Notesale: Turn your study into money

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Your appraisal criteria will relate to:
Quality

Availability

Supplier service &
responsiveness
ITC

Cost
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2-2

Quality - Capability assessment criteria
for non-standard items

Investment in research & development
Intellectual property
Qualifications & experience in design & production
Availability of appropriate design tools
Manufacturing capability & technology
Comprehensiveness of quality/environmental
management system
Previous experience with similar products/services
ITC

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2-4

Quality - Future Capability
Q UALITY

Look at trends over time - e
...
reject
rates - instead of absolute figures
Look at development plans - e
...
plans to
upgrade designs
Look at presence of strategy/system for
continuous improvement
ITC

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g
...
2-6

Action Point

3
...
2-7

Supply Availability - Capability assessment criteria
(I)

Market segments serviced by the supplier
Whether the supplier supplies your competitors
Capacity & utilisation
If subcontractors are used
Stock levels
% of your requirements that are within its standard range
% of your top 20 required items within its standard range
Export experience
ITC

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2-9

Availability - Future Capability (I)
For the product(s) you require:
Has the product range been expanded or contracted over time?
Is it part of the supplier’s core business?
Has capacity and turnover increased or decreased over time?
What is its stage in the product-market life-cycle?

Sales
per
unit of
time

Launch
ITC

Growth

Maturity

Decline
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Availability - Motivation assessment criteria

Willingness to:
Invest in developing the product lines of interest to you
Share information for demand forecasting
Adopt supply efficiency & lead-time reduction measures
Be flexible in quantities & lead-times
Offer long-term guarantees of supply
Handle international shipping arrangements

ITC

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2-2

Appraising supplier availability
Which of the criteria for assessing availability listed previously have you
used the least frequently when appraising a supplier?

Why is this the case? List any particular problems or difficulties that you
have had in using these criteria, and how you might solve these problems?

ITC

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2-14

Supplier Service & Responsiveness Capability assessment criteria (II)
Does the supplier offer training or on-site coaching?
How well can the supplier provide support in your language?
Does the supplier have effective information systems?
Does the supplier measure performance against service level
agreements?
Are there any plans/investments to improve customer service?
Does the supplier seek feedback from customers?
Is there a strategy and system to continuously improve its customer
service?
ITC

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2-16

Action Point

3
...
2-17

Cost - Capability assessment criteria (I)
Standard items:
Standard prices / rates
Discounts
Payment schedules (services)
Terms of payment
Financing costs
Price revision formulae
Currencies used
General handling & shipping charges

ITC

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2-19

Cost - Capability assessment criteria (III)
Criteria related to reducing costs at your end:
E-commerce
Consolidated billing services
Acceptance of purchasing cards
Possibility of using delegated purchasing
under call-off contracts
Offering you stocks under consignment

ITC

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Cost - Motivation assessment criteria

Willingness to:
Participate in joint cost assessment & reduction exercises
Offer special price discounts & payment conditions
Offer you favourable payment terms

ITC

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2-4

Appraising supplier cost
Which of the criteria for assessing cost listed previously have you used the
least frequently when appraising a supplier?

Why is this the case? List any particular problems or difficulties that you
have had in using these criteria, and how you might solve these problems?

ITC

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g
...
2-24

General supplier capabilities &
business attitudes (II)
How compatible is the supplier with your company?
Corporate culture
Business orientation and plans
Size & volume of business
Policies (e
...
ethics, environmental, health & safety…)
Terms & conditions of doing business

ITC

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2-5

Appraising general supplier capabilities and business attitudes
Which of the criteria for assessing general supplier capabilities and
business attitudes listed previously have you used the least frequently when
appraising a supplier?

Why is this the case? List any particular problems or difficulties that you
have had in using these criteria, and how you might solve these problems?

ITC

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3-1

Routine items:
are low value & low risk, so your main
concern is to minimise time & effort

Supply strategy for continuous routine items
Number of suppliers:
Nature of relationship:
Type of contract:

One
Minimum intervention
Long term contract
Type of supplier

Able to supply as many of the buyer’s requirements as possible
Responsive, therefore minimising the need for intervention
Will continue to supply the required products for the long term

ITC

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More criteria
...
3-4

Action Point

3
...
3-5

Leverage items (high value & low risk):
Supply strategy for continuously required leverage items
Case 1:
Very high
switching
costs

