, some of its suppliers could be a
broiler company(supplying with chicken, the
electricity company supplies with electricity. 4
Broiler as a Supplier
Chicken Inn Logo Chicken Inn Suppliers
5
Supplier Selection Definition
• Supplier Selection: “The stage in the buying process when
the intending buyer chooses the preferred supplier or
suppliers from those qualified as suitable.” (Westburn
Dictionary)
• Sherry Gordon (2008) states that supplier evaluation is

also a process applied to current suppliers in order to
measure, monitor their performance for the purposes of
reducing costs, mitigating risk and driving continuous
improvement. Thus one can then argue that supplier
evaluation is a comprehensive model used to minimize
the risk associated with quality and delivery
6
Brainstorming Exercise
• Why is supplier selection so important to
your organization?
• What can result to your company by having
the incorrect supplier?
• What is important to you when finding a
supplier?
7
APPROACHES TO SUPPLIER EVALUATION
• CONFERENCE ROOMS
• SITE VISITS
• USING THIRD PARTY EVALUATORS
8
Conference rooms
Face to face discussion can help clarify

specifications and determine whether a
supplier can meet the demands of a
complex purchase
9
Site visits
Many suppliers look good on paper,

but visiting a site can help
determine whether there are
inefficiencies
10
Third Party
Evaluators
Trained third party organisations are

often hired to evaluate and audit
suppliers Resource intensive
• Requires trained personnel
• Involves surveys 11
Importance of Supplier Evaluation in
Business
Increase Performance Visibility

When companies do not know the facts about their
suppliers, supplier management tend to be based on
guesses. evaluating suppliers helps to improve
performance and meet the goals of the organisation thus
increasing the performance visibility.
12
Mitigate Risk
• Insight into supplier performance and business
practices helps to reduce business risks. Those
risks can be financial or operational
Align Customer & Supplier
Business Practices
• Suppliers should run their business in alignment
with their customers, they can share same
business ethic and expect similar standards of
excellence as well as showing commitment to
continuous improvement.
13
Supplier Evaluation Selection Criteria
• Competitive pricing
• Ability to meet specifications and standards
• Product and service quality
• Product yields and durability (food)
© iStockphotovm
14
The Procurement Cycle
www.linkedin.com
15
Ray Carter’s Key to
Successful Evaluation
Ray Carter director

of DPSS Consultants
first outlined his
seven Cs of supplier
evaluation in a 1995
article in
‘purchasing and
supply
management’ and
later added new Cs
to the model.
16
Carter’s 10 C’s of Supplier Selection
@@@@@@@@@@@@@@@@@@@
• Competency • Commitment to
• Capacity Quality
• Consistency • Cash/Finances
• Clean
• Control of Process
• Culture & Relationships
• Cost/Price
• Communication
17
Competency
• Looking at how competent the
supplier is, in what they do?
• Do they possess the needed skills i.e.
Building Project, Accounting and
Auditing
• Supplier's capabilities measured
against your needs
18
Capacity
• The supplier needs to have enough
capacity to handle your firm's
requirements.
• Does it have the resources to meet
your needs, particularly when
commitments to other clients are
considered?
19
Consistency
• Expect the supplier to deliver exactly
what you want every time. If it is not
exactly what you want, it should be
exactly what you require.
• The supplier needs to be consistent
with timing and quality issues.
20
Control of Process
• Query how much control this supplier has
over its policies, processes, procedures, and
supply chain.
• How will it ensure that it delivers consistently

and reliably, particularly if it relies on scarce
resources, and particularly if these are
controlled by another organization?
21
Cost/Price
• It is vital to look at the cost of the product that this
supplier provides.
• How does product compare with the other firms
that you're considering?
• Most people consider cost to be a key factor when
choosing a supplier. However, cost is in the middle
of the 10 Cs list for a reason:
• Other factors, such as a commitment to quality and
financial health, can potentially affect your business
much more than cost alone, particularly if you will
be relying on the supplier on an on-going basis.
22
‘’Quality means doing it right even if
nobody is looking’’ Henry Ford
23
Commitment to Quality
• The supplier needs to provide evidence that it's
committed to high quality standards. Where
appropriate, look for quality initiatives within the
organization, such as ISO 9001, SAZ and Six Sigma .
• The supplier also needs to show that it is committed
to your Company, as a customer, for the duration of
the time that you expect to work together. (This is
particularly important if you're planning a long-term
relationship with the supplier.)
• You'll need evidence of its on-going commitment to
delivering to your requirements, whatever the needs
of its other customers.
24
Look at what happened at Nandos building in
Bulawayo btwn 7th & 8th Jason Moyo
This has led to speculations on the quality of

workmanship as well as health and safety
concerns ~
To all Stakeholders
Involved.
Whatsapp photo chats 25

Cash/finances
 Read the Supplier’s financial reports,
look deeper than the numbers.
 Your supplier should be in good

financial health. Cash-positive firms are
in a much better position to weather
the ups and downs of any uncertain
economy.
 Does this supplier have plenty of cash

at hand, or is it overextended
financially? And what information can
the supplier offer to demonstrate its
on-going financial strength?
26
CLEAN
• Make sure that their buildings and products are clean

and sanitary.
• By clean; Carter means that you want to make sure that
the products the supplier uses are not controversial,
dangerous, or tampered with in any way.
• For example, if you are Nike and you are having a
company make your shoes you will want to make sure
you are not using sweat shops somewhere along the
supply chain. If you are a toy company and you buy your
toys from China you will want to make sure that the toys
are not painted with lead paint.
27
Comparison or two Suppliers in the
Beef Industry
Dirty Environment Clean and up to Standard
28
Culture and Relationships
• The best business relationships are based on
closely matching workplace core values . This
is why looking at the supplier's business
culture is important. For example, what if
your organization's most important value is
quality, and your main supplier cares more
about meeting deadlines? This mismatch
could mean that it's willing to cut corners in a
way that could prove to be unacceptable to
you.
29
Communication
• This goes a lot with culture and relationships.
• It actually goes well with the other 9 C’s.
• Does the supplier have the technology to stay
in communication with you?
• How does the supplier communicate?
• How often does the supplier communicate?
• Are they willing to give proprietary
information?
30
In short we are saying
If you use Ray Carter’s Key to Successful
Evaluation you will never go wrong
31
Real Life Examples
• How companies or organisations

deal when buying
• Pertaining to big projects or day
to day buying by companies and
organisation
32
In Short
• For Day to day Orders i.e. Stationary & Cleaning

material, in a formal organisation the buyer is
required to request from three (3) reputable
suppliers.
• A quotation from the supplier, a price list,
samples of products for testing if there are there.
• After choosing the one appropriate supplier
follows all types of trading letters.
Where it Involves a Tender/Bids
• An invitation to tender must be published
depending on weather its open or advertised to
all vendors or contracts, then there are
restricted tenders to selected prequalified
vendors or contractors
• Notice and Invite is at least 30-35 day
calendar, no longer than 12 months. 15 calendar
days if a Prior Information Notice (PIN).
• A tender must be enclosed in a double envelope
system.
• Shortlisting for suitable vendors starts after the
selection criteria.
• Their sales pitch.
34
BONUS
• Our Bonus in Conclusion Outside Carter 10Cs is about:

• ETHICS: What is right and good or wrong and bad in any
given situation” (Northhouse P.G. (2013).
• Ethics – are the moral principles governing or
influencing conduct. In Zimbabwe there is the Chartered
Institute of Procurement and Supply (CIPS) code of
conduct for reference.
• It involves principles such as fairness, trust integrity,
honesty, cultural respect, and transparency – upholding
the Organisation’s standards and policies and all
relevant legislation. Buyers and Suppliers have to know
their code of conduct and practice it (implement it).
35
REFERENCES
All information used for this presentation is based from information from the following sources:
• Fuller, Neil. “How Many C’s in Partner?” All Business. Supply Management, 8 Sept. 2005. Web.
5 April 2010.
• Hadaway, Jordon. “Supplier Selection.” 12Manage The Executive Fast Track. 12Manage. 6
January 2010. Web. 7 April 2010.
• “Home: Sourcing Platform MFG.com Launches India Operations.” NetIndian, 3 April 2010.
Web. 8 April 2010.
*** Photos, pictures, diagrams were adapted from
• https://www.google.co.zw/search.pictures
• https://www.google.co.zw/imgres?imgurl
• Ray Carter, Practical Procurement", "Practical Contract Management" and "Stores and
Distribution Management" and creator of the 10 (c) model.
• © iStockphotovm
• “Supplier.” Business Dictionary. Online Business Dictionary, 2010. Web. 5 April 2010.
• “Supplier Selection.” Westburn Publishers. The Westburn Dictionary of Marketing, 2002. Web.
5 April 2010.
• Oxenbury, Alan. “Making the Right Choice.” Supply Management. Supply Management, 20
July 2006. Web. 6 April 2010.
• Oxenbury, Alan. “The Final Countdown.” Supply Management. Supply Management, 3 August
2006. Web. 6 April 2010.
• Wallin, Cynthia. “Supplier Selection.” Brigham Young University. Microsoft PowerPoint file. 9
February 2010.
36
PRESENTED BY
Sinqobile Ndebele L013-0961R
&
Sibonginkosi Ndhlovu L013- 1354J
37
2 March 2017
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Supplier Negotiation
Negotiation Induction
Induction&&
Business
Business Procurement
Procurement Evaluation
Evaluation&& and
andAward
Awardofof Integration
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Identify Business
1.1
1.1 Requirement
Knowledge
1.2
1.2 Capture
Stakeholder
1.3
1.3 Consultation
1.4
Risk
1.4
Assessment
1.5 Scope and

1.5
Communication
Objectives 1. Capture the business requirements

2. Obtain full stakeholder buy in to any resulting plans and
timelines
What you need before you start 1. Key Contact Details

2. Business Requirements
Deliverables 1. Formal Business Requirement statement

2. Confirmed buy-in.
3. Budget Estimate
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Identify Business
1.1
1.1 Requirement
1.1 Identify Business Requirement
Knowledge
Capture
Ensure that it is the business requirement that is captured and not the anticipated solution to
Stakeholder
Consultation
the requirement. e.g. When the business requirement is expressed like this: “We need a
software package to deliver presentations on the intranet”, the business requirement is to be
Risk
Assessment able to deliver presentations on the intranet. The software package is a potential solution. It
1.5
1.5 Scope and may be that outsourcing the work is more cost effective than buying software, support and
Communication training to use it.
Challenge the business in terms of how requirement might best be delivered. Again, make sure
you and your stakeholders know the difference between the requirement and the solution.
Once you establish the difference it is more straight forward to challenge the preconceived
ideas about how best to deliver a solution.
Timescale – be realistic and recognise that timing may be a critical component of the business
requirement. If the solution is needed yesterday, a quick solution might be the most pragmatic
– even if it’s not the most cost effective. But beware – the need for speed is often over
emphasised. Ensure that all stakeholders are aware of the risk to cost and quality of solution by
prioritising speed of delivery.
Make sure there is not already a solution in place. Another part of the business may have
already dealt with this business problem.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
1.1 Identify Business

