Sources of Supply

Vendor selection and rating:

Scientific purchasing involves identification, development and at times creation of the appropriate sources of supplier of materials their evaluation and selection of the capable and willing vendor. This is a challenging task because it is not easy to discover all the sources that exist at a particular point of time. Even if all the sources are identified, some sources may not be feasible to be tapped due to time, distance, quantity and quality constraints.

Selection of the suitable supplier is both a right as well as a responsibility of the purchase department. It can contribute substantially to the fundamental objectives of the business enterprise. It is a continuous job. The decision is not to be taken once for all. The decision tends to be a complex one. It is not that the supplier bidding the lowest price is the best supplier. In fact varied economic and non-economic factors are considered while evolving the optimum decision.

Different strategies are developed for acquiring different types of materials. The selection of supplier for standardized products will differ substantially from that for the non standardized products. A different consideration would be involved in acquiring the capital equipment, indirect materials, tools, stationery etc.

Sources of supplier: The best buying is possible only when the decision maker is familiar with all possible sources of supply in general, and their respective terms and conditions in particular. The purchase department should try to locate the appropriate sources of the supplier of various types of materials. This is also known as the “survey stage”. A survey of the following will help in developing the possible sources of supply.

1) Specialized trade directories
2) Regional directories of chambers of commerce or such organizations;
3) Assistance of professional bodies or consultants
4) The purchaser’s handbook or the buyer’s guide;
5) The manufacturers’ and / or distributors catalogue.
6) Direct mailing of advertising literature
7) The advertisement in dailies such as “buyers’ guide” section,
8) The advertisement in specialized journals;
9) The new product and process announcements as published in dailies (e.g. Economic Times) and magazines (e.g. Purchase).
10) Visit by supplier’s agent
11) Film slide or movies
12) Trade fair exhibitions

The survey should be conducted by the purchase department in consultation with the Engineering, R and D, Inspection and such other departments which may contribute to a refined decision. It should be noted that this task is not confined to mere identification of existing sources. Sometimes, it becomes necessary even to develop a source where none had been previously available. The survey stage is a positive function in the sense that it attempts to add more and more suppliers in the list, while the development of the approved list of suppliers is the negative process in the sense that a short listing is made out of the available exhaustive list of the suppliers that match to the requirements of the buyer.

Development of Approved List of Suppliers:

The survey stage highlights the existence of the source. A business inquiry is made with the appropriate supplier. It is known as an “Inquiry Stage”. Here a short listing is made out of the given sources of suppliers in terms of production facilities and capacity financial standing, product quality, possibility of timely supply, technical competence, manufacturing efficiency, general business policies followed, standing in the industry, competitive attitude, interest in buyers’ orders etc.

The exhaustive details about the supplier can be obtained from the advertisement, trade reference, direct business inquiry or through a personal visit. The objective of the inquiry stage is to locate those few suppliers who are capable of supplying the item in required quality and quantity who can be relied on as a continuous source of supply, who will keep their delivery promises and other incidental commitments and offer competitive price and other conditions of supply.

In case of critical items involving huge economic values and high degree of technicality, the evaluation and selection of the prospective supplier will be made in a group decision. The group or a supplier survey team should consist of members from the purchasing department and production departments. Survey team should conduct the exhaustive survey about the suppliers which will result into the preparation of the approved list of suppliers.

The size of the approved list largely depends on the circumstances of each case. However, there must be more than one vendor because there may be no one best source in practice. The inclusion of more suppliers in the approved list facilitates the competitive advantage. It also ensures the availability of adequate supply. However, the policy of approved list restricts the choice only to the selected suppliers included in the approved list. Moreover, those who are not included in the approved list develop a feeling of a member of the black list. As this is a self imposed discipline, the addition to the approved list should be left to the purchase department which will try to up-keep the list of highest standards.