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IDENTIFICATION OF BEST-INCLASS SUPPLIER

MAMTA R.

Common Mistakes
Companies select the first supplier that comes

along. Companies do not look for additional potential suppliers. Companies think that merely getting to know each other for the first time at a trade fair or a similar occasion is enough to start doing business together. One relies on the information of the suppliers, without comparing the information with what is readily available through the secondary sources. Reference customers of the supplier in sourcing

PROCESS FOR THE IDENTIFICATION OF BEST-IN-CLASS SUPPLIER SUPPLIER INFORMATION Telephone contact Short introduction of the matter Identification of the correct contact person Testing the basic ability to supply Supplier information Master data of the company Business development Product/supply spectrum Experience in exports Logistics Quality INTERNATIONAL REQUEST FOR PROPOSAL Product/service description Data from product specifications Logistical requirements Supply modalities Export modalities Information of quantity Etc..

VISITS TO SUPPLIERS
Detail assessment Quality management Logistical concept Supply and payment conditions Production Sales etc..

Negotiations with suppliers Contract negotiations Contact person


Selection of suppliers

SUPPLIER INFORMATION
TELEPHONIC INQUIRY At the foremost one should gather initial details

about the production program, manufacturing processes and previous success in exports of all the companies that have been included in the supplier pool.
Before a telephone call one should

- Determine the exact contact details


- Identify the correct contact person - Arrange a employee or agent who is fluent in the

regional language of the respective country.

Make a impressive portrayal of your company.

Name your main areas of focus and your strengths and give the potential supplier a picture of the advantages that could arise out of such business cooperation.
Through adept(clever) questioning, try to gain

sensitive information like amount of turnover or market share.


The supplier pool can be reduced further after the

telephone inquiries.

SUPPLIERS INFORMATION FORMS - Suppliers who were convincing during the

telephone inquiries send them a form in which their information is to be filled in and sent back to the company. - Send reminders if forms are not received back - This supplier information form should contain the following points : 1. Master data of the company - Full description, including trading name of the company and year of establishment. - address, telephone, fax, e-mail, website, contact person and function.

- Locations within the country and abroad

(development, manufacture, sales) - Private or state-run companies 2. Business development - Group to which company belongs, size of business, areas of operation - Economic development in the last three years (turnover, profit) - Turnover in every area of operation - Number of employees in every area of operation 3. Spectrum of products and services - Product range

- capacities - additional services (e.g. development)

4. Experience in exports
- Number of years - Export regions - Share of exports in the total turnover

- If any references (companies, contact persons with

contact details, duration of business relations)


5.

Logistics Warehouse (e.g. location, capacity, setup)


-

Consignment stock Supply conditions

6. Quality management - Available quality management - Name of the company checking quality
- After the suppliers return the forms filled in with

their information, the company need to evaluate the same.


- After assessing the questionnaires, the number of

potential suppliers will again reduce.

International request for proposal


After conducting the inquiries as described,

potential >global sourcers< will be in a position to further narrow down the list of potential suppliers Send an international request for proposal to all suppliers who have had a positive assessment in the selection process until now. This proposal should contain certain details like Quality requirement Place of delivery INCOterms Payment conditions Transaction Currency

Calculate the cost of sourcing

After the response of the international request for

proposal and analysis of all data, the number of suppliers in question further reduces Often, in connection with the international request for proposal, the supplier is also often requested to provide a product sample, definitely recommended. This will enable the technical department to make a concrete check on the product and to ascertain, whether the product meets the mark in terms of quality.

Now the circle of suppliers who should be

considered seriously quickly reduces to less than ten, after the stages of collecting supplier information and making the international request for proposal.
Experience shows that here, too, companies tend

to save at the wrong place.


Therefore, one should absolutely avoid the

mistake of not visiting the suppliers personally.

Visits to suppliers

The following main criteria are the focus of this -

selection Quality management Logistics concept Supply and payment conditions International negotiating strategy

In focus : Quality management


The potential supplier is able to ensure the

necessary quality in a sustainable manner : important criterion. A recognized and actively implemented quality management system makes sure that the supplier can achieve the following: Guarantee customer satisfaction Fulfill the customers requirements based on the processes defined in the system at all times Discover mistakes well in time and, if possible, avoid them. Regularly check and consistently improve the effectiveness and efficiency of the processes.

Some of the important international norms and

standards are ISO 9000 and ISO 14000.


More than 160000 companies in some 160 countries

follow these norms.