1.1
Requirement
1.2
Knowledge 1.2 Knowledge Capture
1.2 Capture
1.3 Stakeholder Perform a thorough fact-find. Understand the current situation and the problem that
1.3
Consultation requires a solution. Get beneath the skin of the issues and understand the wider
1.4
1.4 Risk implications. Without gathering solutions, gather a set of needs (SPIN – Solution, Problem,
Assessment
Implication, Need)
1.5
1.5 Scope and
Communication
Identify any initial risks to the procurement process. Examples of common risks to a
procurement project include: falling foul of IT security policy; failure to get budget sign off;
failure to meet implementation deadline; failure to get project sponsorship.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

1.1
Requirement
Knowledge
Capture 1.3 Stakeholder Consultation
Stakeholder
1.3
1.3 Consultation Identify all of the relevant stakeholders who have an interest in the business requirement. This
Risk will include budget holders as well as others on whom a solution is dependent e.g. IT security
Assessment and ensure that input from all correct areas is received
1.5
1.5 Scope and
Communication Identify what roles and responsibilities each stakeholder has and ensure that their agreement is
obtained and that commitment is gained from all those stakeholders to drive the project
towards to a successful result.
Key stakeholders to identify are: Sponsor (person who can ensure that the requirement is
agreed, resources are made available and a solution approved), procurement team (the people
who will act on a day to day basis to drive the project forward) and a budget holder (the person
who can make appropriate funds available).
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

1.1
Requirement
Knowledge
Capture
Stakeholder 1.4 Risk Assessment

Consultation
Risk
Assess the initial risk (high level), anything that may get in the way of a
1.4
1.4
Assessment successful conclusion to the procurement activity
1.5
1.5 Scope and
Communication Pay particular attention to any health & safety issues associated with the
procurement activity or the solution.
Also pay particular attention to environmental or sustainability issues as
well as ethical and international sourcing issues
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

1.1
Requirement
Knowledge
Capture
Stakeholder
Consultation
Risk
Assessment 1.5 Scope and Communication
1.5 Scope and
1.5
Communication Confirm the scope of the procurement exercise. In which businesses/regions
will it cover. What is the budget likely to be and what impact if any, will that
have on scope. What are the quality constraints?
Communicate and clarify the business requirement across all stakeholders
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Team Kick
2.1
2.1 Off
Market
2.2
2.2
Research
2.3 Define
2.3
Success
2.4
2.4 Agree
Strategy
Objectives 1. Agree Procurement Approach and timescales

2. Evaluate current environment and decide on the procurement
process
What you need before you start 1. Formal Business requirement statement
2. Resources identified and committed
3. Buy-in obtained from all stakeholders
Deliverables 1. Procurement Plan

2. Estimated budget
3. Sign off on estimated budget
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Team Kick
2.1
2.1 Off
2.2
2.2 Market
Research 2.1 Team Kick Off
2.3
2.3 Define
Success
This is an opportunity to bring the team together to gain
mutual understanding & buy-in to project objectives, roles,
2.4 Agree
2.4
Strategy responsibilities & actions.
Bear in mind that the scale of this event depends on the
scale of the procurement activity. It could range from as
trivial as a quick chat over a coffee to an off-site
conference.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.1 Team Kick

2.1
Off
2.2
2.2
Market 2.2 Market Research
Research
Gather as much information as possible in order to establish a range of
2.3
2.3 Define
Success approaches, products and services that will meet the business need.
Identify what traditional and innovative solutions may be available.
2.4
2.4 Agree
Strategy Use as many sources of information as you have access to including the
internet and the existing knowledge from stakeholders
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.1 Team Kick

2.1
Off
2.2
2.2 Market
Research
Define
2.3 Define Success
2.3
2.3
Success
Define the criteria by which a successful solution will be
2.4
2.4 Agree judged.
Strategy
Define the minimum quality criteria, the cost range and the
deadline for delivery.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
2.1 Team Kick

2.1
Off
2.2
2.2 Market
Research
2.4
2.4 Define
Success 2.4 Agree Strategy
2.4
2.4 Agree Compile market research and make recommendations as the
Strategy
proposed strategy. e.g. outsourced solution vs. in-house
developed and managed.
Include within the strategy, some thinking about the purchase to
pay processes to identify potential problems or opportunities for
efficiencies
Collaborate with stakeholders to ensure that they all have input
to the procurement approach and strategy.
Obtain formal agreement to the strategy before moving the
process forward
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
3.1 Develop Pre-qual

3.1
Strategy
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
Objectives
1. To select the right suppliers and value proposition to be taken
forward to final negotiation.
What you need before you start 1. Procurement Strategy

2. Market Research
Deliverables 1. Shortlist of suppliers

2. An agreed procurement approach with shortlisted suppliers
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

3.1
Strategy
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
3.1 Develop Pre-qualification Strategy

It is important that the number of suppliers taken forward to negotiation is a small as possible therefore it is
important to develop some strict criteria that must be met in order to eliminate suppliers which would ultimately
not succeed.
Agree and document the key criteria by which the supplier will be selected and develop a qualification
questionnaire to be completed by responding suppliers.
Develop a scoring mechanism and apply weighting to each criteria to ensure that priorities are addressed. Don’t
be too rigid at this stage. It may be that new information is learned as suppliers submit responses that will change
your view of the criteria.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

3.1
Strategy
3.2
3.2 Score, Filter
& Notify
3.3
3.3 Develop &
Launch Tender
3.4
3.4 Assess
& Filter
3.2 Score, Filter and Notify

Based on suppliers responses, score each response
against the weighted selection criteria
Confer with stakeholders and agree which supplier to
shortlist based on preferred commercial model and
pricing principles as well as the weighted selection
criteria scores
Document which suppliers are unsuccessful including
rationale for non-selection and notify successful and
unsuccessful suppliers
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
Develop Pre-qual
3.3 Develop and Launch Tender
3.1
3.1
Strategy
Amend the tender based on lessons learned from
3.2
3.2 Score, Filter
& Notify
responses and prepare the relevant documents to
be issued to shortlisted suppliers.
3.3
3.3 Develop &
Launch Tender Develop a set of weighted criteria by which tender
3.4
3.4 Assess responses will be assessed and agree this, together
& Filter with the rest of the tender, with stakeholders
Prepare all relevant communication to ensure that
suppliers are aware of what is expected of them
and issue all tender documentation to suppliers.
Consider contractual terms and conditions as well
as day to day operational considerations. Matter
such as health and safety, invoicing and payment
arrangements should all be clarified at this stage.
For goods and services that will be ordered
regularly, ensure that the internal procedures for
placing and approving orders are understood and
documented as this may have an impact on the way
the supplier is expected to interact with the
business
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

3.1
Strategy
3.2 Score, Filter

3.2
& Notify 3.4 Assess and Filter
3.3
3.3 Develop & The purpose of this stage is to assess the
Launch Tender
capability of the suppliers that have
3.4
3.4 Assess responded to tender and to ascertain if and
& Filter
how they can fulfil the requirements of the
tender.
As they are received, score the responses
against agreed weighted criteria. If
possible, filter further to eliminate weaker
suppliers.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Prepare Negotiation

4.1
Strategy
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.4
4.4 Finalise
Contract
4.5
4.5 Award
Objectives
1. Complete Negotiations and select best supplier
2. Award contract
What you need before you start 1. Filtered List of Suppliers

2. Knowledge of Purchase to Pay process stakeholders
Deliverables 1. Agreed Purchase to Pay processes and KPIs

2. Signed Contract
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

4.1
Strategy
4.1 Prepare Negotiation Strategy 4.2
4.2 P2P Design
Prepare for the negotiation with short listed suppliers. Decide Conduct
4.3
on the approach (face to face conversations, a collective 4.3
Negotiations
supplier conference and auction etc.) Based on the 4.4

4.4 Finalise
submissions , the pricing principles, the commercial model, Contract
services level and the contract terms and conditions may have 4.5
4.5 Award
been amended.
Finalise the approach to these and ensure that there is legal
support available if necessary
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

4.1
Strategy
4.2 Purchase to Pay process design 4.2

4.2 P2P Design
Conduct
Explore the process by which goods and services will be 4.3
4.3
Negotiations
purchased. Look for opportunities to reduce business risk
4.4 Finalise
reduce process time and effort and develop efficiencies. 4.4
Contract
Will there be a need for a requisition and approval process. Will 4.5
4.5 Award
there be purchase orders and how will they be placed? How will
payment be made? Against a schedule, in response to invoices?
Will invoices be paper or electronic. Will invoices be sent
directly to AP or will the business need to see them first? How
will segregation of responsibilities be employed to minimise
risk? Will the supplier need to put in place new or revised
processes? Will there be training required either internally or
within the supplier?
Document the Purchase to Pay processes including details of any
authorisations that will be required .
Identify and agree relevant Key Performance Indicators
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

4.1
Strategy
4.2
4.2 P2P Design
4.3 Conduct Negotiations 4.3

Conduct
4.3
Negotiations
There are two primary goals in the negotiation:
4.4
4.4 Finalise
1. To negotiate prices that deliver lowest total cost Contract
of ownership while maintaining the suppliers’ 4.5

4.5 Award
commercial viability.
2. Minimise/transfer risk: Commercial, reputational
health and safety etc.
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

4.1
Strategy
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.4 Finalise
4.4 Finalise Contract 4.4
Contract
4.5
Finalise commercial agreement and contractual terms 4.5 Award
with the supplier in preparation for award and agree
achieved savings with budget holders and log them
on the savings register
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract

4.1
Strategy
4.2
4.2 P2P Design
Conduct
4.3
4.3
Negotiations
4.5 Award Contract 4.4
4.4 Finalise
Contract
Communicate the award of contract to successful as well
4.5
as the unsuccessful suppliers. Communicate also to 4.5 Award
relevant internal audiences. Ensure the contract is in place
prior to commencement of the service or product being
purchased
Be prepared to provide feedback to the suppliers about
their performance throughout the process. Apart from
being a professional courtesy it can help maintain a
positive relationship with the unsuccessful suppliers
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier
4.2 Post Procurement

