Eskom Procurement Book 2015

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.

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