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CHAPTER 5
SUPPLIER RELATIONSHIP MANAGEMENT
Not all selection decisions are created equally or warrant comparable effort.
Firms that excel at supply management understand the need to approach the
selection decision based on the attributes of their requirements. The manner
in which buying firms subsequently manage their suppliers will also differ
from requirement to requirement. Segmenting supply requirements begins to
define the intensity of the search, the contracting approaches and performance
measures to employ, and the kind of relationships to pursue with selected
suppliers.
The primary objective of the selection process should be a reliance on suppliers
that become a source of competitive advantage. For the most important goods
and services, firms should use cross-functional teams to evaluate first-hand a
supplier’s financial condition, capacity, global capabilities, logistical networks,
cost structure, supply management practices, process capabilities, technology
innovation, and design and engineering capabilities. While the time and cost
of making supplier visits is high, the cost of making poor selection decisions is
even higher.
Firms that practice total quality across their supply chain should see the
connection between the selection process and some important quality
management principles. A cross-functional approach for evaluating and
selecting suppliers is an ideal way of pursuing quality at the source, emphasising
prevention rather than detection, stressing objective rather than subjective
decision making, and ensuring that quality is everyone’s responsibility. Supplier
selection is a process we really want to get right.
The basic supplier selection process involves five sequential stages:
• Assembling an evaluation team.
• Defining the specifications.
• Discovering potential suppliers.
• Evaluating potential suppliers.
• Selecting suppliers.
Figure 5.1 illustrates the above-mentioned stages.