4.2
Review
4.3
4.3
Continuous
Integration
Objectives 1. To ensure that the supplier is fully prepared to deliver all aspects of the contract
2. To ensure that all parties are familiar with agreed P2Ppolicies and procedures
3. To initiate the relevant performance measures and reporting
1. Signed contract in place

What you need before you start
2. P2P policies and processes agreed
3. SLAs and KPIs agreed and understood
Deliverables
1. Business Requirement met
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier

4.2
Review
4.3 Continuous
4.1 Launch Supplier 4.3
Integration
Ensure stakeholders are aware of key changes to the agreement and

processes Develop and agree communication plan. This can range from
distributing an email to interested parties to a full scale event to launch a
major supplier
Initiate training programmes internally and ensure that supplier training
is underway
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier

4.2
Review
4.3 Continuous
4.2 Post Procurement Review 4.3
Integration
Monitor and review P2P process to identify

weaknesses and learnings
Document learning points and recommend
amendments
1.1. 2.2. 3.3. 4.4.
5.5.
Define
Define Develop
Develop Supplier
Induction&&
Business
Evaluation&& and
andAward
Integration
Need
Need Strategy
Strategy Selection
Selection Contract
Contract
4.1 Launch
4.1
Supplier

4.2
4.3 Continuous Integration Review
4.3
4.3
Continuous
Initiate performance monitoring and amend processes as Integration
improvements are identified

A HOLISTIC FRAMEWORK
OF SUPPLIER SELECTION &
PERFORMANCE
EVALUATION OF XYZ
AUTOMOBILE
MANUFACTURING
COMPANY
Purchasing and Procurement
MAY 24, 2015

SACHIN MATHEWS
A HO LISTIC FRAMEWORK OF SUPPLIER SELECTIO N & PERFO RMANCE EVALUATIO N O F XYZ AUTO MO BILE
MANUFACTURING COMPANY
Table of Contents
Sl No. Title Page No
Executive Summary 2
1. Introduction 3
2. Need for Holistic Supplier Evaluation Framework 4
3. Supply Chain of XYZ Company 6
4. Phase-Wise Approach to Supplier Evaluation Process 9
4.1 Phase1 - Identifying Procurement Needs 10
4.2 Phase2 - Identification of Potential Suppliers 11
4.3 Phase3 - Selection of Suppliers for 1st Period Planning Horizon 12
4.3.1 Weighted Point System and Fuzzy Logic Decision Making system 14
4.4 Phase4 - Continuous Evaluation of Supplier Network 16
4.4.1 Continuous Evaluation of Selected Suppliers 16
4.4.2 Collaborative Evaluation - Self & Supplier Evaluating Us 17
4.5 Phase5- Periodic Re-evaluation of Suppliers (For Retaining or Changing) 19
5. Conclusion 20
6. References 21
1
Executive Summary
The main objective of this paper is to propose a holistic framework for supplier selection and
performance measurement for the procurement function of XYZ Company. For the literatur e
review we firstly look at the importance of performance measurement in supply chain
management especially in context with the purchasing function and the supplier network. The
factors that needs to be considered in a holistic supplier evaluation framework are discussed.
We also look into what firms are currently doing and then enlighten the finer aspects of
evaluation which are often overlooked or neglected that leads to lower performance levels.
The paper then briefly describes the case company considered, the kind of business, strategic
goals along with the overview of the supply chain. The current issues in the supplier network
and the deficiencies in the supplier selection and evaluation process of the firm are brought to
light. The CPO has asked us to develop a more holistic framework for supplier selection and
evaluation. For this our team formulates phase-wise methodological and holistic framework
that is more comprehensive and effective than the existing selection and evaluation process.
We start out with the identification and classification of the procurement needs based on the
Kraljic portfolio model. Then we use Carter 10'c for the identification process of the supppiers.
Considering our organizational goals and the complexity in supplier network it terms of the
number of suppliers as well as type of qualitative and quantitative factors we propose the
Analytic Hierarchy Process (AHP) together with the fuzzy logic method to arrive at final
ratings suppliers. Further we discuss the concept of continuous improvement though constant
evaluation and feedback among stakeholders. This involves a mechanism of the supplier
evaluating us in addition to self-evaluation process. Finally we arrive at the concluding re-
evaluation that could be conducted quarterly or yearly depending on the situation for the scope
of terminating or renewing contracts with our suppliers.
2
1. Introduction
“Measurement is the first step that leads to control and eventually to improvement.
If you can’t measure something, you can’t understand it.
If you can’t understand it, you can’t control it.
If you can’t control it, you can’t improve it” - H. James Harrington
&
"If you cannot measure it, you cannot manage it" - (Garvin 1993)
As pointed out by Harrington and (Garvin 1993), performance measurement is one of the most
crucial aspects of any kind of management and has become a competitive necessity for
globalized supply chains. For any supply chain the cost, quality (both at a services level and
the supplies), along with the responsiveness of your suppliers make a huge difference in the
overall performance of the company. The qualification, selection and evaluation of the
suppliers is one of the key tasks performed by the purchasing and procurement function in an
organization and the need for a robust and comprehensive mechanism has become increasingly
critical.
In this paper we establish a methodological framework for the holistic performance evaluatio n
of XYZ Company which is OEM in the automobile sector based in Chonburi, Thailand. The
company is currently facing scrutiny from the board who are not happy with current state of
affairs of the supplier network. The board feels that immediate changes need to be made in
supplier evaluation framework as our company continues to grow globally. It has become
imperative to adopt a holistic framework that integrates cross-enterprise frameworks for
supplier relationship management (SRM) or supplier performance management (SPM) in order
achieve higher "triple bottom-line" performance. The Chief Procurement Officer has asked our
team to come up with a holistic plan for supplier selection and performance evaluation. We
approach this task in methodological manner by separating the core activities involved in the
evaluation processes into five phases, starting by identifying our core procurement needs. The
various steps involved and their importance in each phase is discussed. Finally we look into
the continuous improvement and supplier development before arriving at the decision of
retaining and removal of suppliers.
3
2. Performance Measurement & the Need for Holistic Supplier Evaluation

Framework
(Gunasekaran 2007) defines performance measurement as the means of quantifying "efficie nc y

and effectiveness" by a set of metrics. Each industry has its own set of "rules of the game" and
there are dimensions which are more critical and contribute more to success or failure of the
business. The important aspect is to identify the right metrics and the right criteria while
viewing it holistically. The supplier qualification, selection and evaluation is one of the most
critical tasks of the purchasing process and the metrics under performance evaluation carried
out needs to be carefully defined considering all relevant factors.
Figure1 - Commonly Tracked Metrics for a Manufacturing Firm, Source- (Gordon 2008)
As pointed out by (Gordon 2008) most companies (approx. 50-75 percent) have a framework
for measuring supplier performance. However the number of these companies that are satisfied
4
with their current approaches are quite few in number. The supplier evaluation process is quite
complicated and challenging. (Gordon 2008) says that the biggest challenge is to come up with
the "right metrics" and even if some firms are successful in doing this, they don't necessarily
translate to achieving desired results. Why? The answer to that is, most metrics that are used
by firms are based on a standard norm which are usually borrowed from other firms involved
in the same type of business. Figure1 illustrates some of the common metrics used by a typical
manufacturing firm. Some of these metrics lack the required customization with relevance to
the firm's particular business objective. Also the ERP systems that are in place are usually
bought "of the shelf" and are configured to read specific type of information such as supplier
quality, on time deliver, inventory levels etc which do not really capture business processes
and practice quality (Gordon 2008).
In addition most firms try to single out individual procurement functions for improveme nt
without looking at it holistically. As pointed out by (Latham 2015), while the savings made by
the purchasing department is an essential component of evaluation, it must relate to saving
made from the entire production process, from raw materials to services while considering the
business growth. If the firms is buying material at the same price when it produces $10 millio n
revenue, as to when it started with an investment of $1 million then the purchasing department
may not be doing their job well enough. He argues that "buying cheaper" is not a useful
performance measure if you consider the true or overall costs arising due to lower raw material
quality or the below par services rendered. For example costs arising due to returns, liability
claims or increased transportation costs. Analysing all these parameters and including them in
the evaluation methods will give a more accurate view of the purchasing performance.
While farming the performance evaluation framework it is also essential to that the capabilities
of the suppliers are carefully considered it should not just be based on a competitive process.
These capabilities must be judged in relation to the firms specific requirements. Supplier
relationships is another important area along with supplier development processes which is
often neglected by firms while forming the evaluation metrics. Some aspects under the supplier
relationship criteria could be the negotiating capability of the firm with respect to pricing,
discounts and other benefits as well as the ability to empower suppliers to manage themselves
against the shared performance metrics. There are various other areas where the evaluation of
5
the supplier relationship must be taken into consideration such as with respect to design,
planning, forecasting and how well the data and ideas are shared both internally and externally
that achieves overall objective of the enterprise. Lastly but by no way the least, the evaluators
often fail to evaluate themselves or their performance level with respect to the supplier as well
as their contribution to the overall organizational performance. The evaluation framework must
be part of the overall supply management program and must be aligned to achieve the overall
objectives of the firms "mission and vision" statement.
3. Supply Chain of XYZ Company

