SSM Book U4

RVS Institute of Management Studies
(Approved by AICTE, New Delhi & Permanently Affiliated to Anna University, Chennai),
Kumaran Kottam Campus, Trichy Road, Kannampalayam, Coimbatore-641 402.
BA4052 SOURCING AND SUPPLY determine clear targets for future

MANAGEMENT improvements, along with action plans for
achieving them. This may include:
UNIT - IV  Establishing new processes or

procedures based on existing best
SUPPLIER PERFORMANCE AND practices.
QUALITY MANAGEMENT  Implementing new technologies that
Performance Measurement and Evaluation: improve productivity.
Strategies, tools and techniques for  Providing additional training programs
measuring and managing supplier or support for employees who work
performance, Supplier performance with suppliers.
evaluation, Purchasing services, Supply  Assessing the number of materials
Chain Information Systems and Electronic received through supply chains.
Sourcing.  Introducing quantitative or qualitative
improvement strategies in operations to
SUPPLIER PERFORMANCE create better ratings.
MEASUREMENT :
WHERE CAN YOU USE SUPPLIER
Supplier performance measurement
PERFORMANCE MEASUREMENT?
is a tool for monitoring suppliers' quality
and delivery performance against agreed Supplier performance measurement
targets. It can also be used to measure is an evaluation process that measures your
product innovation or capability suppliers' performance against agreed-upon
development. standards and expectations (metrics like
KPIs or other success indicators).
The primary purpose of supplier
performance measurement is to ensure that It can also be used as part of a
all suppliers provide the necessary level of supplier development programme, where
service while helping companies achieve you work with suppliers to evaluate and
their objectives in ways that align with their improve their internal processes and
goals. capability to deliver high-quality products
or services on time and at an acceptable
In addition, supplier performance cost. This can be achieved through various
measurement helps improve supply chain
methods, such as:
efficiency and increase the effectiveness
rates of their procurement processes. Training programmes
BENEFITS OF SUPPLIER Training is crucial for improving

PERFORMANCE MEASUREMENT : employees' skill sets within your supply
chain network. It enables them to perform
Supplier performance measurement better at their jobs, ultimately leading to
involves assessing and rating internal higher customer satisfaction and improved
factors (such as total production costs and
overall business outcomes for you as the
logistics) and external factors (such as customer!
delivery times or external risk). The results
from this analysis are then used to Quality control
1
BA4052 SOURCING AND SUPPLY LOGISTICS AND SUPPLY CHAIN G. KATHIRESAN, ME.,MBA
MANAGEMENT MANAGEMENT Assistant Professor - RVSIMS
Quality control allows you to ensure o Adjust your supplier performance

that products or services meet pre-defined measurement system based on the
specifications or standards before they are feedback you receive from suppliers.
shipped out from the supplier’s facility –
Supplier performance measurement is a
this ensures that all products comply with
continuous process. You’ll need to
the highest possible standard and that any
implement this system for each supplier and
defects can be identified and rectified
monitor their performance continuously.
before they reach your customers.
HOW TO MEASURE SUPPLIER
Performance measurement
PERFORMANCE:
Performance measurement allows There are several ways to measure
you to evaluate the performance of supplier performance. One common
suppliers against agreed-upon performance method is using a balanced scorecard
criteria such as defect rates, delivery times, approach. This approach considers
product specifications etc. This enables you quantitative and qualitative data points to
to identify ways suppliers can improve their get a well-rounded view of supplier
performance over time. performance.
A supplier scorecard is a document
Through procurement training
that tracks and monitors supplier
courses in Dubai, you can learn about the
performance. The supplier scorecard will
best procurement practices to apply in your
have a supplier’s name, the date of their last
supplier performance measurement and
performance review, and the supplier’s
management. You will learn how to create
current performance rating.
and implement a supplier performance
This allows procurement
measurement system aligned with your
organizations to identify which supplier is
business strategy.
not meeting expectations and adjust their
HOW DOES SUPPLIER purchasing accordingly.
PERFORMANCE MEASUREMENT Many supplier scorecards also
WORK? include qualitative measures such as
customer satisfaction scores. This allows
organizations to get a more well-rounded
involves:
view of supplier performance.
o Developing a comprehensive list of Ultimately, supplier scorecards help
performance metrics (e.g., on-time organizations make better purchasing
delivery, product quality) decisions and ensure they get the best value
o Setting specific, measurable targets for for their money.
each metric and KPI and tracking Some of the factors you may want to
progress against those targets over time consider when measuring supplier
o Providing effective feedback to performance include:
suppliers based on their actual  Quality
performance compared with your This includes defects per million
expected performance levels opportunities (DPMO), first pass yield
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(FPY), percentage of late deliveries, order

