CHAPTER

5:
SUPPLIER
SELECTION
PROCESS
MGNT 7 LOGISTICS MGT
BSBA III
SOPHIA LYN DUQUE
WHAT IS SUPPLIER?
 SUPPLIER
- is a person or business that provides a
product or service to another entity. The role
of a supplier in a business is to provide high-
quality products from a manufacturer at a
good price to a distributor or retailer for
resale.
- AKA Vendor
 SUPPLIER SELECTION PROCESS

First Stage: Evaluating Offers

Second Stage: Operational Capacity Analysis
Third Stage: Technical Capability Determination
Fourth Stage: Financial Analysis
 FIRST STAGE: EVALUATING
OFFERS
 Evaluating a supplier’s offer includes not only evaluating
its bit but also checking out the supplier’s ability to
perform to the required level of speed and quality.
 Evaluate offers in terms of both: potential risk and
benefits.
 Try to assess three key criteria before reaching a decision
to award the contract to a specific supplier:
responsiveness, capability, and competitive value.
 SECOND STAGE: OPERATIONAL
CAPACITY ANALYSIS
 One of the primary considerations in award determination will be the supplier’s physical
capacity to meet your needs as promised.
 Obviously, you don’t want to select a supplier that could have difficulty meeting the
required volume due to capacity constraints or conflicts with the scheduling of other
jobs.
 A simple ratio of current output to capacity can provide a valuable indication of this
ability.
 Another good idea is to ensure that the potential supplier has the ability to properly
schedule orders and keep track of current production operations to meet its customer’s
commitments.
 Be able to benchmark all these criteria through the customer references the supplier
provides.
 THIRD STAGE: TECHNICAL
CAPABILITY DETERMINATION
 Another important key capability to be evaluated is the supplier’s technology and
technical ability.
 Make sure that your potential supplier has all the necessary equipment, tools, and
talent to meet your requirements.
 You can determine this through historical performance records and active
participation in industry events.
 Check how many patents the company holds in comparison to its competition.
 Examine how often does it lead the market with the introduction of new products and
to what extent it is funding its research and development efforts.
 Don’t forget to consider all the necessary licenses, insurance, and supplier
certifications.
 FOURTH STAGE: FINANCIAL
ANALYSIS
 Financial analysis helps to assess overall supply base risk factors
and is often required in order to meet audit compliance
requirements.
 Financial ratios help select and qualify suppliers on the basis of
their financial strength, leverage and competitive advantage.
 To properly evaluate individual financial ratios, it is crucial that
they are viewed with respect to the historical performance of the
supplier or the ratios of similar firms in the industry.
 It’s also a good idea to periodically view financial trends.
 WHAT YOU SHOULD LOOK FOR IN
A SUPPLIER?

1. Reliability
2. Quality
3. Value for money
4. Strong service and clear communication
5. Financial security
6. A partnership approach
 RELIABILITY

Remember - if they let you down, you may

let your customer down.
 QUALITY

The quality of your supplies needs to be

consistent - your customers associate poor
quality with you, not your suppliers.
 VALUE FOR MONEY

The lowest price is not always the best value for

money. If you want reliability and quality from
your suppliers, you'll have to decide how much
you're willing to pay for your supplies and the
balance you want to strike between cost,
reliability, quality and service.
 STRONG SERVICE AND CLEAR
COMMUNICATION

You need your suppliers to deliver on time, or

to be honest and give you plenty of warning
if they can't. The best suppliers will want to
talk with you regularly to find out what needs
you have and how they can serve you better.
 FINANCIAL SECURITY
It's always worth making sure your supplier
has sufficiently strong cash flow to deliver
what you want, when you need it. A credit
check will help reassure you that they won't
go out of business when you need them
most.
 A PARTNERSHIP APPROACH

A strong relationship will benefit both sides. You

want your suppliers to acknowledge how important
your business is to them, so they make every effort
to provide the best service possible. And you're
more likely to create this response by showing your
supplier how important they are to your business.
 GETTING THE RIGHT SUPPLIER
FOR YOUR BUSINESS
 Know your needs

 Spend time on research

 Ask around

 Credit check potential suppliers

 Price isn't everything

 Agree on service levels before you start

 Don't buy from too many suppliers...

 ...but don't have just a single supplier

 KNOW YOUR NEEDS
 Make sure you know what you need.
 Don't be tempted by sales pitches that don't match your
requirements.
 Understand the difference to your business between a strategic
supplier, who provides goods or services that are essential to your
business - such as high-value raw materials - and non-strategic
suppliers who provide low-value supplies such as office stationery.
 You will need to spend much more time selecting and managing the
former group than the latter.
 SPEND TIME ON RESEARCH

Choosing the right suppliers is essential for

your business. Don't try to save time by
buying from the first supplier you find that
may be suitable.
 ASK AROUND

People or other businesses with first-hand

experience of suppliers can give you useful
advice.
 CREDIT CHECK POTENTIAL
SUPPLIERS
It's always worth making sure your supplier
has sufficiently strong cash flow to deliver
what you want, when you need it. A credit
check will also help reassure you that they
won't go out of business when you need
them most.
 PRICE ISN'T EVERYTHING
Other factors are equally important when
choosing a supplier - reliability and speed, for
example. If you buy cheaply but persistently
let down your customers as a result, they'll
start to look elsewhere.
 AGREE ON SERVICE LEVELS
BEFORE YOU START

It's a good idea to agree on service levels

before you start trading so you know what to
expect from your supplier - and they know
what to expect from you. See our guide on
how to manage your suppliers.
 DON'T BUY FROM TOO MANY
SUPPLIERS...
It will be easier for you to manage - and
probably more cost-effective - if you limit the
number of sources you buy from. This is
particularly the case with low value-added
suppliers.
...BUT DON'T HAVE JUST A SINGLE
SUPPLIER
It's always worth having an alternative
supply source ready to help in difficult times.
This is particularly important with regard to
suppliers strategic to your business' success.
 -END-

THANKS FOR LISTENING!

 REFERENCES:

https://precoro.com/blog/four-basic-stages-of-
supplier-selection/
https://www.infoentrepreneurs.org/en/guides/
supplier-selection-process/