Speaker 1: Well, hello class. Here we are with supplier evaluation and selection which is the topic of Chapter 7. You know there's no one best way to evaluate and select your suppliers. You know the thing that you're trying to do is to reduce buying risk or sourcing risk and yet maximize value to your organization. You know it's a sort of working on increasing the upside and decreasing the downside. And one of the overall things that we're looking at is selecting your suppliers for the long term. Here is a diagram. You may want to call it say a procedure and that is the objective of this chapter for selection and evaluation. The first step is to recognize the need for supplier selection. You identify key sourcing requirements for the organization. You determine your sourcing strategy. You identify the potential supply sources who you can source from. Go ahead and limit suppliers, you know start squeezing out the ones that you're not interested in and you know select the group that looks better and better. And also determine the method of supplier evaluation and selection. This can also be done earlier in this step but here you would go ahead and apply it and then finally select your supplier and reach an agreement. There are some strategies to look at. These are somewhat strategic. Are you taking a look at single versus multiple sourcing? It depends on the value of what you're buying and what is it that you're looking for in a supplier. Say like with Dell, they're going with a single supplier almost. I believe that Intel is the one that supplies their chips. Then you're looking at short-term versus long-term contracts. Again if we use the Dell example, we would see that a single supplier with a long-term contract, you know we're going to be using those Intel chips and we don't want to be changing this contract around just every so often. We would also like for Intel, now you see I'm using Intel at every one of these steps but we'd like to use them for support, you know for design and there might even be some operational support but I think they're going to be doing a lot of design support. They're going to be a full-service supplier. They're going to be in the US but they're also going to be foreign-based probably, depends on where they're buying their chips from, that is where they're making them. And then it's collaboration versus arm-length relationship. If you're dealing with a very high-level strategic long-term, you know full-service, you want to go with collaboration but these are decisions that you need to make when you're determining what your sourcing strategy is going to be. Now to identify potential sources, you want to know can our existing suppliers satisfy cost quality and other objectives? If they can and they can be groomed even further, hey that's great. Sometimes you have to go out and find new companies to help you to be sources. One of the things you need to look at is how strategically important is the thing that you're going to buy and how technically complex is it? The places that you can look are with current suppliers like we mentioned in that first bullet at the top of the slide, we can work with preferred suppliers, who knows maybe sales representatives visit with us and we go to or we go to information databases or by personal experience or we read trade journals and so on. You get the idea from just looking at what's on the slide. Now the method of valuation and selection usually is that you ask for your supplier to provide information and based on this information, you go ahead and make a supply visit. It's like an audit of what they have provided. Sometimes you can use your preferred suppliers that you're already working with or sometimes you can work with say brokers or maybe consultants who would work with external or third party information to help you with this decision. Now when you do develop your criteria for evaluating your supplier, probably at the very, very top of your list is going to be price, quality and delivery. Now the rest of the chapter is very, very loaded with what's on this one slide. In fact, this one slide probably has or a great deal of importance as to what the criteria should be for evaluating suppliers. You want to know something about management at the company. Are they going to be open to you, to new ideas? Are they innovative? Are they looking to satisfy a customer? It's very important when you meet with them and it's going to be somewhat of social meetings too, not just in the office, going out to lunch, talking to them, maybe even having dinner and it's not going to be once, it's going to be several times and this is very important is to know are these the right managers in the other company that you want to work with. You also want to know something about the employee's capabilities. Often this can come from the HR department of the supplier company telling you the profile of their employees, what their educational level, what they're capable of doing, the equipment that they can manage, training and certifications and all sorts of things like that. You'd like for your accountants to talk to their accountants about the cost structure of the products that you're going to buy. You'll also want to know if they have a TQM or a total quality performance system and philosophy. You'd like to know about their process and technological capability. You're going to see a lot of this just by walking through and talking to their engineers and their designers as well as people on the factory floor. You want to know about their environmental regulation and compliance. This often comes through certifications at the federal and state level. You want to see if there's anything pending against them as far as a lawsuit or something like that. You want to know about their financial stability and this will come from the finance department and they're going to tell you about their banking and their loans and bonds and all sorts of things like that. You're going to want to know about how they schedule their production. Who knows, maybe you have a just-in-time system and you want to see if they fit within your just-in-time system. You'll also want to know about their e-commerce capability. Are they capable of working with you via the internet? Can they work with you with your software too? Let's say that you have SAP as one example of an ERP program. Are they going to be able to tie into that? Is it going to be something that's easy for them or is it way years away from them having that capability? You'd like to know something about their sourcing strategies, policies and techniques because if they have something similar to what you're looking for, chances are they know what to do already in-house and they're going to provide it to you. And finally, you'll want to know what is the potential for having a long-term relationship. Now, one of the ways of getting information is to have a survey. You ask the question and you go to the company or to your supplier on-site and you go ahead and talk to them about this. Now, one of the things you'll need to do is to assign a weight to each category of information that you have and you're going to do that also to the subcategories. You're going to define a scoring system and you'll want to be even from one company to the next. Let's say that you're surveying three or four companies that are your top choices. You want to be as unbiased as possible and objective so that what you're measuring at one place and scoring at one way that you're scoring at the same way with another supplier. You'll want to evaluate your supplier directly. You don't need to be using third parties. You want to do it directly because ultimately this is your decision. So you review the results and make a decision, present them to top management at your organization and then if they've made a decision is to go ahead and contact the supplier. Of course, this really is a top management, a top management communication but you will be part of that process. This right here is not real, real clear but it's a supplier evaluation chart and this is something that lots of companies use and it's a weighted scoring card system. You'll notice that at the top we start out with usually our higher weights and we work down. Of course, we have a category called general at the bottom and each one of these also has subcategories and you'll be working with subweights and you'll go ahead and take the score that came in when you measure the other company. So you take the weight and multiply it times the score and you have the weighted score added up for your subtotal and you add up all of these subtotals and at the bottom you have your total score and this company came in with 80.6 out of 100. Well, if you did this with several companies or suppliers, you would come up with a similar kind of process should I say.