3.4 Suppliers

Suppliers are the central part of the company’s success. To select suppliers for the firm, the organization needs to know various strategies. According to the chosen strategy, the company needs to choose the right supplier. A firm has to select the appropriate strategy for its supply chain. According to the book “Operations Management: Sustainability and Supply Chain Management” (2020), six methods exist nowadays (Heizer, Render, Munson, & Griffin, 2020, p. 428).

Six strategies exist for obtaining suppliers:

1. The first strategy is to collaborate with many suppliers. It is common for companies worldwide and suitable for obtaining commodities. In this case, one supplier plays against another supplier and creates an aggressively competitive environment. This strategy is not ideal for long-term relationships. The provider is responsible for maintaining technology, expertise, cost, quality of goods and delivery (Heizer et al., 2020, p. 428).
2. The second is negotiating with a few suppliers, which helps build lifelong partnerships. Dedicated providers help companies get economies of scale and lower transaction and production costs (Heizer et al., 2020, p. 428). Collaboration between buyer and supplier can produce a willingness to participate in the Just-in-time method, increasing inventory turnover and reducing holding costs.
3. The third one is to buy the supplier. According to the Cambridge Dictionary (2022), vertical integration is “a process in a business where a company buys another company that supplies it with goods or that buys goods from it in order to control all the processes of production” (Cambridge University Press, 2022). It is suitable for large companies with a significant market share (Heizer et al., 2020, p. 428).
4. The fourth strategy is the so-called joint venture, when firms collaborate with a few companies to produce the finished product. The power of this collaboration is to enhance new development and technical skills as well as reduce costs and secure supply (Heizer et al., 2020, p. 428).
5. The fifth one is a coalition strategy called a keiretsu. The name came from Japanese manufacturers, often suppliers’ financial supporters. This strategy combines parts from vertical integration, collaboration, and purchase from a few suppliers. It’s for long-term relationships, which provide technical expertise with stable, high-quality production (Heizer et al., 2020, p. 428).
6. The sixth strategy is to use suppliers when needed and called virtual companies. The virtual company specializes in flexibility, efficiency, speed, management expertise and low capital investments. This type of company provides services on-demand by relying on various suppliers (Heizer et al., 2020, p. 430).

Selecting the right supplier consists of identifying, evaluating, and negotiating steps. Selection of suppliers is a process where the main objectives are reducing the risk of purchasing and costs, maximizing the value of the purchaser, as well as developing long-term relationships between supplier and buyer (Taherdoost & Brard, 2019). It isn’t elementary to choose the right supplier for the company because the decision can impact the performance and competitiveness of the company. For example, decrease customer satisfaction, increase the product’s lead time, suffer loss, and weaken the competitiveness. First, they identify suppliers often based on a quantitative and qualitative decision criterion such as delivery, quality performance, capability, costs, vendor competence. It depends no longer on the price but the purchasing situation (Taherdoost & Brard, 2019). The main goal of the first step for buyers is to identify the right supplier with the right product’ quality, who can provide the right price and the right quantities, at the right place and at the right time (Taherdoost & Brard, 2019). Second, evaluation vendors comprise major parts commonly used within many companies: price, quality, and delivery dimensions.

Vendors can be evaluated by the following key points: production flexibility, production capacity, financial situation, technical expertise, technical support, information systems, innovation capabilities, and communication systems (Taherdoost & Brard, 2019). External verification is the central part of the international quality certification of suppliers. Certifications for external verification are ISO 9000 and ISO 14000. The certificate means that the company follows standards and quality of management (Heizer et al., 2020, p. 436). Organizations can use these certificates to pre-qualify potential vendors (Heizer et al., 2020, p. 436). The third step appears after the supplier is selected and evaluated by the criteria and the weights. The next point is the negotiation process. The contract’s critical elements, such as schedules, delivery, cost, payment, or quality requirements, can be discussed during the negotiation process.

According to the authors of the book Operations Management: Sustainability and Supply Chain Management“(2020), three types of strategies where different components play a different role in supplier relationship models such as cost-based price, competitive bidding, as well as market-based price models (Heizer et al., 2020, p. 436). According to the book “Operations Management: Sustainability and Supply Chain Management” (2020), “cost-based price model requires that the supplier open its books to the purchaser. The contract price is then based on time and materials or fixed cost with an escalation clause to accommodate changes in the vendor’s labour and materials cost” (Heizer et al., 2020, p. 436). Market-based price model based on the product market prices. Companies consider competitors’ prices and competitive market position. For example, the company shortly adjusted their price according to competitors’ change. The last model is the competitive bidding model based on a bid to purchase products and the required bidding policy. Often, purchasing agents have many potential vendors (Heizer et al., 2020, p. 436).

Media Attributions and References

Skill Dynamics. (2012, September 14). Sourcing processes: Supplier selection-procurement training-purchasing skills.  [Video]. YouTube.https://www.youtube.com/watch?v=510AN2Tkuik