In this section a general backdrop of the case company considered is discussed. Figure2 shows
the typical supply chain of the case company considered. The company is an OEM in the
automobile sector and is headquartered in Chonburi, Thailand, 100kms south east of Bangkok.
Figure2: XYZ Company's Supply Chain
Over the past decade Thailand has seen tremendous growth in production and exports of
automobiles and auto-parts. Our company's business revolves around the same strategic
objective and are concentrating on business from overseas markets. However we face stiff
completion from Japanese firms such as Toyota, Mitsubishi and Honda who were earlier
entrants into this market. Though our firm has achieved substantial market share in the pick-
6
up trucks and the "eco-friendly" small car segment, the firm is still lacking in terms quality and
responsiveness of service provided to our valued customers. On carrying out the root cause
analysis, major reason is attributed to the quality of our supplier network.
Due to government regulations as well as for reasons of cost benefits, most of the parts and
assemblies are sourced from local suppliers. The final assembly is done in the company factory.
The manufacturing processes follows a "lean and agile” principle that emphasis on reduction
of wasteful process while being robust with agile methods to deliver quality products in a fast
and effective manner. As part of this strategy, the use of a distributor network is minimised
especially for local and nearby regions where we directly provide the finished product to the
dealers and end customers. The logistics activities are handled by a third party which uses
sophisticated and far reaching transportation and distribution network to deliver our vehicles
within the region.
Figure3: KRA's for Performance Measurement Framework, Source - (Karjalainen 2012)
Our procurement team's main focus is to get the best out of our supplier in terms of quality and
responsiveness and hence the main metrics under which we evaluate our suppliers were focused
in these two areas as shown in green in figure3. However as mentioned earlier our company's
performance is under scrutiny especially with regard to the supplier evaluation framework as
well as the performance of purchasing and procurement function under main categories of
Time, Cost, Quality and Supplier Management. There is a lack of holistic approach and our
7
team has been given the task to develop an effective evaluation framework to get the best out
of our suppliers as well as our procurement team. For this we first need to analyse our core
procurement needs and decide "what" to measure. We then link it to "why" we need to measure
and focus on the key aspects that is currently missing in our evaluation framework both in
terms of the suppliers and ourselves, the procurement team. Then we decide on "how" to
measure by developing appropriate methods that suit our requirement. The supplier
management and evaluation cycle that we intend to implement is shown in figure and the phase
wise approach of implementing it is discussed next.
Figure 4 : Proposed Supplier Management and Evaluati on Cycle of XYZ Company
8
4. Phase-Wise Approach to Supplier Evaluation Process
Figure 5 : Proposed Phase-Wise Performance Evaluation Framework, Source - (Keramydas 2012)
The figure 5 illustrates our suggested framework for the evaluation process. The first three
phases deals with initial assessment of the problem and framing the right criteria for selection
of the suppliers based on our firms objective. These phases are crucial as developing the right
performance metrics at the start will ensure a greater firmness in evaluation process and
minimize the risks of alteration or re-work by changing the requirement mid-way. The Phases
4 and 5 deals with the continuous improvement and supplier development process where
periodic re-evaluation of suppliers along with our firm is collectively analysed and evaluated.
The actually achieved results in phase 4 & 5 are compared to the set standards in Phase 1,2 &
3 that enables better decision making with regard to the necessary steps that need to be taken
for supplier development or for their removal.
9
4.1 Phase1 - Identifying Procurement Needs
The first phase is to identify the procurement needs after which the required procurement
strategy must be developed. The first part in this stage is to classify the procurement activity
based on the kind of supplies, whether its critical for production or not. Our "direct
procurement" involves acquiring raw materials that are needed for production. These supplies
directly affect the ability of the firm to manufacture the vehicle and any disruption can severely
affect the revenue. They are usually got from a pool of suppliers, ordered in larger quantities
with best possible cost, quality and reliability. The other type is the "indirect procurement"
which involves purchasing supplies for the day to day activities of the business which have a
lesser impact on the firms bottom-line but is important none the less for effective operations.
Once this is done we further classify supplies based on "portfolio purchasing model" developed
by (Kraljic 1983), shown in figure 6, where items are classified based on the level of criticality.
The strategic items are those items that are critical to production process, impact profit greatly
and has a high supply risk. These items require the most attention from our purchasing team
and the supplier of these items must be cautiously selected.
Figure 6 - Classification Matrix for Identifying Procurement needs, Source - (Kraljic 1983)
10
Leverage items are those supplies that have an impact on profit but do not have a high supply
risk. For these items we use our full purchasing power in order to get the best costs and quality.
Then we have the bottle-neck items. These items do not impact profit directly but create bottle-
necks or situations where the firm have not many options. These are usually products where
we have to depend on one supplier. Lastly we have the non-critical items which can be got by
any supplier and have low impact on profit.
Once these procurement needs are identified make-or-buy decision can be made and other
sourcing strategies such VMI, strategic alliance with suppliers, umbrella agreements etc can
formulated. This phase is more crucial in terms of the performance of our procurement team as
any error in judgement made with the identification or classification of supplies would have
ramifications on the overall performance. We would have started on the wrong foot by sourcing
a critical supply to the wrong supplier.
4.2 Phase2 Identification of Potential Suppliers
In this phase we identify our potential suppliers based on our specific requirement and their
capabilities in terms of the competency levels. Like phase1, this phase too affects the
procurement team’s performance or KRA's (Key Result Area) as wrongly identifying suppliers
would severely impact the quality and responsiveness of our supply chain.
Firstly we look at the supplier company's financia l report to get a picture of the company we
are going to deal with. This is important with respect to matching the suppliers with our long
term or short terms goals. We then formulate a checklist based on the 10c's of supplier
evaluation developed by (Carter 1995) for the initial screening process (figure 7). We conduct
brain-storming sessions for the thorough examination of suppliers and the supplier's supplier
(tier2 & tier3 suppliers) based on these parameters. In order, to select the best supplier
sometimes there may be a need to trade-off between these parameters based on the core
capabilities of the supplier and how they relate to meeting our requirement. As pointed out by
(Fuh-Hwa 2005) these trade-offs need to be made at every stage of the supply chain while
integrating the performance metrics for different suppliers.
In addition, many aspects that were not adequately captured before such as "Clean" or "Culture
and Relationships" have been included. "Clean" refers to adherence to environmental and
11
safety standards along with adherence to the law of the land. This is important as we seen in
the past many suppliers, though they were good in their core competencies, they had to be
removed mid-way due corruption or other legal factors. Equally important is the "Culture &
Relationships" category which may include past history in negotiation (qualitative), legal cases
against previous buyers (quantitative) or general work atmosphere (culturally complex or
different from ours etc) that would affect the performance of the supplier network.
Figure 7 : Carter's 10C's Supplier Selection, Source - (Carter 1995)
12
4.3 Phase3 - Selection of Suppliers for 1st Period Planning Horizon
As pointed out by (Monczka 2011) there is no "one best way" for the selection and evaluatio n
of suppliers. Though the overall objective is to minimize risk and maximize value the
evaluation must be based on the right criteria that is line with firm’s objective. (Sagar 2012)
emphasises the importance of determining the right criteria for selecting the supplier in the
automobile sector during the 1st period of the planning horizon. This is a stage where the
annual, quarterly plans based on forecasts are being studied and formulated. Most of the
existing literature broadly classifies the methods used in the selection process based on the
“Quantitative" and "Qualitative" factors. The quantitative approaches includes both
optimization and non-optimization techniques. (Partovi 1989), (Narasimhan 1983) and
(Nydick 1992) illustrates how the Analytic Hierarchy Process (AHP) can be used to for the
supplier selection process because of its intrinsic capability to handle both the qualitative and
quantitative factors that conceptualizes the issues within the supplier selection process. In
addition (Gnanasekaran 2006) research has shown that the AHP improves the decision making
process and reduces time taken to select supplier. As illustrated in figure 8, it helps the
evaluation team to understand the problem with respect to main objective and systematica lly
evaluate performance under each relevant criteria and sub-criteria.
Figure 8: Analytic Hierarchy Process for Supplier Selection, Source- (Prusak 2013)
13
Further, it is carried out in a "level based" approach where both, the qualitative and quantitative
metrics are evaluated under each category and sub-category. For example under the "deliver y"
category one of the sub category includes the "compliance with due date" which is further
classified into "percentage late delivery" and "delivery lead time". Figure 9 illustrates this but
not all parameters that are captured under each category and sub-category are shown.
Figure 9: AHP - Level Based Metrics for XYZ Company
Now once these parameter is evaluated and rated by the decision makers at various levels there
will be a degree of vagueness in their subjective perception and it needs to be integrated with
the general framework. For this we propose to use the fuzzy- hierarchy- multi criteria decision
making process or FHMCD that integrate the multiple weightages of the decision makers into
a single rank.
14
4.3.1 Weighted Point System and Fuzzy Logic Decision Making system
The weighted point system is typically designed for quantitative measurement where the
weight or score given by the decision maker for each category and sub-category is multip lied
by the performance score that is assigned and then totalled to arrive at final rating. But the
problem arises when qualitative criteria needs to be considered (Kahraman 2003). Hence we
propose to use is the fuzzy logic method. (Sreekumar 2009) shows how the fuzzy approach can
be used for supplier selection and evaluation where there exists qualitative factors and multip le
criteria with more than one decision maker. Figure 10 shows an example where there are of
four main categories (C1,C2,C3,C4), four suppliers (S1,S2,S3,S4) and three decision makers
(D1,D2,D3D4).
Figure 10 : Rating of Decision Makers & Formulae for FHMCD Process, Source - (Sreekumar 2009)
Once the evaluation is done by the decision makers under various criteria, the aggregate
weights of each criteria must be calculated as shown in the figure 9 (step4). Next the aggregate
15
fuzzy rating of the suppliers is arrived at using the formulae shown in figure 10 ( below step4).
The linguistic evaluation say using subjective variables such as P (poor), F (Fair), M (Medium),
G ( Good) and VG ( Very Good) by the decision maker can be expressed as positive triangular
fuzzy number which is then used to construct the fuzzy decision matrix. This is then normalized
based on the importance of each criteria. Next the positive ideal solution (FPIS) and negative
ideal solution (FNIS) is found. The vertex method is applied to determine the distance between
two. Finally the closeness co-efficient, which is the relative closeness of FNIS to FIPS, for each
supplier is calculated which is used to rank the supplier based on the predefined decision rule.
The fuzzy approach is especially useful when there are multiple decision makers or where the
ranking of one can be challenged by another. As suggested by (Herrera 2000) it helps in easier
resolutions of the conflicts arising in the evaluation process.
4.4 Phase4 - Continuous Evaluation of Supplier Network (Buyer and Supplier)
One of the main categories depicted in figure 3 is the Supplier Management category has a lot
to do with the effort put by both parties in the continuous improvement process. Earlier the two
sub-categories that captured this were the flexibility and commitment ratio. But these need to
be further defined based on supplier development level through the continuous process of
evaluation.
4.4.1 Continuous Evaluation of Selected Suppliers
As pointed out by (Gordon 2008) supplier evaluation is not an event but a process. There must
be continuous evaluation of the supplier along with our purchasing function on the defined
parameters of time, cost, quality & supplier management. (Morris 2010) elucidates the
importance of a closed loop performance improvement model for continuous evaluation of the
supplier network as shown in figure 11. The steps discussed in phases1 to 3 are repeated with
the only difference being the supplier is "on board" and data collected is shared and jointly
analysed to determine the areas that are lacking. The new set of improvement plans are jointly
formulated. This way a continuous collaborative effort is made by both stakeholders.
16
Figure 11 : Continuous Improvement Cycle of SPS, Source - (Beijer 2012)
4.4.2 Collaborative Evaluation - Self and Supplier Evaluating Us
Self-evaluation is as important as the supplier evaluation. How well we as firm or the