accuracy, etc. Order accuracy measures
how often your suppliers fill orders
correctly.
Order accuracy can be calculated by
correctly dividing the total number of
orders filled by the total number of orders
placed.
 Cost
This includes things like cost per unit
(CPU), the total cost of ownership (TCO),
scrap/rework costs, etc.
 Delivery
This includes measures like fill rate, on- FACTORS TO CONSIDER WHEN
time delivery (OTD), lead time, etc. SETTING GOALS FOR SUPPLIERS:
On-time delivery is perhaps the most
When setting goals for suppliers,
important metric for assessing supplier
it’s important to consider what’s realistic
performance. After all, if your suppliers
and achievable given their current capacity
can’t deliver their goods or services on
and capabilities.
time, it will have a major impact on your
business.
Additionally, you’ll want to make
There are several ways to calculate on-time
sure that the goals you set align with your
delivery, but one of the most common is to
company’s overarching strategy and
take the total number of shipments
objectives. Some other factors to keep in
delivered on time divided by the total
mind include the following:
number of shipments due.
 Flexibility/agility
 Costs/rates for products or services
This includes measures like skill set
provided
diversity, ability to react quickly to changes
 Supplier’s available resources
in demand, etc.
 Compliance  The complexity of the products or
This includes adhering to regulatory services being provided
requirements, ethical sourcing practices,  Supplier’s financial stability
etc.  Supplier’s location
Focus most of your attention on your most  Supplier’s customer mix
strategic suppliers – those that are mission Are the supplier’s costs reasonable and
critical for success. in line with your budget? Do you know how
much you can realistically afford to spend?
Is the current arrangement with the supplier
going as expected as far as costs are
concerned? Have any circumstances
changed on your end that mean you need to
renegotiate pricing?
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Does the supplier have the available understand their role in achieving those
resources to meet your needs? Are they goals.
financially stable enough to maintain a
long-term partnership with your company? This is especially true when working
You may run into issues if they’re a new with suppliers. By taking the time to
company or are having trouble scaling to consider all of the relevant factors, you can
meet demand. set clear and achievable goals for your
suppliers that will help ensure the success
The more complex your needs are, the of your project.
higher the chance you’ll have a smaller
supplier pool to work with. Highly complex The more clarity you have upfront, the
needs require specialization, which many better off the relationships will be over the
suppliers won’t be capable of providing. long term.
What level of quality are you expecting 5 STEPS IN THE SPM PROCESS:
from your supplier? Are you looking for the
highest quality possible, or are you willing 1. Define Objectives and Expectations
to sacrifice some quality to get a lower The first step in SPM is to define
price? objectives and expectations for supplier
performance. What goals do you hope to
Regardless of the circumstance when achieve through SPM? What specific
you chose to work with this supplier, are metrics will you use to measure supplier
they holding up their end of the bargain as performance? Be as specific as possible in
outlined in the service level agreement setting these objectives and expectations.
(SLA)? Consider using SMART goals to
help ensure everyone is on the same page.
Is your supplier meeting your deadlines
This will go a long way with risk
effectively? If there are consistent delays in
management. If suppliers aren’t clear about
receiving products or services, this will
what you need from them, when, and why,
negatively affect your operations, and
it can spell trouble for your initiatives
ultimately your customer reputation.
before they even get off the ground.
2. Collect Performance Data
What kind of customer service do you
Once you have defined your
expect from your supplier? Do you need
objectives and expectations, it’s time to
them to be available 24/7 in case of
collect data on supplier performance.
emergencies? Do you need them to provide
This data can come from various
regular updates on the status of your
sources, including financial reports,
project? Did the supplier clearly meet your
customer surveys, delivery reports, quality
expectations?
control data, and more. Work with your
suppliers to ensure that you are collecting
For projects to run smoothly, it’s
all of the relevant data points.
important that everyone involved is aware
Data from your procure-to-pay
of the goals that have been set and
software like Planergy can help you ensure
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orders are accurately invoiced and received. You should always focus on
The automated three-way matching process continuous improvement, even in your
prevents you from paying for items you did supplier relationships.
not order or receive and supports order It is an ongoing journey that
accuracy performance metrics. requires businesses to constantly evaluate
3. Analyze Data their performance and identify areas where
Once you have collected the data, they can make improvements. Continuous
it’s time to analyze it to see how well your improvement can be a challenge, as it
suppliers are performing against your requires businesses to take risks and
established objectives and expectations. experiment with new ideas.
Use tools like regression analysis, However, the rewards of continuous
benchmarking, and cause-and-effect improvement can be significant, as it can
diagrams to help you interpret the data and lead to increased efficiency, higher quality
identify areas for improvement. products and services, and improved
4. Take Action customer satisfaction.
Once you have analyzed the data,
it’s time to take action based on what
you’ve learned.
This may involve setting new
expectations for supplier performance,
renegotiating contracts, or terminating
relationships with underperforming
suppliers.
The goal is to ensure that your
organization is getting the best value
possible from its supplier relationships. The
sooner you can spot issues and take
corrective actions, the better.
Regular supplier evaluation is vital
for procurement teams. You can never be THE DIFFERENT TYPES OF
completely certain that 100% of your SUPPLIER PERFORMANCE
supply base will meet all of your MEASUREMENT:
expectations all the time.