ISO 9000 standards are objectives and organizational

requirements for quality assurance systems. By observing these norms, companies can prove that their products and services are of a consistent quality.
ISO 14000 standards are concerned with the areas of

the environment and environmental management. By accepting these norms, companies can prove that they wish to avoid any damaging influences on the environment and wish to continuously improve their environmental performances

Most companies are completely overworked when it

comes to checking whether the potential new suppliers actually observe the norms and standards.
The seal of approval, after all, is not enough to ensure

high quality. Highly qualified help, however, is available.


There exist renowned, independent organisations in

the sourcing countries that undertake the necessary initial checks, as well as the ongoing quality checks during production.
On request, these quality experts also check

packaging, storage, supervise the loading of goods,

Among these neutral testing organizations are TUV

Rheinland and the SGS Group.


TUV Rheinland is a leading certification and

inspection company in the world with presence in over 70 countries. Its operation in India can be found under http://www.tuvindia.co.in
SGS is the worlds leading inspection, verification,

testing and certification company with offices in 140 countries worldwide. Its operation in India can be found under http://www.in.sgs.com
It is recommended to contact these organizations and

to invite suitable offers, because in most cases these organizations perform very good work and save their clients expensive and time-consuming quality problems.

In focus : Logistics concept


Logistics is one of the instrument of the strategic

corporate strategy and should ensure a guaranteed supply of goods in these times of just-in-time and reducing warehouse scope.
The issue of supply guarantee is gaining importance

because of the large distances to be spanned.


Having a buffer warehouse in the country of the

supplier, as well as in the vicinity of the buyer can reduce or even eliminate the risk of a stop in the production due to the delivery failing to arrive, and should, therefore, definitely be constructed.
Such precautionary measures naturally cost money,

and should, therefore, be considered when comparing costs between global and local sourcing.

Constructing a warehouse in a till now unknown

sourcing market requires the know-how of a professional.


After the evaluation, one should check whether

the expenses for the necessary logistics actually justify awarding the contract to a supplier in this souring market.
A prospective >global sourcer< need not,

however, be afraid simply due to the large distance. International transport chains are continuously being optimized and being made more flexible.

In focus : Supply and payment conditions.


In international trade, supply and payment

conditions can be a deciding factor between success and failure. One should duly try to understand the possible effects on the following aspects : The current political and economic situation in the sourcing market The necessary liquidity and credit requirement The possibilities of financing The existing currency risks

The most important payment conditions for

international business are categorized as nondocumentary and documentary. 1. Non-documentary payment conditions
-

Payment on >open account< (clean payment) : The most favourable payment condition for buyers, because the supplier dispenses with any kind of guarantee of payment. In most cases, such accommodation is shown only in longstanding business relations. Cash before delivery/advance payment : The worst payment condition for buyers. Cash down payment/installments : Such payment conditions are normally made, if the delivery time is long. Shared risk.

- Cash on delivery : This payment condition is not so flattering for the buyer, because it signalizes the low trust that the supplier places on the buyers payment morals. It is normally restricted to land and air transport in business abroad. The forwarding agent undertakes the collection on delivery. 2. Documentary payment conditions Here the supplier authorizes his credit institute to hand over the necessary documents that entitle the buyer to the goods only against payment or on acceptance of a bill of exchange.

In focus : First personal impression


First impression, often, contributes significantly to

the final decision. The cost incurred due to the visit and the time spent there are, completely essential. Unless one is considering production of parts that demand very little technological and manufacturing expertise, and that can even be manufactured by modestly qualified employees.

In focus : Target oriented negotiating strategy.


Regardless of whether buyers are negotiating

with national or international suppliers, the aim of the negotiations is always the same : best prices and top quality, together with a high supply guarantee.

The final selection of suppliers


After having gained a personal impression of the

potential suppliers and their qualifications based on various criteria, it is now time to come to a final decision The various relevant criteria need, once again to be carefully weighed against each other Decision-makers from all departments like e.g. R&D, production, finance and quality mngt. along with the top management should participate in this process. Despite all these efforts, if a unanimous decision can still not be reached, an additional instrument, a so-called scoring model, is available to help

Scoring model
Supplier A Quality Samples Checking references Visits to suppliers Etc.. Price ++ + ~ ++ Supplier B ++ ++ + + Supplier C + ++ ~ ~

Consignment stock
Supply conditions Payment conditions Capacity Climate for negotiations etc.

Yes (++)
Ex works () Open account (++) ~ +

No ()
DDP (++) Letter of credit (~) + ~

Yes (++)
FOB () Cash before delivery(+) ++ ++

Key: ++ = Very good, + = good, ~ = Satisfactory, = Fair

THANK YOU

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