department are doing with respect to improving the performance of the supplier is critical to
efficiency of our supply chain. In addition the parameters on which we are going to judge
ourselves must be well communicated to the supplier. It is also imperative for the supplier to
evaluate us (procurement department and the organization as whole) and timely communica te
the result to us. This is often neglected by most firms but is critical to supplier manageme nt
parameter and needed for the continuous self-improvement process. Some of the metrics for
the self and supplier evaluating us must include on time payment, level of data sharing,
availability of the procurement team (face to face & virtual meeting held and their outcomes),
level of trust and comfort with the buyer, knowledge transfer which includes both from the
buyer as well supplier and training for specific requirements.
17
Earlier, supplier evaluation constituted of a periodic reviews using static information typically
by using a balanced scorecard after which a review is done and action plans are made. However
times have changed and the availability of advanced technology such as RFID, smart tags,
barcodes, EDI, TMS, WMS, ERP2, MRP2, e-procurement, cloud computing etc. have enabled
most of the qualitative or quantitative criteria to be evaluated on a "any-time" "any-where "
basis. This transparency and visibility available must be fully utilized by our team as well as
the supplier to track the performance of any criteria faster and respond better. Both participant
should jointly work together to sort out issues and formulate corrective measures. Say for
example the on-time delivery parameter is poor for one of the suppliers. The supplier and us
would jointly work on the issue and find out the root cause, such as transportation delays,
component availability, location etc. and see if any change in processes within the
manufacturer, procurement team, supplier or our third party could eliminate the problem. Such
a collaborative framework where both participants are actively involved in the improveme nt
process have a greater impact on the performance than many other quantifiable criteria.
Figure 12: Level of Buyer - Supplier Relationship, Source - (White 2013)
18
According to (White 2013), collaboration is not just about having common data, EDI or bi-
directional communication, but it is to work together to achieve the mutually agreed goals
resulting in a "win-win" situation for both parties. This does not happen overnight, it takes time
to build these relationships over a continuous development cycle. As supported by (Kannan
2006) and (Ellram 1990) these "softer" or qualitative aspects such supplier-buyer relations hip,
the collaborative nature have increasingly become more important than traditional approaches
of measuring the quantitative aspects. This also has an in direct impact on other parameters of
the buyer evaluation. For example the relationships could be leveraged to get useful market
information, meeting emergency order or in other words the supplier meets "beyond the
expectations". Figure 12 shows the various levels of the supplier relationship which according
to us must be included as part of the evaluation process.
4.5 Phase5 - Periodic Re-evaluation of Suppliers for the scope of Retaining or Changing
Based on the output of the phase 4 the suppliers would undergo one primary re-evaluation for
the decision of retaining or changing any of the suppliers. This would be either done quarterly
or half yearly basis based on the nature of the event that causes the change or criticality of the
need. The output or actual performance levels is compared with the set specific targets, and if
they are found to be satisfactory then we continue to monitor them as discussed in phase4. In
case a supplier is not meeting the pre-defined requirement or specific goals they must be
rejected. However it important to compare the performance of these suppliers with the new
potential suppliers, competing to take this spot. So we pool them along with the new potential
supplier and repeat the steps discussed in Phase2 & 3. In case these lower performing suppliers
cannot compete or fail in the new selection process they would be phased out (as shown earlier
in figure 4) along with the reasons and blacklisted from all sites so they do not come up again
in our search engine.
19
5. Conclusion
Performance evaluation is one of the most important aspects in managing and controlling the
supplier network. As we have seen in this case it is a complicated task to have a holistic
framework for an automobile supply chain considering the myriad of suppliers and variety of
parameters that need to be considered. There are various approaches and models that can be
used to tackle this challenge but the framework selected used must be based on what fits best
to the firms strategic objective or the "mission and vision" and by considering the nature or the
complexity in the network and type of qualitative or quantitative factors involved. Each method
researched had its own unique advantages and shortcoming. Our team felt the AHP coupled
with fuzzy logic method would suit best to the "multi-criteria" and "multi-decision makers"
involved in our supply chain and propose this approach to the CPO for the selection and
evaluation of the suppliers. However we still believe in the future, few more additional aspects
need to be considered and further optimization of the model would be required.
20
6. References
Beijer, A.,T.,. Design of a Supplier Performance Measurement & Evaluation System for DSM’s
Petrochemical & Energy Group. Research Project, Twente University, 2012.
Carter, R.,. "The Seven C's of Supplier Evaluation." The Journal of Purchasing and Supply
Management, 1995: pp.44-46.
Ellram, M.,Lisa. "The Supplier Selection Decision in Strategic Partnerships ." Journal of Purchasing &
Materials Management, 1990.
Fuh-Hwa, Liu.,Hai,Fraknklin.,Lin,Hui.,. "The voting analytic hierarchy process method for selecting
supplier." International Journal of Production Economics,Vol.97, 2005: pp.308-317.
Garvin, A.,D.,. "Building a learning organization." Harvard Business Review,Vol.71(4), 1993: pp.78-81.
Gnanasekaran, Sasikumar.,Velappan,Selladurai.,Manimaran,P.,. "Application of Analytical Hierarchy

Process in Supplier Selection: An Automobile Industry Case study." South Asian Journal of
Management,Vol.13(4), 2006: pp.89-100.
Gordon, R.,Sherry. Suppllier Evaluation and Performance Excellance - A guide to meaningful metrics
and successful results. J.Ross, 2008.
Gunasekaran, A.,Kobu,B.,. "Performance measures and metrics in logistics and supply chain
management: A review of recent literature (1995–2004) for research and applications." International
Journal of Production Research,Vol.45(2), 2007: pp.2819-2840.
Herrera, F.,Herrera-Viedma,E.,. "Linguistic decision analysis: Steps for solving decision problems
under linguistic information." Fuzzy Sets and Systems, 2000: pp.67-82.
Kahraman, C.,Cebeci,U.,Ulukan,Z.,. "Multi-criteria supplier selection using fuzzy AHP,Vol.16."

Logistics Information Management, 2003: pp.382-394.
Kannan, R.,Vijay.,Tan,Choon.,Keah. "Supplier Selection and Assessment: Their Impact on Business

Performance." Journal of Supply Chain Management,Vol.38(3), 2006: pp.11-21.
Karjalainen, Mikko.,. "Framework for Supplier Performance Measurement System." Master's Thesis,
2012.
Keramydas, Ch.,Xanthopoulos,A.,Aidonis,D.,. "A Decision-Making Framework for the Optimal

Selection of Suppliers." 1st Olympus International Conference on Supply Chains. KATERINI,GREECE,
2012.
Kraljic, Peter. "Purchasing Must Become Supply Management." Harvard Business Review, 1983.
21
Latham, Andrew.,. Houston Chronicles-Small Business-Improved Methods for Evaluation of

Purchasing Performance. 2015. http://smallbusiness.chron.com/improved-methods-evaluation-
purchasing-performance-12248.html.
Monczka, M.,Robert.,Handfield,B.,Robert.,Giunipero,C.,Larry.,Patterson,L.,Patterson,. Purchasing

and Supply Chain Mangement,4th Edition. Cengage Learning, 2011.
Morris, Wayne.,. How to Leverage Supplier Performance Management for Continuous Supply Chain
Improvement . 6 30, 2010. http://www.sdcexec.com/article/10269181/how-to-leverage-supplier-
performance-management-for-continuous-supply-chain-improvement.
Narasimhan, R.,. "An analytic approach to supplier selection." Journal of Purchasing and Supply
Management,Vol.1, 1983: pp.27-32.
Nydick, R.,L.,Hill,R.,P. "Using the Analytic Hierarchy Process to structure the supplier selection
procedure." International Journal of Purchasing and Materials Management Vol.28 (2) , 1992: pp.31-
36.
Partovi, F.,J.,B.,Banerjee,A.,. "Application of analytic hierarchy process in operations management."

International Journal of Operations & Production Management,Vol.10, 1989: pp.5-19.
Prusak, A.,Stefanów,P.,Niewczas,M.,Sikora,T.,. "Application of the AHP in the evaluation and

selection of suppliers." 57th EOQ Congress : Quality Renaissance - Co-creating a Viable Future.
Tallinn,Estonia, 2013. pp.1-9.
Sagar, Kumar.,Manish.,Singh,Deepali.,. "Supplier Selection Criteria: Study of Automobile Sector in

India." International Journal of Engineering Research and Development,Vol.4(4), 2012: pp.34-39.
Sreekumar, Mahapatra.,S.,S.,. "A fuzzy multi-criteria decision making approach for supplier selection
in supply chain management." African Journal of Business Management,Vol.3(4), 2009: pp.168-177.
White, Andrew.,. "Best Practices Collaborative Advanced Planning & Scheduling presentation."
Gartner,Inc.,, 2013.
22
TAMPERE UNIVERSITY OF TECHNOLOGY
Tampere School of Business and Technology
STRATEGIC SUPPLIER SELECTION: The Trend of E-Manufacturing
Seminar Report
Onur Tamur
Aznar Eduardo Moncayo Pinzon
Georgios Karakonstantis
ii
ABSTRACT
During the past few decades, globalization did not only affect the lifestyle of
human beings, but also the work processes in the business world. The markets grew
dramatically and new business opportunities appeared, raising the need of different
approaches in the procurement processes. The buyer-supplier relations have always
been a critical task for the success of a business. Now, more than ever before, this
task becomes very complicated in some cases. Multi-criteria approaches are needed
in order to have rational and profitable results.
This paper gives an insight of different theories that can be applied in order to
achieve a rational supplier evaluation and selection. Such theories, in combination
with an extensive analysis of the possible alternatives that a company may have,
can lead to high revenues and significant advantage over competitors. In this case,
the reader can acquire a basic understanding of the different criteria, methods and
models, which are used by the businesses during the supplier evaluation and
selection process.
Moreover, the paper identifies critical changes in the sector of e-manufacturing,

regarding the decision-making of the top management while selecting the
appropriate supplier. Emphasis is given to the technological changes that create
new opportunities and consequently new criteria for the vendors‟ evaluation by
comparing the existing criteria that have been used in traditional manufacturing and
the affect of the e-manufacturing trend on the existing criteria.
Tamur, O. Moncayo, A. Karakonstantis, G.

