Supplier Selection and Qualification Standard Operating Procedures

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Introduction

Supplier selection is a critical topic because the efficacy of the supply chain depends on the capabilities and effectiveness of all parties. Businesses need to select those suppliers that can provide them with the needed market efficiencies. Outsourcing has been driven by factors such as the need to save costs on the non-core business functions and to allow the company more resources to invest in the main business functions (Khan et al., 2017).

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Outsourcing also helps obtain better services from firms with better capabilities and resources specialized for certain tasks. Such arrangements are also meant to improve supply chain performance by utilizing assets for greater productivity (Victor, 2017). The selection of the right suppliers, therefore, remains a key strategic decision for any business. This paper examines the standard operating procedures for the selection and qualification of suppliers. A broader perspective is adopted herein to cover various aspects and forces that come into play, including modern technologies and the firms’ renewed focus on sustainability.

Supplier Selection and Qualification

The standard operating procedures (SOPs) for supplier selection and qualification are intended to allow corporations to acquire the services of suppliers who can give them the advantages the businesses seek. Every entity develops a different SOP depending on what they are looking for in a vendor and the nature of the ensuing contract – that is, a one-off or longer-term relationship. The basic tenet, however, is that there are certain elements that the SOPs must consider. The literature on supplier selection and qualification is vast and covers wide areas such as vendor management, design, criteria for supplier selection, and the effect of the procedures on organizational performance (Pharmabeginers, 2019; Ristono et al., 2018; Nyaberi et al., 2018). These aspects influence the success of supplier selection and qualification.

Before examining the design and criteria for vendor selection and qualification, it is important to examine the basic items that should feature in an SOP. A sample vendor management SOP presented by Pharmabeginers (2019) can serve as a starting point in this examination. The purpose of a vendor management SOP is to highlight the standard procedures that a firm follows in determining which suppliers will be recruited to supply the predetermined materials. In manufacturing, for example, supplies such as raw materials and office equipment will be performed by different vendors each of whom must be qualified using set criteria. In many cases, such SOPs have a scope touching on aspects such as qualification of new vendors, auditing of current and new vendors, assessing the quality of a supplier, and managing supplier-related changes among other activities.

Vendor selection procedures outlined in the SOPs are based on various criteria. The concept of supplier selection, as defined by Taherdoost and Brard (2019), entails the process of identifying, evaluating, and contacting suppliers. As a vital decision-making issue in supply chain management, firms tend to use the selection process of vendors to enhance their competitiveness. The criteria the businesses use are intended to help them reduce the costs of purchasing, decrease the lead time of products, improve customer satisfaction, and grow profits alongside the primary goal of competitiveness (Frej et al., 2017). The steps in the supplier selection process as outlined by Taherdoost and Brard (2019) are

  1. identifying the contracting/subcontracting method,
  2. outlining the preliminary supplier qualifications,
  3. receiving bids and analyzing potential candidates,
  4. selection of the supplier.

Within this process, however, the specific criteria for selecting the vendors are not outlined. Among the criteria that can be used are flexibility, production capacity, technical support and capabilities, financial status, IT systems, and R&D and innovation displayed by the suppliers.

The importance of suppliers to a business cannot be underestimated. Researchers such as Zhang et al. (2020) have established that suppliers are among the critical external stakeholders affecting strategic corporate decisions regarding cash holding and risk management. Firms, therefore, look into the future where they seek long-term relationships with suppliers that will help eliminate various environmental uncertainties. The emphasis on long-term relationships has seen companies adopt multi-criteria approaches to supplier selection. According to Masoud et al. (2016), supplier selection is a multi-criteria decision model (MCDM) that is handled using models such as analytic hierarchical process (AHP) among others. One MCDM model suggested by C. Cristea and M. Cristea (2017) outlines thresholds and criteria weights used to evaluate the suppliers.

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The model highlights criteria such as price, quality, terms of payment, response time, the standard period of delivery, external audit outcomes, ISO standards implemented, production capacity, available production capacity, and reputation. Others include geographical location, product diversity, responses to customer complaints, technology, flexibility, customs duty and procedures, on-time delivery, delivery reliability, research and development, warranty terms, communication, financial strength, and the quality of human resources.

It should be emphasized that the criteria for use in supplier selection and qualification are subjected to the MCDM models such as AHP. Opting for the right criteria means examining the several available ones going for the one with the best outcomes. The steps in criteria selection using the MCDM include

  1. pairwise comparison in a matrix that rates the criteria,
  2. normalizing the matrix by calculating the weights of each criterion,
  3. developing a matrix of Eigenvalues,
  4. revising the matrix until the consistency ration is less than 0.1 (Ristono et al., 2018).

