SUPPLIER SELECTION
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BY
DAN ATUHAIRE AT IPPU INTER-UNIVERSITY
FORUM
Presentation guideline
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 Definition of Supplier selection
 Typical steps in Supplier Selection
 Highlights why each step is important and how the
steps are interrelated.
Definition of Supplier selection
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 Supplier selection is the process by which firms
identify, evaluate, and contract with suppliers
 The supplier selection process deploys a tremendous
amount of a firm’s financial resources. In return,
firms expect significant benefits from contracting
with suppliers offering high value.
Steps Involved in supplier selection
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 The typical steps of supplier selection processes:
 identifying suppliers,
 soliciting information from suppliers,
 setting contract terms,
 Negotiating with suppliers, and
 evaluating suppliers
Eight common supplier selection criteria
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 Cost
 Quality & Safety
 Delivery
 Service
 Social Responsibility
 Convenience/Simplicity
 Risk
 Agility is defined as "the ability of a [system] to
rapidly respond to change by adapting its initial
stable configuration".
Supplier Selection for Supplier MGT Process
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Supplier Development,Classification &
evaluation
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 Supplier development can be loosely defined as
the process of working collaboratively with
suppliers to improve or expand their capabilities. .
An example may be teaching a supplier how to
manufacture a type of item that they never be
manufactured before for the purposes of giving you
the option to buy, rather than make, that item
 You can categorize the suppliers that are
strategically important and critical to your business.
 Supplier evaluation Supplier evaluation is a
process applied to current suppliers in order to
measure and monitor their performance for the
Identifying potential suppliers
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 To survive in the intensely competitive global
economy, it is often critically important to not only
develop existing suppliers but also to discover new
suppliers
 Importance of new suppliers
 First, there may exist new suppliers that are superior
in some way to a firm’s existing suppliers eg a new
supplier may have a structural cost advantage over
existing suppliers.
 existing suppliers may go out of business, or their
costs may be increasing
Identifying potential suppliers
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 The buyer may need additional suppliers simply to
drive competition, reduce supply disruption risks, or
meet other business objectives such as supplier
diversity .
supplier qualification screening
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• Reasons for supplier qualification screening among
other include the following;
 The need to verify the supplier’s ability to meet the
buyer’s myriad requirements.
 Supplier non-performance on even the most basic
level, and for the most simple commodity, can have
dire consequences for the buyer.
 safety issues have been traced back to suppliers
failing to meet a buyer’s requirements, resulting in
dangerous lead paint in toys, unsafe car tires, and pet
food containing poisonous chemicals
Supplier qualification screening process
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 To avoid dire supplier non-performance, buyers
take proactive steps to verify a supplier’s
qualifications prior to award a contract.
 The primary goal of “supplier qualification
screening” is
 To reduce the likelihood of supplier non
performance, e.g. late delivery, non-delivery, or nonconforming (faulty) goods.
 the supplier will be a responsible and responsive
partner in the day-to-day business relationship with
the buyer
Supplier qualification screening steps
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 Reference checks. The buyer may contact previous
customers and ask about the supplier’s delivery
performance, adherence to contract terms, what (if
any) problems arose and how they were resolved, etc
 Financial status checks. For example, if the supplier
has recently assumed significant debt,
 Surge capacity availability. The supplier’s capacity to
increase delivery quantities within short lead times is
important as the buyer may be uncertain about their
exact quantity needs over the life of the contract
Supplier qualification screening steps
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 Indications of supplier quality. The buyer might
require that suppliers have ISO 9000 certification to
actually see if an adequate level of quality is
achievable
 Ability to meet specifications. To check the
supplier’s capabilities the buyer might ;
 Request samples of supplier products
 Visit the supplier’s production facility and interview
line workers
 Audit the production facilities to ensure that
production can and will only proceed in a manner
approved by the buyer.
Creating a supply base
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 Suppliers who have passed the qualification
requirements and are eligible for contract award are
commonly referred to as “pre-qualified” suppliers
 If the buyer utilizes short-term contracts and reprocures the same item, it typically makes sense to
have pre-qualified suppliers who will compete for
these contracts
 it might still make sense to use a pre-qualified supply
base: If the supply base members can compete to
produce item’s for long-term contract
Creating a supply base
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 Finally, using a supply base not only reduces
qualification screening costs but
 Also allows for the development of standardized
contracts, terms and conditions for pre-qualified
suppliers, thereby streamlining administrative
processes involved in contracting.
Information requests to suppliers
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 Once the buyer has identified potential suppliers, the
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next step in supplier selection is to
formally request suppliers provide information about
their goods or services
The buyer makes one of three types of information
requests to suppliers.
Request For Information (RFI) when the buyer
seeks to gain market intelligence.
Request For Quote (RFQ) issued when the buyer can
develop a statement of work that states the exact
specifications of the good or service needed
Information requests to suppliers
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 Request For Proposal (RFP) is issued when the buyer
has a sense of the marketplace and has a statement
of work which contains a set of “performance”
Contract terms
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 The supplier selection process culminates in a contract
between the buyer and one or more suppliers.
 contract with a supplier specifies what the supplier
should do and how they will be paid by the buyer
 Contracts can specify any number of payment and nonpayment arrangements.
 Payment terms. In a fixed-price contract, the price term
specifies what the supplier will be paid regardless of the
actual cost to execute its contractual obligations
Section 7-general conditions of contract
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• The General Conditions of Contract (GCC) contain
standard provisions that have been designed to remain
unchanged and to be used without modifying their
text. The GCC clearly identify the provisions that may
normally need to be specified for a particular bidding
process and require that such provisions be introduced
through the SCC.
• The GCC are Contract documents and, therefore, are a
part of the Contract
Role of the CC
• To ensure that the provisions of GCC are not changed
Section 8-Special conditions of contract
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 The Special Conditions of Contract (SCC)
supplement the GCC by modifying conditions
applicable to an individual contract, such as payment
terms or the period of warranty
 The SCC prevail over the GCC.
Role of the CC
The role of the CC is to ensure the SCC apply to the
specific procurement.
Section 9-Contract forms
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• These include the agreement form, performance
security and advance payment security
• The purpose of including these forms in the Bidding
Document is to notify the Bidders of the type and
detail of the Contract they would receive in the event
of an award. No input is required by the PDE
when drafting the Bidding Document and
there is no requirement for Bidders to submit these
forms with their bids.
Contract form Cont…
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• Agreement- The completed Agreement will
form part of any resulting Contract. However,
the details to be completed on the Agreement are
specific to the successful Bidder and therefore should
be left blank for inclusion in the Bidding Document.
• After notification of award, the Procuring and
Disposing Entity should prepare the Agreement
using the Agreement Form and send it to the
successful Bidder
Contract forms Cont….
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• Performance security and advance payment
security- If a Performance Security is required, the form
should be completed by the financial institution and
returned to the Procuring and Disposing Entity, by the
Provider with the signed Agreement
• If any advance payment is specified in the contract, the
Advance Payment Security should be completed by the
financial institution and submitted by the Provider to the
Procuring and Disposing Entity with an invoice.
• The PDE is not required to input any information to the
security forms.
Contract forms cont:……………..
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Role of the CC
 The role of the CC is to ensure the contract forms
contain provisions that result into a binding
contract.
 That the provisions in the contract forms has
relevant signatories and financial institutions incase
of performance security and advance payment
security.
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 End of the presentation