iii
PREFACE
Global business operations have become a very important part of the business
environment nowadays. One of the most interesting aspects of the global business
operations is the supplier evaluation and selection. As all the members of our group
are pursuing an International Master‟s program in TUT, related to sourcing, we felt
motivated to study, identify and analyze the field of supplier selection, emphasizing
on e-manufacturing that lately evolves very fast. More specifically, in this paper we
illustrate and analyze the buyer-supplier relations, the supplier evaluation and
selection criteria, processes, methods and models, and finally we attempt to apply
the acquired knowledge to the sector of e-manufacturing. It has not been an easy
task to conduct this report, and thus we would like to thank the assistant of the
course LIKU-8306 Logistics strategies and outsourcing, Ms. Erika Kallionpää for
her help and guidance during this process.
The group,
Aznar Moncayo
Georgios Karakonstantis
Onur Tamur
Tampere, April 2011

iv
TABLE OF CONTENTS
ABSTRACT ______________________________________________________ ii
PREFACE _______________________________________________________ iii
1 INTRODUCTION ____________________________________________ 1
1.1 Background __________________________________________________ 1
1.2 Objective of the Paper __________________________________________ 1
2 MANUFACTURER – SUPPLIER RELATIONS IN B2B ____________ 3

2.1 The Challenges of B2B Markets __________________________________ 3
2.2 The Dynamics of Buyer – Supplier Relations _______________________ 4
2.3 Long Term Relations in B2B Environment _________________________ 4
3 STRATEGIC SUPPLIER SELECTION __________________________ 7

3.1 Supplier Evaluation and Selection Criteria _________________________ 7
3.2 The Process ___________________________________________________ 9
3.3 Supplier Evaluation and Selection Methods _______________________ 10
4 SUPPLIER SELECTION IN E-MANUFACTURING ______________ 13

4.1 What Is E-Manufacturing? _____________________________________ 13
4.2 Why E-Manufacturing? _______________________________________ 15
4.3 Evolution of Supplier Selection in E-Manufacturing ________________ 16
5 CONCLUSION ______________________________________________ 19
REFERENCES __________________________________________________ 20

1
1 INTRODUCTION
1.1 BACKGROUND
According to Lee and Carter (2005), globalization is an inevitable and irreversible

process fundamental to the future of world economic development. The growing
integration of national economies around the world will lead to rapid economic
growth and poverty reduction in developed and developing countries. However
there are also some arguments supporting that globalization exacerbates poverty
and inequality between rich and poor, cultural convergence and spread of deadly
diseases (Lee and Carter 2005).
Whether it is good or not, it is a fact that globalization led to structural changes of

business operations. Successful business operations provide significant profits and
benefits to companies. Though, the modern business environment demands
complex operations that sometimes are difficult to manage. Daskalakis (2010)
argues that one of the most important operations for modern businesses is the
procurement, and consequently the supplier evaluation and selection process. The
decision-making related to the supplier selection results directly to the total
operation costs, final costs and quality of the goods, and finally to the
competitiveness of the company. Thus, managers have to take into account many
factors in order to proceed to a reliable decision. Qualitative and quantitative
criteria contribute to the final decision and since the 60‟s many studies have been
conducted in order to create methods that can help managers to select the best
alternative.
As every aspect is very dynamic in business, supplier selection methods are also
affected by the changes in environment. After e-manufacturing concept started to
gain popularity and be used by many large organizations, companies tried to find
alternative ways to optimize their supplier selection criteria to be able to get better
results in long-term. E-Manufacturing is still an evolving process and changing
rapidly with the technological improvements in IT sector. Thus, it is hard to deduce
what is right or wrong in the supplier selection process and how it matches with the
current situation but it is possible to analyze the trends and optimize the selections
in the same way.
1.2 OBJECTIVE OF THE PAPER
After the rise of e-manufacturing, the supplier selection criteria started to evolve
accordingly. Companies started to search for alternative ways to evaluate their

2
suppliers according to their manufacturing structure that they follow in their

business. The objective of the paper is to...
...highlight the importance of selecting a good supplier for business

continuity and how e-manufacturing trend affected the supplier selection in
current business environment.
The paper consists of five chapters. First, the background information about
globalization and supplier selection with a short explanation about the e-
manufacturing trend and its impact on supplier selection will be defined. Second,
the challenges of B2B markets, the importance of buyer-supplier relations and how
the relations affect the business and the long term relations between peers and its
impact on negotiations will be examined. Then, supplier selection criteria and
methods will be introduced and compared. Next, e-manufacturing trend and the
evolution of supplier selection related to the e-manufacturing trend will be
highlighted. Finally, key results and the conclusion will be stated.

3
2 MANUFACTURER – SUPPLIER RELATIONS IN B2B
2.1 THE CHALLENGES OF B2B MARKETS
The intention to make profit is the most important characteristic when buying
products in B2B markets (Lyly-Yrjänäinen et al. 2010). Thus, purchasing process is
much formal and takes longer time because of long price negotiations. Many
companies tend to build long-term relationship to be able to derive their demand
when needed. This long term relationship results in close personal relationships
which are difficult for competitors to break (Lyly-Yrjänäinen et al. 2010).
According to Calhoun et al. (2007), segmentation is far more challenging in B2B

than in consumer markets. Sales cycles are long, and offerings are complex.
Moreover, many customers care less about initial product costs and more about the
total costs of ownership, including service, maintenance, upgrades, and other
factors. Competitors‟ offerings and strategies shift so quickly that managers cannot
reliably compare the impact of changes in a given marketing lever over more than
one quarter of business. In addition, customer relationship management systems
cannot easily capture the decisions and actions that led to success or failure with
any particular account, because such information is largely anecdotal, not
quantitative (Calhoun et al. 2007).
Matthyssens et al. (2008) has examined the challenges in B2B marketing in terms
of globalization. First challenge is delocalization of the customers. As
multinational companies are moving their production and assembly units to low-
labour cost countries, industrial suppliers and subcontractors see their home market
shrinking. Secondly, purchasing function is globalizing as the purchasers from
multinational companies seek global purchasing synergies (Quintens et al. 2006).
Next, the importance of global networks is increasing. Lastly, the fourth challenge
faced by B2B companies is the transition to electronic forms of exchange. E-
internationalization is still challenging for companies because they may lose their
intellectual property on the web and B2B relationships are more difficult to manage
in the electronic highway (Samiee 2008).
Despite the above-mentioned challenges, more and more B2B companies expand
their operations internationally since international activities are fundamental to
their performance (Katsiekas 2006).

4
2.2 THE DYNAMICS OF BUYER – SUPPLIER RELATIONS
It is important to understand the buyer-supplier relations in B2B environment to be

able to understand about B2B pricing where the prices are highly interrelated with
the costs of the supplied materials. According to Johnson and Tellis (2008),
manufacturer price reduction pressure on suppliers is an important contributor to
helping a manufacturer maintain a strong competitive position by keeping costs
low. However, manufacturer price reduction pressure and trusting working
relations with the pressured suppliers, are not mutually exclusive, they can co-exist
(Johnson and Tellis 2008).
According to Das and Teng (1998), there are three critical elements that comprise a
successful co-operative relationship between manufacturers and suppliers:
 Trust
 Communication and information sharing
 Commitment
First, trust is an essential component of most business-to-business relationship

models. Thus, the greater the manufacturer price reduction pressure on suppliers, the
lower will be the pressured suppliers‟ trust of the manufacturer (Johnson and Tellis
2008). Second, communication and information sharing is an important concept
where each party can set the priorities and co-ordinate the activities necessary to
achieve each other‟s objectives (Mohr et al. 1996). Thus, The greater the
manufacturer price reduction pressure on suppliers, the less likely will the
pressured suppliers perceive their manufacturer customers are communicating
timely and adequate information to them in an open and honest manner (Johnson
and Tellis 2008). Third, commitment to the relationship by each partner is
necessary if the relationship is to work and each party is to realize positive
outcomes (Anderson and Narus 1990). Thus, the greater the manufacturer price
reduction pressure on suppliers, the less likely will the pressured suppliers perceive
the manufacturer is acting in a manner that reinforces their commitment to their
suppliers (Johnson and Tellis 2008).
2.3 LONG TERM RELATIONS IN B2B ENVIRONMENT
The customer-supplier relationship has different levels of closeness according to

the number of transactions and longevity of the relationship. Figure 1 shows
different kinds of partnerships in the B2B context, separated by their duration. The
range of marketing relationships has been adapted from Webster, 1992.

5
Figure 1. Customer relationships in B2B markets
Additionally, Goffin et al. categorize long term relationships into three different
types: short term partnerships, long term partnerships and long term relationships
with no end. The definition of each marketing relationship mentioned is presented
in Table 1.
Table 1. Customer Relationships

Marketing Relationship Definition
Considered an arm‟s length relationship. The
required information is available in the price and the
Transactions
only thing necessary for the company is to find
buyers.
Still an arm‟s length relationship. In industrial
Repeated Transactions markets it is important to develop trust and credibility
as part of the marketing strategy.
Long term relationships begin by short term
partnerships and can develop up to long term
relationships with no end. Usually vendors and
Long term relationships
buyers are no longer in an arm‟s length relationship,
but it takes some time for them to adjust to the new
relationship.
These partnerships are based on the concept of
reciprocity. There is a total interdependence between
Buyer-seller partnerships buyer and seller, which are committed to their long-
term relationship. Usually provides an outcome of
stability.
Strategic alliances and joint ventures are categorized
in the same manner since they serve a similar
purpose. In strategic alliances, both partners
Strategic alliances (Joint ventures) collaborate and give capital and resources to enhance
their competitive place in the market. On the other
hand, joint ventures are started by the partners with
the objective of having one entity.
The network develops and manages alliances,
relationships with customers, core competence and
Network organizations
strategy and coordinates the financial resources.
Composed of multiple strategic alliances.
Vertical integration Either supplier or customer owns the other part.

6
Among the previously mentioned customer relationships it is possible to find the

long term relationships. When shifting from single transactions to long term
relationships, the highest level that can be achieved is a partnership-like
relationship, which brings advantages like better quality, lower costs and accurate
delivery but at the same time demands resources and commitment from both parts.
Trust is also a necessary condition for the development of any long term oriented
business relationships (Ryu et al., 2007).
Long term customer relationships tend to provide more value to the company, since
they can focus on those customers that will provide more profit and opportunities,
and at the same time, to the customer, since the company will be taking care of
providing services and support in order to guarantee the customer‟s satisfaction.
The closeness in long term customer relationships is related to geographical,
technological, cultural and social factors, as well as the current length of the
relationship. (Goffin et al., 2006) Furthermore, in some technological markets, the
customer is required to adjust to the provider‟s technological platform therefore
creates a high level of commitment between the customer and the provider. Since
these contracts are usually very expensive, this creates a long-term relationship by
default.
Long term customer relationships are relevant for suppliers in two main cases:
when buyers have other product alternatives (highly competitive ambiance) and
when buyers constantly or periodically require a service or product. Under the
same conditions, buyers obtain benefits such as better prices than the other
alternatives in the market and priority sourcing in cases where there is a low
availability of a good or service. (Berry 1983) The development of long term
customer relationships is good when it is mutually beneficial, therefore, both
supplier and buyer must benefit from the development of the relationship.