However, the criteria mentioned earlier on are considered to be the standard criteria where each supplier is rated for each category, and the one who gets the highest overall score becomes the supplier of choice.

The changing business environment requires the business to keep updating their SOPs in supplier selection and qualification. Modern corporations are operating in what can be described as a digital world. The development of the SOPs, especially the selection criteria, should integrate the new technological innovations. Virtual supply chains allow companies to have greater flexibility and to be more responsive to market needs. The virtual supply chains are characterized by suppliers connected through digital links and comprise an organizational structure facilitating the effective and efficient flow of both information and physical goods (Caria et al., 2016).

The advantages of a virtual supplier include superior performance to the traditional one. With no investments in the brick motor infrastructure, the suppliers can invest in other capabilities, including those concerned with criteria such as quality and effectiveness of delivery. Additionally, the cost savings can also reflect the supplier prices in terms of reduced and more competitive prices. The advantages are propagated throughout the entire supply chain with all firms benefiting in different ways.

The disadvantages, however, may include the lack of inter-organizational bonding because of the use of electronic means of communication. There are no means of developing and growing loyalty by establishing long-lasting relationships. Other drawbacks are associated with the problems facing digital tools, including data security and privacy considerations (Caria et al., 2016). Cybercrime is becoming a major problem for businesses conducting transactions electronically. However, overcoming these challenges should see all businesses and their suppliers establish a working partnership that benefits all parties involved.

The last point to note regarding the development of SOPs for supplier selection in the modern business environment is sustainability. Businesses are increasingly embracing the green concept, which should also be included in the SOPs as one of the vital supplier selection criteria. The modern supply chain management initiatives aim to respect the green practices and technologies that help in the pursuit of sustainability (Konys, 2019).

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Selecting green suppliers, therefore, presents firms with another multi-dimensional challenge. Green suppliers help businesses improve their competitiveness and that of the entire supply chain. The efforts in pursuing sustainability are seen as critical in addressing customer requirements. Modern customers are aware of the impacts of business on the environment and prefer to buy from those businesses showing a significant consideration for environmental protection.

Conclusion

In conclusion, the supplier selection SOPs outline how a firm chooses from who to source materials and other supplies needed to run the business. Since outsourcing has become a critical business requirement, its success depends on the selection of companies with the best capabilities to handle the outsourced functions. A similar approach is used in the selection of the suppliers where those vendors offering the best market efficiencies are chosen. The various criteria for selecting suppliers have been presented in this paper, including emerging issues such as technology and sustainability.

References

Caria, P., Mermans, M., & Degen, D. (2016). Virtual Supply Chain Management at Cisco: Advantages and future developments. Web.

Cristea, C., & Cristea, M. (2017). A multi-criteria decision making approach for supplier selection in the flexible packaging industry. MATEC Web of Conferences, 94.

Frej, E., Roselli, L., De Almeida, J., & Almeida, A. (2017). A multicriteria decision model for supplier selection in a food industry based on FITradeoff method. Mathematical Problems in Engineering, 2017, 1-9.

Khan, H., Hussainy, S., Khan, A., Khan, K., & Farooq, U. (2017). Drivers of outsourcing and selection criteria of 3rd party logistics service providers. Journal of Supply Chain and Operations Management, 10(4), 240-249.

Konys, A. (2019). Green supplier selection criteria: From a literature review to a comprehensive knowledge base. Sustainability, 11(15), 1-41.

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Masoud, G., Helmi, S., & Hashemzahi, P. (2016). Supplier selection in automobile industry: A mixed balanced scorecard–fuzzy AHP approach. Alexandria Engineering Journal, 55, 93-100.

Nyaberi, D., Iravo, M., & Sakwa, M. (2018). Role of suppler selection on performance of manuacturing firms. International Journal of Academic Research in Business & Social Sciences, 8(9), 14-32.

Pharmabeginers. (2019). SOP for vendor management. Pharma Beginers.

Ristono, A., Praktiko, Santoso, P., & Tama, I. (2018). A literature review of design of criteria for supplier selction. Journal of Industrial Engineering and Management, 11(4), 680-696.

Taherdoost, H., & Brard, A. (2019). Analyzing the process of supplier selection criteria and methods. Procedia Manufacturing, 32, 1024-1034.

Victor, R. (2017). Effective fulfillment: Reducing costs and improving supply chain performance. Hollingsworth. Web.

Zhang, X., Zou, M., Liu, W., & Zhang, Y. (2020). Does afirm’s supplier concentration affect its cash holding?. Economic Modelling, 90, 527-535.

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