OMSAN LOJİSTİK

Policies of Supplier SelectionProcurement and Supplier Relationship

Management

Latin America Logistics Center

Logistics Management Series

Suppliers Selection

Evaluate Offers

Make Visists

Negotiate Contracts

Place RFI/RFQto Suppliers

Identify QualifiedSuppliers

Objectives, SelectionCriteria

Needs Analysis

Final Selection

Managing Suppliers…

I. Needs Analysis

II. Requests for Proposals

III. Suppliers Evaluation and Selection

IV. Negotiation of Proposals

V. Contracts

VI. Supply Control

I. Needs Analysis

Contract Specifications

Drawings

Purchase Orders

Specifications Sketches Meetings Inspection

Instructions Demand Forecast Quality Standards Tests

Needs Analysis - Suppliers Clasifitation

Certified Suppliers

Qualified Suppliers

Approved Suppliers

First Choice, Close Relationship

Selected Group of Suppliers, Quality Audited, Growing Business

Occasionally Used, Exclusive Items, Prototypes, Office Supplies

No Inspection

Inspections lower than Audits

Guarantee, Total Inspection

Inspeccción

StatusClass

Optimising the Supply Function

• Minimise: - Total Supply Cost

- Number of Suppliers

• Subject to: - Fill Rate

- Product Quality

II. Information Requested RFI/RFQ

• Supplier’s Tenure in Providing the Service or Product

• Market Segments in which the Suppliers Operates

• Service Policies to Competitors

Company Profile

Who are the Suppliers Customers

% of Sales that My Business Represents

Contact with other Customers of the Supplier

Customers Portfolio

Fill Rate Offered

Technology Used in Developing the Product

Quality Standards Offered

Additional Services Offered

Returns Policies

Reverse Logistics

Capacity

III. Supplier Segmentation

• Multiple Segmentation Criteria

• Segmentation Criteria based on:– Relevance to the Business– Easy to Quantify and Qualify Suppliers

• Define Weights for each Indicator

Supplier Segmentation

• Segmentation Criteria

– Product Criticality– Product Sales Volume– Production Capacity– Integration Degree with the Corporation– Certification– Geographic Location

• Segmentation Policies

– System: GreenGreen, , YellowYellow, , RedRed– % Fill Rate– Supplier’s Certification Level– Number of Suppliers per Segment– Payment Schemes

Supplier Segmentation

Suppliers Segmentation Policies

A B C Item Class

A B C

A

B

C

Groups of Suppliers Groups of Customers

IntegrationSuppliers

Policy

CustomerServicePolicy

12

Segmentation PolicyGYR System

• Clearly state in the purchase order the Verification Scheme

• Supplier and Contractor should agree with the Verification Scheme

• Share Results with Suppliers and Contractors

Suppliers Selection Criteria

• Technical– Fit for Use

• Support– Project development– Inquiries

• Financial

• Logitics– Fill rate– Lead Time

35

15

10

40

0

5

10

15

20

25

30

35

40

Value

Technical

Support

Financial

Logistics

Suppliers Key Performance Indicators

• The Objective of Appraisal is to Reduce Costs, Increase Productivity, Improve Quality and Reduce Lead Times

• In the Certification Process should be stated the Goals and Efficiency Objectives for Each KPI

Suppliers Key Performance Indicators

• EffectivityEffectivity, goes beyond efficiency. Efficiency is doing things right. Effectivity is doing the right things right

• ProductivityProductivity , typically is the ratio between Input and Output

• Productivity does not imply Efficiency or vice versa..

Suppliers Key Performance Indicators

• Competitiveness

– The Company’s capability to deliver value beyond the valued delivered by their competitors at comparable costs

– A “Unique” way of doing things that is appreciated by customers as superior

Suppliers Key Performance Indicators

• Financial– Product Price– Discounts

• Productivity– Supplier’s Inventory Turns

• Time– Lead Time– Lead Time Variance

• Quality– % without Damages– Lead Time Variance– Fill Rate Contract vs. Fill Rate Actual

Supplier Certification

• Purchase Order Fill Rate

• Comprehensive and Trustable Information– # PO, ID Lines, Boxes, Batch, Exp. Date

• Automatic Information– ASN´s, VMI, Status Reports

• Standard Packaging

• Coming Orders Identification

• Programming & Performance of On-time Deliveries

Technology and Infrastructure

Product or Service RequirementsVerification

Economic and Financial Viability

Production Capacity and Capability to fulfil delivery Schedule

Finacial Analysis

Efficacy of the SupplierQuality Assurance System

Supplie

r Evalu

ati

on

Supplier Evaluation

Product of ServiceRequirements

Verification Checking ListRequested

Characteristics

Capacity to Maintain Quality Parameters

Quality Control

Raw Materials Sources, Reserves

Similar OrdersAttitude Toward

Fulfillment ofPromises

IV. Negotiation of Proposals Seven Elements of a Negotiation

Alternatives

Interests

Options

Legitimacy

Compromises

Communication

Relationship

What if there is NO agreement Outcome >BATN

Better if Satisfies Interests of Both Parties

Possibilities to attain and agreement

Fair for Both Parties, Compared with an External Reference

Whether Written or not, compromises specify what parties will and will not do

Two Way Effective Communication

The outcomes of a Relationships will be better if the parties improved their capacity to work together