7
3 STRATEGIC SUPPLIER SELECTION
3.1 SUPPLIER EVALUATION AND SELECTION CRITERIA
Suppliers are a very important part of businesses nowadays. Their importance lies
on the fact that the right evaluation and selection of a supplier can generate
significant profits and ensure the efficiency of business processes. Some suppliers
are able to approach their potential customers, but most of the times the companies
have to search, find, evaluate and select their suppliers. This process usually
follows the paths of professional fairs, B2B magazines and other companies.
The process of evaluation and selection of suppliers is very complex. Thus, many
studies have been conducted since the 60‟s in order to identify a pattern that can
propose the best possible solution. As a result, nowadays businesses use different
methods that are based on some specific criteria. Though, according to
Papagiannakis (2009) the number of those criteria makes the evaluation and
selection system unwieldy regarding its content and time consuming regarding its
management.
Thus, more recent studies addressed their focus on minimizing and mixing those
criteria, without affecting the quality of the evaluation process. Dickson (1966)
argues that there are 23 criteria that businesses should take into account when
selecting a vendor. Table 2 shows the findings of Dickson‟s study, including the
importance and main rating for each of them.
Table 2. Supplier Partnership Selection Criteria (Ellram 1990)

Rank Criteria Main Rating Evaluation
1 Quality 3,508
2 Delivery 3,417
Extreme Importance
3 Performance History 2,998
4 Warranties & Claims Policies 2,849
5 Production Facilities & Capacity 2,775
6 Price 2,758
7 Technical Capability 2,545
Considerable
8 Financial Position 2,514
Importance
9 Procedural Compliance 2,488
10 Communication System 2,426
11 Reputation & Position 2,412

8
12 Desire for Business 2,256

13 Management & Organization 2,216
14 Operating controls 2,211
15 Repair Service 2,187
16 Attitude 2,120
17 Impression 2,054
18 Packaging Capability 2,009
Average Importance
19 Labor Relations Record 2,003
20 Geographical Location 1,872
21 Amount of Past Business 1,597
22 Training Aids 1,537
23 Reciprocal Arrangements 0,610 Slight Importance
Although Dickson‟s study was very useful for few decades, the industries emerged
and created a need for different approach. Some criteria became more important
than they were before. Ellram (1990) presented her own framework, in which she
included 12 criteria. Table 3 shows Ellram‟s findings.
Table 3. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).

Rank Supplier Partnership Selection Criteria
1 Economic Performance
2 Financial Stability
3 Trust
4 Management Attitude
5 Strategic Fit
6 Top Management
7 Compatibility
8 Organizational Structure
Manufacturing Current and Future
9
Capabilities
10 Design Capabilities
11 Development Speed
12 Safety Record
Ellram did not ignore the importance of Dickson‟s quality criteria, but she focused
on finding complementary criteria that would support the supplier-buyer long-term
relationships.

9
There is not a general rule to evaluate an approach as right or wrong. Thus, some of
the criteria might be applicable in a specific case and some not. The importance of
the studies lies on the fact that those criteria help and support the supplier
evaluation process, which is analyzed next.
3.2 THE PROCESS
According to Papagiannakis (2009), there is not an absolute best way to evaluate

and select suppliers. Every case is different and most of the times it is required a
combination of different approaches to achieve the best solution. The objective of
this process is to minimize risks and maximize the perceived value for the buyer.
Long-term relationships usually help businesses to achieve this objective.
Supplier evaluation methods usually follow a strict, structured approach through

the use of research methods. A supplier selection research, in order to be
successful, has to be complete, objective, reliable, flexible and finally
mathematically simple. Hence, businesses have to follow specific steps to ensure
that their supplier selection research will be successful.
According to Monczka et al. (2002), a supplier evaluation and selection process

should include seven steps, as the following figure illustrates:
Figure 2. Supplier Evaluation and Selection Process (Monczka et al. 2002)

10
The framework of Monczka et al. includes more parameters in every of the seven
steps. Though, this paper will avoid to explore deeper the framework, so that it can
introduce some interesting supplier selection methods in the subchapter 3.3.
3.3 SUPPLIER EVALUATION AND SELECTION METHODS
According to Daskalakis (2010), each method covers some aspects of the suppliers‟
characteristics that are under investigation. Consequently there is no method that
can replace some other. Of course in some cases a method can include
characteristics of many other methods, but it is not possible to cover all the
characteristics of a candidate supplier.
Talluri and Narasimhan (2002) identified three basic methodologies to approach

the problem of supplier evaluation and selection. First, the conceptual approaches
that emphasize the strategic importance and influence of the supplier selection to
the buying process. Price, quality and delivery regulations are very important parts
of the conceptual approaches. Second, the empirical approaches, such as the one of
Chao and Hartley (1996) for the automotive industry, which proposed that there are
only slight differences regarding the importance of the selection criteria, between
the different levels of the buyer‟s supply chain. Finally, the most widespread
approach lies on the use of models to solve the supplier evaluation and selection
problem. These methodologies are greatly used nowadays, and hence some of them
are presented in Table 4.
Table 4. Supplier Evaluation and Selection Methodologies (Papagiannakis 2009).

Models Researchers
Linear Weighting Models Timmerman (1986), Monczka & Trecha (1988)
Statistical Model (Principal
Petroni & Braglia (2000)
Components Analysis)
Barbarosoglu & Yazgac (1997), Bhutta & Huq
Analytic Hierarchic Processes
(2002), Narasimhan (1983), Nydick & Hill (1992)
Ellram (1993), Degraeve et al. (2000), Bhutta &
Total Cost Models
Huq (2002),
Economic Model Tagaras & Lee (1996)
Weber et al. (1998), Narasimhan et al. (2001),
Data Envelopment Analysis
Talluri (2003)
Dahel (2003), Karpak et al. (1999), Weber &
Multi-objective Programming
Ellram (1993)
Game Model Zhu (2004), Talluri (2002)
Kwong (2002), Kuma et al. (2004), Lau et al.
Fuzzy Theory
(2002)
Dimensional Analysis Li et al. (1997), Willis (1993)

11
MACBETH Models Bana e Costa & Vansnick (2008)
Some of the methodologies are able to improve significantly the decision-making,

and thus it is important to mention the models that are greatly in use. As
Papagiannakis (2009) identifies, the most important are:
 Linear Weighting Models:

o Categorical Method (Timmerman, 1986)
o Weighted Method (Timmerman, 1986)
 Total Cost Models:
o Total Cost of Ownership (Ellram, 2005)
o Cost Ratio (Timmerman, 1986)
 Principal Components Analysis (Petroni & Braglia, 2000)
 Analytic Hierarchic Processes (Nydick & Hill, 1992)
 MACBETH Models (Bana e Costa & Vansnick, 2008)
In the Linear Weighting Models the evaluation is based on a pointing system

according to various criteria. The final points indicate the most suitable supplier.
The Total Cost Models are cost oriented and focus on financial aspects. On the
other hand, the AHP Models are based on a framework that prioritizes the
alternative choices and includes intuitive, logical, qualitative and quantitative
factors. Finally, the MACBETH Models attempt to improve the method of the AHP
models. The comparison of the models is shown in Table 5.
Table 5. Advantages and disadvantages of supplier selection methods (Papagiannakis 2009)

Methods Advantages Disadvantages
 The same weight for all
 Clear and systematic the criteria
Categorical evaluation  Subjective pointing
 Cheap implementation system
 Not very reliable
 Subjective pointing
 Different weight for system
Weighted Point criteria respectively to  Difficult to take into
their importance account qualitative
criteria
 Flexibility
Cost Ratio  Decreases the  Complexity
subjectivity
Total Cost of Ownership  Cost reduction  Complexity
 Reliable
 Knowledge of advanced
Principal Component  Manages the
statistical methods is
Analysis characteristics without
required
weights

12
 Simple
Analytic Hierarchical
 Quantitative as well as  Unstable
Process (AHP)
qualitative criteria
 Use of software is
MACBETH  Improvement of AHP
required
As seen in the table above, the linear weighting models are easy to implement and
simple to use. They are not very expensive but they are not very reliable as well.
On the contrary, the total cost models are flexible and very objective, but very
complex and difficult to implement. The principal components analysis is able to
manage multiple conflicting criteria. The AHP are simple to use and take into
account quantitative as well as qualitative criteria. Finally, the MACBETH is a new
method that improves the AHP.

13
4 SUPPLIER SELECTION IN E-MANUFACTURING
4.1 WHAT IS E-MANUFACTURING?
E-Manufacturing term first introduced to business by a firm in semiconductor

industry to enable large production quantities in different locations in the world
(Sridhar CNV et al. 2010). With emerging applications of Internet and tether-free
communication technologies, companies are forced to change their traditional factory
integration philosophy to an e-factory philosophy where every step is controlled and
optimized by using an e-Manufacturing system (Koc et al. 2005). The main reasons
behind this shift are:
 the threat posed by competitors
 controlling costs
 finding new opportunities
 improving responsiveness
 better customer focus and service
After the acceptance period in business, e-manufacturing started to get more

popular in the market. Many companies realized it is importance and the benefits it
provides in a short period of time. By using e-manufacturing systems, companies
started to fill the gaps existing in their traditional manufacturing systems. E-
Manufacturing enabled real time information sharing between the peers about
capabilities, costs and resources, synchronization with suppliers and vendors and
linkage with ERP systems in every step of the production. Moreover, it assured
reliability and maintainability and maximized the availability. As a result,
companies managed the increase their performance and decrease their costs at the
same time by benefiting from the power of e-manufacturing systems. The concept
of e-manufacturing is illustrated in figure 3.

14
Figure 3. E-Manufacturing
According to Sridhar CNV et al. (2010), the benefits provided by a well

implemented e-manufacturing system are:
 E-Manufacturing is to achieve predictive near-zero downtime performance
through the use of web-enabled technologies.
 The real-time production information should be made available to the entire
organization.
 E-Manufacturing gives agility to react quickly to the changes in market,
technology, and clients.
 Total asset management that aims in improving the utilization of plant floor
assets using a holistic approach.
 Sensitive communication between the clients and the server
 Transparent, seamless, information exchange process between clients and
manufacturing firm.
 It enables to meet the increasing demands through tightly coupled supply
chains.
 Status of equipments, orders, products, changes in the processes across the
enterprise can be monitored.
 There should not be any block holes in the real time flow of information,
including outsourcing suppliers, customers
 The entire system is flexible enough to change with the varying market
demand conditions in a short lead-time.
 The ability to quickly and accurately communicate technical information
throughout suppliers and manufacturers leads to pooling the best ideas and
faster decision-making.

