SELECTION OF OUTSIDE SOURCES IN SUPPLYING TO PLANT
After a need has been recognized and described, the purchasing department proceeds to select the source of supply of supply. In most cases, the purchasing department would know from where the material could be bought. A regular list of approved suppliers, called Register of Suppliers, is maintained by the purchasing department. Also called Vendor Master Manual. Often it becomes necessary to advertise in the press inviting tenders from suppliers. Whatever the method, it is essential, that a right source must be selected. A right supplier is one who delivers materials of the correct specifications on the stipulated delivery dates. He is ethical in his behavior, stands by the promises and has a high regard for the cordial buyer-seller relationship. He is progressive in his business and seeks technological advancement in improving the quality of his products. His price is reasonable. In short, he can be wholly relied upon. Further, he is at all times honest and fair in his dealings with the customers, his own employees and himself, who has adequate plant facilities and know-how, so as to be able to provide material which meets the purchaserâ€™s specifications in quantities requiredâ€¦ and who realizes that, in the last analysis, his interest are best served when he serves his customers.
Single versus Multiple Sources:
Before selecting a right source, a relevant issue that needs a solution is whether to have a single source or multiple sources. The issue is often decided after a careful consideration of arguments for both the possibilities
A single has the following arguments in its favor:
1. The supplier may be the exclusive owner of certain essential patents or processes, and therefore, be the only possible source. Under such circumstances, the purchaser has no choice, provided that, no satisfactory substitute item is available.
2. A given supplier may be so outstanding in the quality of his product or in the source provided as to preclude serious considerations of buying elsewhere.
3. The order may be so small as to make it just not worthwhile, if only because of added clerical expenses to divide it.
4. Concentrating purchases may make possible, certain discounts or lower freight rates that could not be had otherwise.
5. The supplier is more co-operative, mere interested and more willing to please if he knows all the buyerâ€™s business. This argument, of course, loses much of its weight, even if the total order amounts to, but little or although fairly large, represents but a very small proportion of the sellerâ€™s total sales.
6. A special case arises when the purchase of an item involves a die, tool, or mould charge. Expense of duplicating the equipment is likely to be substantial. Under such circumstances, probably most buyers confine their business to the possessor of the die, tool or mould.
7. When all orders are placed with one supplier, delivers may be more easily schedule.
Several well known companies are said to have single source policy. For example Ford Motors, Austin, Rover and Volvo single source policy.
It does not mean that the policy of multiple sources is not followed. Several companies follow multiple sourcing because of certain benefits.
Arguments for Multi-sources
1. It is the most common practice among the majority of buyers to use than one source, especially on important items.
2. Knowing that, competitors are getting some of the business, tends to keep the supplier more alert to the need of giving good prices and services.
3. Assurance of supply is increased , since should fire, breakdowns or similar accidents occur to any one supplier, deliveries can still be obtained from other sources.
4. Should floods, railways strikes, or other wide spread occurrences develop which may affect all suppliers to some extent, the chances of securing at least a part of the goods are increased
5. Some companies diversify their purchases because they do not want to become the sole support of one company, with the responsibility that such a position entails.
6. Assigning orders to several suppliers gives a company greater degree of flexibility , because, it can call on the unused capacity of all the suppliers instead of only one
Factors in Source Selection
The selection of particular source (s) must be based n such factors as reliability, technical abilities, after sales service availability, buying convenience, past experience, location, financial position, labor relations, reciprocal relations and the like.
These and other related factors must be carefully considered and time and money should be spent on selecting a right supplier. Once a good choice has been made, succeeding orders can be placed economically and with confidence. Satisfactory experience with a chosen supplier is the best possible basis for repeat orders.