As your business needs evolve and There are numerous ways
business processes change, you may to measure supplier performance. Some
outgrow your existing supplier. common methods include looking at
As market conditions change, their quality, delivery, cost, and responsiveness
performance levels may not be what they metrics.
once were, meaning that, to protect your Each organization is different and
supply chain and service quality, you must will place different levels of importance on
find another vendor. each metric depending on
5. Aim for Continuous Improvement their specific needs. For example, a
SPM isn’t a one-and-done task, as company that relies heavily on just-in-time
with many things in the procurement world. inventory management will likely place a
5
higher emphasis on supplier delivery issues that would not be apparent from
times than one that doesn’t. Similarly, a looking at quantitative data alone.
company that outsources most of its However, interviews can be time-
manufacturing will likely care more about consuming to conduct and analyze, and
cost than one that produces everything in- they may be biased if the interviewer does
house. not ask neutral questions.
The important thing is to establish Focus groups are another option for
what factors are most important to your measuring supplier performance. Focus
organization and then develop a groups provide an opportunity for
supplier performance measurement system suppliers to share their experiences and
that tracks those factors. Doing so will opinions in a group setting. This method
allow you to accurately assess which can help identify trends or patterns that
suppliers are meeting your expectations and would not be apparent from individual
which ones need improvement. interviews or surveys. However, focus
groups require careful planning and
PROS AND CONS OF SUPPLIER moderation, and they may be biased if the
PERFORMANCE MEASUREMENT participants are not representative of the
broader population of suppliers.
Observation is a final method that
(SPM) is the process of assessing the can be used to measure supplier.
quality, delivery, and cost of goods or
services provided by suppliers. The goal of ALTERNATIVES TO SUPPLIER
SPM is to improve supplier performance PERFORMANCE MEASUREMENT:
One common alternative to supplier
and identify potential areas for cost
savings. performance measurement is using a
There are several methods for weighted scoring system. This type of
system uses a set of predetermined criteria
measuring supplier performance, including
to assess supplier performance, and then
surveys, interviews, focus groups, and
observation. Each method has its own assigns a numerical weight to each
advantages and disadvantages. criterion. The weights are then used to
Surveys are a common method for calculate an overall score for the supplier.
Another alternative is to use
measuring supplier performance. They can
be used to gather data from a large number a balanced scorecard approach, which takes
of suppliers quickly and efficiently. into account both financial and non-
However, surveys can be biased if not financial measures of supplier
performance.
designed properly, and they may not
provide accurate information if
suppliers do not respond truthfully. HOW TO IMPLEMENT A SUPPLIER
Interviews are another popular PERFORMANCE MEASUREMENT
method for measuring supplier SYSTEM IN BUSINESS STRATEGY?
performance. They allow for a more in- The pressure to improve supplier
depth conversation with suppliers than performance measurement is growing as
surveys do, and they can help uncover companies increasingly recognise that poor
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supplier performance can significantly may even put your company at risk. That’s
impact their business outcomes. why it’s important to perform regular
Organisations that use a proactive approach evaluations of your suppliers. In this blog
to managing their supply chain can realise post, we will provide you with a quick
substantial benefits in areas like quality, Supplier Performance Evaluation Checklist
cost and speed to market. to help you evaluate supplier performance.
How this system should be WHAT IS A SUPPLIER
implemented at different levels within your EVALUATION?
organisation includes: A supplier evaluation is a process
o The strategic plan: What metrics should in which you measure and monitor the
be tracked? How often should they be performance of your suppliers. This can be
reported? How will you communicate done on a regular basis, such as quarterly or
these results? Which metrics will annually. The evaluation should include a
evaluate results (efficiency, reliability review of the supplier’s financial stability,
etc.)? quality of products or services, delivery
o The operational plan: How does data times, and customer service. It’s important
collection work? Who is responsible for to have a clear understanding of your needs
collecting data? How do you choose and expectations before conducting an
metrics that matter most to your evaluation. This will help you to identify
business? What tools are available to any areas where the supplier may be falling
collect data from multiple vendors? short.
o The SRM management plan: Who
needs access to data? How do you share WHY IS SUPPLIER
it with people outside of procurement or EVALUATION IMPORTANT?
sourcing departments? How will the Supplier evaluations are important
assessment process work? What is the because they help you to ensure that your
best method to manage and track the suppliers are meeting your standards and
success of the supply chain? requirements. They also allow you to
Supplier performance measurement is identify any potential problems that could
a crucial business process that helps impact your business. By conducting
companies improve supplier relationships. regular evaluations, you can make sure that
Following the best practices can help you your suppliers are performing at their best,
measure supplier performance, identify and take action to correct any problems.
problems and assist in making
improvements. Organizations with a global
footprint, find managing a supplier base
SUPPLIER PERFORMANCE
and corresponding sets of varying business
EVALUATION – CHECKLIST:
rules quite tricky. It is critical to have a
Maintaining good supplier robust supplier evaluation criteria or
performance is critical to the success of plan for internal and external
your business. A poorly performing accountability and justification for a
supplier can impact your bottom line, and continuing relationship.
7
Depending on the context, a concrete SUPPLIER EVALUATION CRITERIA