15
The benefits mentioned in the bullet list above provide endless opportunities to
companies against their competitors. The companies can optimize their inventories
and production capabilities by using just-in-time manufacturing and on-time
shipment so that they can control their costs and create a wider profit opportunity
for their organization. Now, e-manufacturing is seen as a core competency in which
companies can integrate all elements of their business in one solid framework.
4.2 WHY E-MANUFACTURING?
The main focus of a company for introducing an e-manufacturing strategy relies on

the competitive advantage it can gain. Specifically, manufacturers aim to improve
their efficiency in quality control, operations management and of resources, supply
chain management and visibility. By improving these aspects, companies will be
able to tailor their offerings of services and products to the requirements of the
customer, and will excel in performance. The following table shows the ongoing
problems in today‟s companies using the best manufacturing practices, and it also
shows the improvements with e-manufacturing.
Table 6. Comparison of traditional manufacturing and e-manufacturing.

Traditional Manufacturing E-Manufacturing
Parts with defects Less parts with defects
High downtime Low downtime
High energy use and cost Controlled energy use, reduced cost
Long changeover and ramp up time Shorter changeover and ramp up time
Long lead time for new product Short lead time for new product
realization realization
Slow decision making Fast decision making
Supply chain visibility Increased supply chain visibility
Among the important aspects of implementing e-manufacturing there are several

issues that are very important for a successful strategy. For example, having e-
manufacturing as part of the company‟s processes form an instant increase in the
exchange of all sort of information between the company and suppliers or
customers, specifically in the speed of the communication. This allows avoiding
problems at any kind of level with the customer, supplier, or anywhere along the
supply chain. Additionally, it is also important for companies that have outsourced
large parts of their operations, since it can communicate vital information in just
instants, therefore enhancing the decision making process. On a similar level, the
lead times for new product realization should be reduced to a minimum in order to
have the capability to react to the changing demand of different customers and
regions.

16
There are seven main benefits achieved by implementing the e-manufacturing

strategy to a company or enterprise. (Shivanand et al. 2008) These are:
 Synchronization of the production processes with the business processes
 Improving and consolidating the upstream information, material and work
flow
 Automation of business processes inside the company
 Increasing manager control providing more plant information and new
analysis tools
 Integration of the design process among different units or companies
collaborating
 Leveraging the bi-directional downstream information
 Enhancing and enabling the collaborative maintenance and support for
manufacturing
4.3 EVOLUTION OF SUPPLIER SELECTION IN E-MANUFACTURING
Many authors have identified several criteria for supplier selection as these criteria
are vital in supplier evaluation and selection process since it helps to measure the
performance of supplier. However, the researched criteria mainly focus on tradition
manufacturing concept and e-manufacturing trend was not taken into consideration
during these researches. Nowadays, it is believed that e-manufacturing
distinguishes itself from traditional manufacturing by its characteristics and
capabilities. Thus, selection criteria must vary (Sridhar CNV et al. 2010).
The idea behind traditional manufacturing is to have a high level throughput

produced with a minimum amount of inventory. Usually, the fact of having a low
amount of inventory brings savings in warehousing costs. In order to guarantee a
successful strategy, several criteria should be satisfied. Quality is one of the most
important criteria of traditional management. Traditional manufacturing aims to
provide a high quality product by inspecting each part after it has been
manufactured. In case there is a defect, the production line is stopped to detect the
problem before it becomes bigger. The quality of the raw materials is also
thoroughly inspected in order to achieve a better product. Delivery times in
manufacturing depend from the just in time concept applied to purchasing,
manufacturing and distribution. In each of these stages, the raw materials, products,
and output are expected at a certain moment in order to avoid storage costs within
the company. As a result of saving on warehousing costs, the company will then
focus on the price of the product and try to eliminate any unnecessary costs to
reduce the production costs, and be able to reduce the customer price; for a better
competition in the market. The reputation and position of the company are an
important part of manufacturing since they help create a brand name and establish a

17
domain over the market. It is always important to maintain a manufacturing

position since it can provide benefits when competing for the market. Additionally,
before globalization and the increase in global communication means, geographic
location was important for manufacturing since communicating and sharing
information with a supplier or customer was easier if they were physically close.
Transport costs were also cheaper, therefore, companies had the tendency to hire or
work with close suppliers and customers. Also, the manufacturing capabilities were
of great importance, since companies used to work with huge amounts of stocks
and products, thus making it very important to have the resources to manage these
stocks. Without these, the company loses productivity and competitive advantage
against rivals.
Figure 4. Evolution of supplier selection criteria in e-manufacturing environment.
E-Manufacturing is a business strategy for companies to be able to stay competitive

in current business environment. The main focus of e-manufacturing is to integrate
of all the elements of a business including suppliers, customer service network,
manufacturing enterprise, and plant floor assets with connectivity and intelligence
brought by the web-enabled and tether-free technologies which gained momentum
in the last decade.

18
As seen in Figure 4, e-manufacturing forms a new perspective in supplier selection

criteria. The most important selection criteria in e-manufacturing are quality,
delivery time, price, reputation & position, lead time management and IT &
Communication systems. When compared to traditional manufacturing criteria, it is
seen that manufacturing capabilities and geographical location lost their importance
in the scale. The reason behind this argument is that e-manufacturing improved the
information sharing and internal communications of the organizations so that they
can work with less stock and be braver to pursue international opportunities by
relying on their business network. These trends increased the importance of lead
time management and IT & Communication systems. Lead time management
became more important in supplier selection because the business environment is
very dynamic and reacting to emerging trends is a key success factor nowadays. IT
& Communication systems also increased their popularity in supplier selection
since it is very critical in e-manufacturing concept to be able to share information
fast and efficiently. However quality, delivery time, price and reputation & position
are still keeping their position to be an important decisive factor in supplier
evolution because they have direct effect in cost and performance management of
an organization.
Currently many companies are basing their operations on traditional

manufacturing. However, when the company is very large enough and has the need
to increase supply chain visibility, as well as communication with suppliers and
customers, it fulfils the criteria to implement e-manufacturing. By implementing
this manufacturing, it can expect a drastic reduction of warehousing costs,
communication expenses, avoiding the excess of inventory and increasing the
production speed. All of these settings provide an increase in the productivity, a
decrease in the production cost and reduction of the sales cost for the customer.
Therefore, the company will offer a better product at a better price and this will be
reflected in the profitability of the company.

19
5 CONCLUSION
Globalization trend has enabled new business opportunities for all companies
around the world. Many companies started to make business with suppliers from
abroad so that they can lower their costs and increase product quality. However,
this situation formed some challenges to companies as well in evaluating the best
supplier so that they can improve their performance. The supplier evaluation and
selection has always been one of the most important problems that companies need
to solve. The multi-criteria analysis methods can adapt to the needs of each
company and offer a reliable solution for this problem. Hence, these methods are
able to contribute significantly and improve the profitability of the buyer, if they
are used properly.
The objective of this paper was to highlight how efficient supplier selection can
provide business success and how the e-manufacturing trend affects the supplier
selection in current business environment. E-Manufacturing trend has plenty of
unique characteristics compared to traditional manufacturing so these aspects
should be taken into consideration before selecting a supplier to be able to get the
best performance and results.
Based on this research, this paper examines the concept of buyer-supplier relations
and how these relations affect the company‟s operations. Furthermore, the
evaluation and selection process has also become a very complex task for managers
in the modern business environment. Thus, the paper analyzes different criteria,
methods and models which are used in order to decide the most suitable supplier
for the company‟s operations. Multi-criteria methods are very popular and usually
provide the best results. Hence, they are also introduced and discussed in order to
acquire the basic knowledge regarding the supplier selection, so that the research
can proceed and analyze the case of e-manufacturing.
Finally this paper supports that e-manufacturing is a great opportunity for

companies in business nowadays. With the development in information technology,
it will keep on increasing its power and start to dominant the manufacturing
practices that are currently in use. Thus, companies should adapt to this trend and
alter their supplier selection criteria accordingly.

20
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PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

 Supplier evaluation and selection

 No “one best way”

 During new product development

 Performing market tests

 May be determined by internal and

 Single vs. multiple sourcing

 How well existing suppliers can satisfy

High Capability of Low Capability of

High Strategic Minor to Moderate

Low Strategic Minor to Moderate

Purchasing & Supply Chain Management, 4e

 Current suppliers  Trade journals

 Manufacturer vs. distributor

Purchasing & Supply Chain Management, 4e

 Evaluation from supplier-provided

 Price, quality, and delivery

 Environmental regulation compliance

 What is the organization’s vision?

 Is the organization prepared to face

 Degree of commitment to quality and

 Direct labor costs

 Supplier may not understand its true

Purchasing & Supply Chain Management, 4e

 Level of technology, design capability,

 Disclosure of environmental infractions

 Does the supplier use MRP?

 Web-based B2B vs. EDI systems

 Tier 1 vs. Tier 2 vs. Tier 3 suppliers

 Is the supplier willing to participate?

 Will there be free and open information

 How well does the supplier understand

 Identify supplier evaluation categories

Purchasing & Supply Chain Management, 4e

 Map the existing process

 New organization design features

 Builds quality into the product, aiming

 Provides the buyer with capability and

Overview & Structure

• Vendors often don’t communicate changes in processes/technology/services

• 1000+ Contracts to manage

• Vendor service levels/performance monitoring – No structured process to

• Too many vendors

Business Unit Various Business Units in NJM who need products/services

Corporate Legal Contract Management

Purchasing Vendor Payments

Name function Integrate into existing

Leadership/ Define structure for

What Vendor Relationship should this group manage?

Current Practice @NJM Gap/Desired Practice

Contract  Contract Management – Corporate  VM function owner (VMO) needs to

8 Other Non IT Vendors

High High Strategic >1M Yes

 Vendor Classification – helps

 NJM can spend more time and

 Vendor consolidation can be

Artifacts Current State/Gaps Desired State

Vendor Selection Vendor Selection Process exists This needs to be expanded to

• NJM existing templates can be refined and improved to evaluate multiple

Software Vendor RFP Template Vendor Selection

Artifact Current State Desired State

Referral to Contract Available TBD

NJM Contract Management function could

Does Vendor have these in place?