Does your supplier selection process include these items?

With leaner engineering departments and more options to choose from, selecting the right solution is an ever growing challenge. The selection process should remove bias, avoid conflict, and deliver a fact-based result with these eight steps.

12/19/2012


At some point in your career, you will likely be responsible for making a strategic technology and supplier purchase decision. This is can end your career or launch it. With leaner engineering departments and more options to choose from, selecting the right solution is an ever growing challenge. These decisions often represent millions in long term total cost of ownership. Making up a process on the fly isn’t an option. You need to select a process that removes bias, avoids conflict, and delivers a fact-based result.

ARC Advisory Group, a research and analysis firm for industry and infrastructure, created a standard supplier selection process called ARC Star. ARC developed the toolset from having executed supplier selection projects for more than 20 years. The toolset

A supplier selection process should include the following eight steps.

1. Clearly define the scope of the project. Why are you at this point? What was the past solution and why are you considering a change? What are the key benefits to be sought? Are you looking to improve quality, agility, performance, or reduce costs? What integration is needed with other systems? Who will ultimately be responsible for the solution? Are there cultural or regional issues to consider? A clear scope will help to frame this project and outline the critical to quality (CTQ) items.

2. Select the proper team for this decision. The team needs to be made up of the owners and the operators. The team should not be so large as to add undo complexity to the process, and should not be so small as to not represent all the essential functions in your organization. A reasonable number may be two or three representatives from each department. A typical strategic decision may involve as many as 6-10 people in making a recommendation with management as a final sign-off.

3. Selection criteria are one of the most critical aspects of any strategic decision. Selection criteria will fall into many categories. These will include corporate strengths, regional strengths, training and support capabilities, product technology, support for standards, market position, and industry prevalence, and should include items tagged as current capabilities or future vision. Your selection criteria will likely be in the range between 100 and 200 items. You’ll want to define the selection criteria, describe how the criteria are to be measured, and define the supplier question to solicit an appropriate response. As you can imagine, this will be a time intensive process for your team. But you should take your time here. This step is extremely important to achieve a quality result.

4. Evaluation: You will have to evaluate the field of potential suppliers, and whittle them down to a reasonable short list, typically four to six companies. This too will require some research. You’ll want to include the safe bets, technology leaders, and possibly some new market entrants. At this time, many companies choose to engage a consultant or industry analyst firm, as a way to receive some objective guidance. Once selected, you’ll send your criteria questionnaire out to each and wait for responses.

5. Criteria analysis: While waiting, your team will need to evaluate the criteria list, weighing them for relevance in your particular application. Some items are must haves and others are nice to have. Each team member will likely have their own opinions on item importance, and it will be important to listen to and respect each point of view. This will also be a time consuming and contentious process. You’ll want to devise a method to collect individual input for documentation and aggregate the results for the final analysis. Even at the individual level, weighing items can be a challenge. It will be valuable to employ a decision methodology, such as analytic hierarchy process (AHP). This process manages the comparisons, item by item, to evaluate and weigh items against each other. The result is clear and achieved through a logical and repetitive process.

6. Evaluating supplier responses will be the next major challenge. With 4 to 6 sets of responses to a questionnaire of 100 to 200 questions, and the need to document the evaluations, you can expect to spend several days or weeks in this stage. Again, AHP can be helpful in weighing the benefits of one against the other.

7. The only steps left are to mathematically combine the results and drive to a decision. The combination of criteria weighing and supplier response evaluations is typically achieved through the Kepner-Tregoe Rational Process (KT) technique. This technique combines all the results and ultimately scores each supplier by criteria category. KT also delivers an overall score. The final choice remains yours, but this process drives an analytic result as free from bias and contention and as fact based as possible.

8. Documentation: “No job is finished until the paperwork is done.” The last but potentially most tedious step has arrived. The process needs to be documented, from scope to result, including all individual contributions. Management will want to have visibility into every aspect of the decision process. This is valuable for the current project, and for guidance in future projects, perhaps at another plant or for another area of interest.

Most supplier selection processes implement these steps in one fashion or another. Rarely are they implemented with a degree of consistency or thoroughness that you might expect for a decision as critical to future company operation.

- Roy Kok is vice president, marketing, ARC Advisory Group. Edited by Mark T. Hoske, content manager CFE Media, Control Engineering, Plant Engineering, and Consulting-Specifying Engineer, mhoske(at)cfemedia.com

ONLINE

www.arcweb.com/services/supplier-selection/ 

www.arcweb.com 

www.kepner-tregoe.com 



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