PurchTips - Edition # 209

 

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8 Supplier Selection Criteria & The SHoCC

By Charles Dominick, SPSM, SPSM2, SPSM3

How Do You Prioritize Supplier Selection Criteria?

You should use a Sourcing Hierarchy of Constraints & Criteria (SHoCC) for every major sourcing process you lead. I'll explain the SHoCC by defining its components.

Criteria are attributes that a buying organization values in its arrangements with suppliers. There are eight common supplier selection criteria, in no formal order:

  1. Cost
  2. Quality & Safety
  3. Delivery
  4. Service
  5. Social Responsibility
  6. Convenience/Simplicity
  7. Risk
  8. Agility

Depending on the situation, you may use them as-is, use more or fewer, or use a different combination of eight.

Often, sourcing team members will want some criteria to be treated as constraints - unbreakable rules in the supplier selection process. Examples of constraints include: there can only be one supplier, we must select the low bidder, delivery must be within six weeks, etc.

Your job as leader of the sourcing team is to determine whether the proposed constraint is a truly warranted constraint or simply an important criterion. You can do so by asking questions like "If we had to choose between (a) having the best quality for all items by using two suppliers and (b) having the best quality for only half the items by using one supplier, would we still insist on using one supplier?" or "If we could save 34% by accepting a seven week lead time instead, would we choose to save the money or would we still need to insist on the six week lead time?" The fewer constraints, the more flexibility the team has in its decision-making.

After agreeing on the constraints and criteria, the sourcing team must agree on a hierarchy - an order of these attributes from most important to least important, with constraints preceding criteria. In most cases, supplier offerings will differ and there will be tradeoffs involving the criteria: you may get a better price from one supplier (cost) but that supplier insists on contract terms less favorable to you (risk). Creating a SHoCC in advance will help your sourcing team remain focused on what's most important to make a balanced decision.

To learn more about supplier selection methods and to master the 7 critical steps of supplier selection, consider the online Express Course "7 Critical Steps of Effective Supplier Selection." Learn more by clicking here.

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