Negotiation of Proposals Seven Elements of a Negotiation

Determine and develop your Better Alternative to Avoid Bad Deals. Also helps to achieve better results

Discuss Interests not Attitudes, it increases possitilities of good results

Both parties benefit from seeking option of mutual satisfaction

Fair deals las longer

Do not make substantial compromises until the end of the negotiation is reached

Both parties benefit from clear two-way communication

Be unconditionally constructive in relationship issues

Alternatives

Interests

Options

Legitimacy

Compromises

Communication

Relationship

IV. Rules for a Good Negotiation of Proposals

• Better than your alternative (BATN - Better Alternative To Negotiate)

• The Interests are satisfied– Our Interests, ok

– Their Interests, Acceptable

– Other’s Interests, tolerably

• NO Waste: A good option

• Legitimate: Nobody took advantage of your good faith

• An Intelligent compromise

• Efficient Process: A good communication

• The process improves relationships

V. ContractsIssues to Consider - ISO 9000

• Customer’s right to inspect the purchased

product

• Technical data of the inspection and

testing equipment

• Non-conformance Quality

• Quality records

ContractsIssues to Consider - ISO 9000

• Associate Services – Price/Sales– Lead Time – Documentation– Quantity– Transport Conditions– Place of Delivery– Packaging

ContractsComponents

• Duration• Expectations• Rights• Rules of the Game• Evaluation• Requirements• Relationships

• Penalties & Rewards• Costs• Policies of Quality and

Fulfilment• Working Suppositions

And do not forget the

Exit Strategy!!

Contracts How they have to be

• Formals

• Written

• Registered

• Legal

• Prepared

Are Not to affraid the supplier but should assure a proper relationship

Single Source

Benefits of a Single Source

• Maximises supplier volumes• Reduction in paper work• Less suppliers management• Non-conformances are easier to track• Individual delivers tracking• Consolidated deliveries• Quicker Replenishment Cycle

Single Source - Supplier View

• Advantages– Bigger Share of

Business– Better Planning of

Resources– Confidence in a

Continuous Demand– Opportunities to

Develop Product and Process

• Disadvantages– Single Customer

Dependability– Need to Share

Internal Information

Single Source – Strategies for Implementation

• Secure Supplier’s Profitability

• Secure that Demand is Important to the Supplier (Significative Turns)

• Strategic Alliances Relationship

• Performance Monitoring

To-Make or NOT To-Make?

NOVELTY(Outsource/In-House)

TechnologyQuality

PROPRIETARY(In-House)

TechnologyQualityService

COMMODITY(Outsource)

Price

UTILITY(Outsource)

Co-OperationService

Importance of the Part in the ProductLow High

Low

High

Strategic ValueOf the Individual

Part

Forms of Alliances

TraditionalContracts

Arms-length

Buy/Sell ContractsFranchising

LicensingCross-Licensing

Non-TraditionalContracts

Joint R&D

Joint Product Development

Long Term Sourcing

Joint Manufacturing

Joint Marketing

Shared Distribution

Shared Service

Standard Setting

Research Consortia

No NewEntity

Minority EquityInvestments

Equity Swaps

Creation ofNew Entity

Joint Venture

Dissolution ofEntity

Mergers

Acquisitions

Contractual Agreements Equity Arrangements

What kind of Alliance?

INVESTMENT LEVELINVESTMENT LEVEL

STRATEGICSTRATEGICIMPORTANCEIMPORTANCE

Acquisition

Minority Interest

Joint Venture

Joint Marketing

Joint Development of Products

Licensing Agreements

Alliance/Consortia

Commercial Contracts

Technological Test

Low

Average

High

Low High

TRADITIONAL APPROACH SUPPLIER PARTNERSHIPS

Primary emphasis on Price Multiple Criteria

Short term Contracts Longer Term Contracts

Evaluation by Bids Intensive and Extensive Evaluation

Many Suppliers Fewer Selected Suppliers

Improvement Benefits shared basedon relative Power

Improvement Benefits are sharedmore equitably

Improvement at Discrete TimeIntervals

Continuous Improvement is sought

Problems are Suppliers’responsibility to Correct

Problems are jointly Solved

Clear delineation of Businessresponsibility

Quasi-Vertical Integration

Information is Proprietary Information is Shared

Ten Rules of Outsourcing

1) Develop an Outsourcing Strategy

2) Establish a Rigorous Selection Process

3) Clearly Define Expectations

4) Unfold a “good” contract

5) Establish reazonable Policies and Procedures

6) Identify and avoid point of Conflict

7) Effectively communicate with your Logictics Partner

8) Assess Performance and communicate results

9) Motivate and Reward Suppliers

10) Be a good Partner!Logistics Outsourcing: A Management

Guide