How Many Suppliers Do You Need? Blake Holmes Blake Holmes Mike Telmar Mike Telmar Jason Harman Jason Harman Kaptaan Hickey Kaptaan Hickey Ryan Beugli Ryan.

How Many Suppliers Do How Many Suppliers Do You Need?You Need?

Blake Holmes    Blake Holmes    Mike Telmar     Mike Telmar     Jason Harman   Jason Harman  

Kaptaan Hickey   Kaptaan Hickey   Ryan Beugli     Ryan Beugli    

Customer ExpectationsCustomer Expectations

Drives overall business strategyDrives overall business strategy What is most important to the What is most important to the

customercustomer CostCost TimeTime InnovationInnovation

Organizational StrategyOrganizational Strategy

Basis of all business decisions Basis of all business decisions including how many suppliers you including how many suppliers you should useshould use

When innovation is a core strategy When innovation is a core strategy for your business fewer suppliers are for your business fewer suppliers are optimaloptimal

When price is a core strategy for When price is a core strategy for your business many suppliers are your business many suppliers are optimal optimal

Supplier CriteriaSupplier Criteria

Product CapacityProduct Capacity QualityQuality Brand NameBrand Name Warranty/Product supportWarranty/Product support Price (not always the most Price (not always the most

important)important)

Aspects of Many vs. Few SuppliersAspects of Many vs. Few Suppliers

Increased Increased competition may competition may promote better promote better quality and quality and reduced costreduced cost

Low likelihood Low likelihood organization will be organization will be left without left without production inputs production inputs

Suppliers gain Suppliers gain considerable considerable amount of amount of bargaining power. bargaining power.

Less resource to Less resource to potentially exploit.potentially exploit.

High risk of High risk of suppliers suppliers defaulting on defaulting on delivery. delivery.

Many Suppliers Few Suppliers

Aspects of Many vs. Few SuppliersAspects of Many vs. Few Suppliers

Suppliers will Suppliers will experience decreased experience decreased demand, driving sales demand, driving sales down and costs up.down and costs up.

Logistics and Logistics and operations become operations become complex and difficult complex and difficult to manage.to manage.

Increased demand Increased demand makes it easier for makes it easier for suppliers to suppliers to experience economies experience economies of scale.of scale.

Streamlined logistics Streamlined logistics and operations are and operations are easy to manage. easy to manage.

Many Suppliers Few Suppliers

Aspects of Many vs. Few SuppliersAspects of Many vs. Few Suppliers

Utilizing many Utilizing many suppliers can suppliers can undermine trusting undermine trusting relationship and display relationship and display a lack of commitment a lack of commitment to long term business.to long term business.

Difficult to collaborate Difficult to collaborate with suppliers, allowing with suppliers, allowing inputs to be developed inputs to be developed in parallel with in parallel with organizations products.organizations products.

Shows commitment to Shows commitment to long term long term relationships which relationships which can promote trust.can promote trust.

Often easier to Often easier to collaborate with collaborate with suppliers to develop suppliers to develop products in parallel products in parallel with organizations with organizations products.products.

Many Suppliers Few Suppliers

Systematic Methods for Managing Systematic Methods for Managing Supplier SelectionSupplier Selection

Categorical MethodsCategorical Methods Data Envelopment AnalysisData Envelopment Analysis Case-Based ReasoningCase-Based Reasoning Linear Weight ModelsLinear Weight Models Artificial Intelligence ModelArtificial Intelligence Model

(QFD) Quality Function Deployment Process(QFD) Quality Function Deployment Process QFD (aka “House of Quality”) was first implemented by Yoji QFD (aka “House of Quality”) was first implemented by Yoji

Akao at Mitsubishi Industries Kobe Shipyard to integrate the Akao at Mitsubishi Industries Kobe Shipyard to integrate the “voice of the customer” into the design and delivery of oil “voice of the customer” into the design and delivery of oil tankers”. The concept can be applied to supplier selection by tankers”. The concept can be applied to supplier selection by integrating the voice of the customer into selection criteria.integrating the voice of the customer into selection criteria.

Draft a list of supplier requirements that Draft a list of supplier requirements that contribute to the fulfillment of contribute to the fulfillment of customers needs.customers needs.

Formulate evaluation criteria for Formulate evaluation criteria for suppliers.suppliers.

Determine the importance (weight) of Determine the importance (weight) of the criteria. the criteria.

Rank your suppliers, and make Rank your suppliers, and make appropriate selection that will appropriate selection that will accommodate customer needs. accommodate customer needs.

QFD & Choosing SuppliersQFD & Choosing Suppliers

Supplier Priority MatrixSupplier Priority Matrix(Considers Tangible & Intangible Criteria)(Considers Tangible & Intangible Criteria)

Customer Needs Supplier Selection Criteria Importance Supplier Compliance Score(1-5) (1-10)

Industry leading technology is a primary concern Innovation/Collaboration 5 9 45Client demands that products must be delivered consistently on time Delivery Consistency 4 7 28Prefers products form proven industry players, but performance is most important Brand Name 2 5 10Research has found increasing demand for tech support services Warranty/Product Support 3 7 21Product needs vary with seasonal trends Production Volume Flexibility 3 4 12Prices should be reasonable, but clients need products that are of the highest quality Price 1 3 3

Total 119

Producing Commodity or Producing Commodity or Specialty ProductSpecialty Product

Importance of Suppliers Brand Importance of Suppliers Brand name name

Importance of time constraints Importance of time constraints Technical competency among Technical competency among

candidatescandidates Production volume requirementsProduction volume requirements Need for collaborationNeed for collaboration

Few Suppliers

Many Suppliers

ConclusionConclusion Customer expectations govern Customer expectations govern

organizational strategy, which will define organizational strategy, which will define supplier selection criteria. supplier selection criteria.

Systematic methods can be used to rank Systematic methods can be used to rank suppliers.suppliers.

Both positive and negative aspects are Both positive and negative aspects are associated with few/many suppliers.associated with few/many suppliers.

Choosing the optimal number of suppliers Choosing the optimal number of suppliers is not an exact science.is not an exact science.

You can use tools and techniques to guide You can use tools and techniques to guide decision making process.decision making process.

SourcesSources “A Decision Support For Supplier Selection Process”. International “A Decision Support For Supplier Selection Process”. International

Journal of Information Technology & Decision Making. Vol. 3, 2004Journal of Information Technology & Decision Making. Vol. 3, 2004, Page 453-470., Page 453-470.

“Supplier Evaluation Using Data Envelope Analysis”. “Supplier Evaluation Using Data Envelope Analysis”. RajashekarRajashekar GovindarajanGovindarajan. .

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