Supply Chain Selection Process
The qualification process outlined earlier is useful for selecting bidders for built-to-specifications or custom designs in an e-supply marketplace. In these cases, two issues are immediately apparent: first, how to bid on product specifications when the detailed design is not available, and second, how to factor in the DFM and ESI issues. Several methods can be used for both cases: the bidders can quote against an older but similar in functionality design, and the bidders can input their ESI feedback on the new design specifications in a collaborative session with no audit trail, as mentioned earlier. In the latter case, the cost of ESI input is included in the overhead burden of the bidders.
In most cases, the differences in bids can be very small, especially in manufacturing outsourcing, and the selection process could be based on other intangibles such as the willingness of the company to absorb some of its overhead in order to ensure winning the bid.
A selection process consisting of two steps should be applied: qualifying potential suppliers who meet a minimum set of financial, operational, and technology requirements, and then comparing the qualified suppliers through a supplier matrix, shown in Table 9.4. The matrix is based on a criterion rating system of comparing alternatives. The maximum score is the value that can be attained by a supplier for a particular criterion, if they have met all expectation. For each supplier, the score is multiplied by the weight of each criterion, under the supplier column. Each criterion is composed of many sub- criteria in order to render a complete analysis of the decision. An example of a supplier matrix for quality is given in Table 9.5
An example of a supplier selection for the assembly of PCBs for the communications industry is given in Table 9.6. A sample PCB was provided to the bidders, who were asked to break down their costs to include additional information such as the material costs, the NRE (nonrecurring expenses of tooling), their corporate materials leverage, cost reduction schedule over time, and warranty period. It was assumed that DFM and ESI will be accomplished through having the new design follow established industry standards, and that special components such as proprietary ICs are to be supplied by the company or its own supply chain.
It is apparent from Table 9.6 that the two lowest bidders are very close in their submissions, the difference being lower than half a percent. In this case, other intangible factors could leverage the bid selection process, or the company could go back to the two finalists and ask for an additional bidding cycle.
Shifting design engineering resources to a supplier might result in a competitor engaging that supplier and benefiting from the expertise from the company’s design practices. This concern is lessened in mature technology products, such as the auto industry, where the emphasis is on design and manufacturing standards as well as lowering costs. In the fast changing technological markets such as electronics and telecommunications, competing companies can leverage each others competencies through the use of common suppliers, leaving them to concentrate on core competencies and new technologies.