Case 2:
Low price
variability /
negligible
switching
costs

Case 3:
Low price
variability /
relatively high
switching costs

Case 4:
High price
variability /
low switching
costs

Case 5:
High price
variability /
relatively high
switching costs

Number of
suppliers

One

Many

One

Many

Two or three

Type of
contract

Term
contract –
typically
long term

Element of
strategy

Type of
supplier

ITC

Lowest cost
over the
contract
term

Spot

Term
contract

Spot

Term
(framework)
contract –
typically over
medium term

Lowest cost
today

Lowest cost
over contract
term

Lowest cost
today

Lowest cost
over the
contract term

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Criteria for Leverage items
-term contracts (I):
Your main aim is to reduce costs
General capabilities
You want to ensure that the supplier will be a low cost
provider and therefore need to look at:







ITC

Direct material costs
Labour costs
Overhead costs
Distribution costs
Production efficiency
Level of investment
Access to capital
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3-9

More criteria
...
3-10

Criteria for Leverage items
-spot purchases:

Assess the supplier’s reliability in terms of quality
& delivery at the appraisal stage…
… then spot buy from the lowest
cost supplier at the time of the
purchase

ITC

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3-2

Appraising criteria for leverage items under a term contract
Identify one leverage item that you are purchasing under a term contract:

Type of supply relationship you
have

would like to have for this item

Which of those criteria listed above would you use for appraising a new
supplier of this item?
Which of the criteria would you not use, and why not?
Which additional supplier appraisal criteria would you use?

ITC

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3-3

Appraising criteria for leverage items under a spot contract
Identify one leverage item that you are purchasing under a spot contract:

Type of supply relationship you
have

would like to have for this item

Which of those criteria listed above would you use for appraising a new
supplier of this item?
Which of the criteria would you not use, and why not?
Which additional supplier appraisal criteria would you use?

ITC

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...

Will not exploit its strong bargaining position with your company
...


ITC

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3-15

More criteria (I)
...
3-16

More criteria (II)
...
3-17

Action Point

3
...
3-18

Critical items:
Supply strategy for continuous critical items
Number of suppliers:
Nature of relationship:
Type of contract:

One
Partnership
Long term “partnership” contract
Type of supplier

 Must be particularly capable in the areas which pose the greatest risk to your
company
...

 Your required products and services must be core business to the supplier
...

 The supplier must be financially stable and have a sustainable market position
...

 It should not seek to exploit your company’s position
...
3-19

Criteria for Critical items (I):
These are high value & high risk and therefore need
your maximum attention!

You need to spend time & effort on appraising
suppliers for critical items
Most appraisal criteria are relevant
GOAL

A high level of supplier motivation is essential

ITC

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3-21

Example of criteria for Critical items (I)
Some of the main criteria for assessing suppliers of critical items
What we want
Lowest cost
provider over the
contract term

Relevant factors
(as applicable)
 Direct material costs

 Direct labour costs
 Overhead burden

 Production efficiency and
productivity

Example criteria against which
to assess suppliers
 Status and level of development of the
purchasing and supply function
 Level of expenditure on key input materials
 Expected wages over the next 5 years
 Overhead costs as a percentage of direct
costs
 Action being taken to reduce overheads
 Production volume in relation to inputs and
resources (e
...
equipment) used
 Average age of key production machinery
 Level of stock
 Investments being made or planned to
improve production efficiency

 Cost of outbound logistics

ITC

 Proximity of supplier to point of despatch
or delivery & supplier’s logistics
management system
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Example of criteria for Critical items (III)
(Cont’d)

Some of the main criteria for assessing suppliers of critical items
Relevant factors

What we want

(as applicable)

Example criteria against which
to assess suppliers

A supplier with a
sustainable market
position



Capability to supply
over the long term

 Market share and position

Financial stability



Capability to supply
over the long term

 Credit rating by relevant service
or detailed financial analysis
 Opinion of your finance department
based on detailed financial analysis

No preferential
relationships with
our competitors

ITC



Meets your company's
competitiveness interests

 Nature of relationships with your
competitors

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 Value Analysis / Engineering
 Sharing expertise in innovation
 Process re-engineering
 Integration of e-commerce & business systems
 Demand forecasting
 Phased release of specification information
 Organisational learning & communication
 Total cost of ownership analysis & cost reduction efforts
 Quality assurance
 Setting up account managers to handle joint business
 Contingency planning
 Holding stock
 On-site location of the other’s staff
ITC

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Appraising criteria for critical items
Identify one critical item that you are purchasing:
Type of supply relationship you
have

would like to have for this item

Which of those criteria listed above would you use for appraising a new
supplier of this item?
Which of the criteria would you not use, and why not?
Which additional supplier appraisal criteria would you use?

ITC

M5:U3:3

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