Source Selection and Vendor Development

SOURCE SELECTION AND VENDOR DEVELOPMENT
Group 2:-
AP19588 Shivam Kumar
Submitted to:
AP19589 Shubham Mathur
Dr. Tapas Ganguly
AP19590 Quraishi Fahad
AP19591 Sathpaty Sidhant
AP19593 Vignesh Raj
What is Source Selection?
 Source selection is the process of finding the appropriate source from where the
buyer can procure right quality products and/or services at the right price, in the
right quantities and at the right time.
 It is often thought of as making trade-offs among offers or proposals to determine

the best value offer.
What you should look for in a supplier?
 Reliability.
 Quality.
 Value for money.
 Strong service and clear communication.
 Financial security.
 Partnership approach.
Stages of Source Selection
Searching
Selections
Negotiations
Trial Order
Rating
Searching
 The identification of the sources of supply needs exhaustive initial survey.
 Trade Journals, newspaper advertisements and other sources of
information such as the governmental departments for eliciting trade
information are consulted.
 At this stage, the enterprise identifies the core and non-core operational
activities, analyzes customer and market requirements and identifies
competitors.
Selection
 Specific information on the supplier’s financial strength, quality, facilities,
efficiency, industrial relations, technical excellence and position in
industry have to be collected. This would enable the buyer to select such
suppliers who will be just suitable to meet his requirements at present and
in future at competitive price levels.
 Meeting between the buyers and the supplier’s representative brings them
closer and enables them to know each other more comprehensively.
Negotiation
 Negotiations are done with the suppliers to ensure correct and cordial
relations between the buyer and the supplier and is very essential for
mutual cooperation.
 Supplier selection negotiations may involve a wide range of details of
products/services, including price, quality, delivery time, service, and so
on.
Trial Order
 Through negotiations when both the parties — the buyer and the vendor —
come to mutual understanding, trial orders are placed.
 Formally the trial orders do not exceed more than a month’s requirements.
Rating
 Continuous rating is an important function of the materials management.

 There are different rating systems. Computed on a periodic basis, vendor
rating enables the buyers to compare the vendors.
Source Selection Criteria
 Source selection criteria is a set of attributes desired by the buyer which a seller is
required to meet or exceed to be selected for a contract. Some of the possible
selection criterias can be:-
 Understanding the need
 Life-cycle cost
 Risk
 Management approach
 Technical approach
 Financial capacity
 Production capacity
 Business size and type
 Past performance
What is Vendor Development?
 Vendor means a person (or company) who sells and supplies his (or its)
products.
 Vendor development is an evolution in the supply chain management.
There is a growing interest in generating approaches for meaningful
development of suppliers so that business could snatch long-term
strategic initiative by developing effective partnerships with suppliers.
 Vendor development places priority on vendor improvement through training,
co-developing product, innovation, improving capacity, delivery lead-time
and quality of product of their counterparts.
Few questions to be answered before
attempting to develop vendors:-
 How much quantity is required to be purchased?

 How much time is available for making such purchases?
 Will the material be required repeatedly or occasionally?
 What is the volume of purchase of the required materials?
 Which is the industry producing the required materials?
 What is commercial viability of the materials?
Four stages of Vendor Development
Survey Stage
Enquiry Stage
Negotiation & Selection Stage
Experience & Evaluation Stage

Survey Stage- Source of information on
potential vendors
Survey involves collecting information on different suppliers of the desired
materials. The following sources may be consulted:-
 Trade directories: Information regarding dealers addresses, regional office
etc.
 Trade journals:- Contain advertisements of the materials related to
specific industries.
Enquiry Stage- Selection of potential suppliers
 After a list of possible suppliers is complied, the next step is to inquire a few of them
further.
 Accreditation, FDA approval and certifications namely ISO 9000, 9002 etc, facilitate
the selection. A comparison may be made in regard to four aspects of competition
• Technological competition
• Service competition
• Price competition
• Time based competition (TBC) i.e., response time for delivery
Detailed analysis would be about:-
 Internal facilities of vendors:- Adequate facilities are essential for the manufacture
and quality control of items.
 Financial adequacy and stability:- Financial status of the vendor company and
relations with his bankers.
 Reputation of the vendor: Methods of selling and distribution network.
 Location of the vendor’s factory:- It should be nearer to buyers factory.
 Industrial relations: Industrial conflicts, frequent strikes, layoffs etc, seriously
affect the supplies.
 Telephone directories :- These contain classified advertisement arranged
alphabetically, item-wise or group-wise.
 Suppliers catalogues :- Many manufacturers periodically publish
catalogues and pamphlets giving details of the products they manufacture.
 Salesmen :- Through their sales presentations, it is possible to collect the
information and clarify doubts.
Negotiation and Selection Stage-
Finalization of vendors
 The vendors who are successful in the enquiry stage may be called for
negotiations in order to discuss business possibilities.
 During this stage, various terms namely credit, quantity discount, quality
specifications etc, can be decided.
 Finally, a list of approved vendor’s drawn.
 Accordingly, purchase orders are placed with the approved vendors.
Experience and evaluation stage
 At this stage, the buyer evaluates and appraises the performance of the
vendor. The objective is to improve the performance of vendors in which
they are deficient.
 The evaluation is done especially on two counts, namely quality (judged
by rejection of lot- size ) and delivery ( judged by delays on delivery).
Vendor Rating
There are few ways by which a vendor can be evaluated-

1) Categorical Method:-
o This method involves categorizing each supplier’s performance in specific
area defined by a list of relevant performance variables.
o The buyer develops a list of performance factors for each supplier and
keeps track of each area by assigning a ‘grade’ in simple terms, such as
‘good, neutral, unsatisfactory’. In the meetings with the supplier the buyer
informs him of his performance.
2) Cost Ratio Method:-
This method evaluates supplier performance using standard cost analysis. The total
cost of each purchase of material is calculated as its selling price plus the buyer’s
internal organizational cost associated with the quality, delivery and service
elements of purchase.
Calculation Process:-
1. Determine the internal organizational cost associated with the quality, delivery
and service.
2. Convert each element to cost ratio, which expresses the cost as percentage of the
value of the purchase.
3. Sum up the three cost ratio (quality, delivery and service) to obtain overall cost
ratio.
4. The overall cost ratio is applied to suppliers quoted price to obtain the net adjusted
cost figure.
The net adjusted cost figure is used to compare the performance of various suppliers.
3)Linear Averaging method:-This method is the most commonly used
evaluation method.
o Specific quantitative performance factors are used to evaluate supplier
performance.
o The assignment of these weights is a matter of judgment of top
management preferences.
o After the weights have been assigned the individual performance ratings
are determined. This is done by summing the scores for each factor.
o Then each performance ratings are multiplied by its respective weights as
percentage.
o Finally, the results of three factors are added to give a numerical rating for
each supplier.
References:-
 http://www.yourarticlelibrary.com/material-management/top-5-successive-
stages-of-source-selection-materials-management/74235.
 https://www.researchgate.net/publication/272477156_The_Impact_of_Ven
dor_Development_in_Supply_Chain_Management_on_Firm
 Padamdhar garg; Vikrant chandrakar (2014), Vendor Development, MNIT
Jaipur
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SOURCE SELECTION AND VENDOR DEVELOPMENT

 It is often thought of as making trade-offs among offers or proposals to determine

 Continuous rating is an important function of the materials management.

 How much quantity is required to be purchased?

Negotiation & Selection Stage

Experience & Evaluation Stage

There are few ways by which a vendor can be evaluated-

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