supplier evaluation plan can help you in Depending on the context,
scenarios like: concrete supplier evaluation criteria can
help you in scenarios like:
 Planning to go for a repeat purchase
 Choosing the best supplier among a pool  Planning to go for a repeat purchase
of ‘good’ suppliers within a category  Choosing the best supplier among a pool
 Weeding out poorly performing of ‘good’ suppliers within a category
suppliers and replacing them with better  Weeding out poorly performing
ones suppliers and replacing them with better
 Initiating a regular cost-benefit analysis ones
practice  Initiating a regular cost-benefit analysis
Measuring and evaluating supplier practice
performance is paramount to a reduction in Measuring and evaluating supplier
costs, increased process efficiency, and performance is vital for a reduction in costs,
business performance. They help prevent increased process efficiency, and business
product issues and post-payment defects performance. They help prevent product
and drive improvements in the supply issues and post-payment defects and drive
chain. improvements in the supply chain.
BENEFITS OF CONDUCTING SUPPLIER

A SUPPLIER EVALUATION: PERFORMANCE EVALUATION
There are many benefits to conducting a CHECKLIST:
supplier evaluation. Some of the most Step 1: Establishing Performance
important benefits include: Indicators
First of all, one should create an
 Ensuring that your suppliers are meeting actionable supplier evaluation to finalize
your standards and requirements. broad and detailed parameters. Without
 Identifying any potential problems that this, the steps that follow are meaningless
could impact your business. or in a worse scenario, could reflect wrong
 Taking action to improve supplier insights counter-productive to your
performance. business. Here are some must-include
Conducting a regular evaluation can parameters in your Supplier KPI checklist:
help you to identify any problems early on
and take corrective action before they
1. Price: Because negotiations make or mar
impact your bottom line. Supplier
deals with suppliers, it is a point to observe.
evaluations are an important part of supply
With economies of scale, your organization
chain management, and can help you to
can certainly create a win-win situation
ensure that your business is getting the best
with vendors who willing to lower their
possible products and services.
prices. Because of this, you can capitalize
on large or recurring deals with them. Keep
a close look on how much a company sticks
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to its estimates – if additional charges, 8. Certifications: Industry and domain-

unanticipated taxes or surprise costs are a specific certifications don’t just check off
regular, you should be raising a red flag another box. They ensure a level of trust
against the supplier in question. and threshold of minimum quality
expectation from the concerned supplier.
2. Cost: Another aspect is cost (monetary
and non-monetary) borne by your 9. Value additions: Value additions may
organization when dealing with suppliers. seem like rare delights from most suppliers.
While the major component is the price of For some, value addition is built-in. These
the procured goods or services, others may deal with a resolution to issues and
include peripheral costs associated with conflicts, response times, reactions to order
delivery, movement, packaging, and revisions, etc.
disposal.
10. Innovation: A supplier that innovates
3. Quantity: A comparison between in various aspects of their offerings trumps
quantities ordered versus received is also a others who don’t believe in the long run.
consideration. Sometimes, suppliers send
an ASN (Advanced Shipment Notice) 11. Financial health: Healthy finance
confirming and explaining anomalies in the equips suppliers to serve better, innovate
delivery. better, and be more adjusting to longer
payment cycles.
4. Quality: Inspection checks help detect
any visible product defects, rejections, and 12. Compliance: Some forms to check are
returns, etc. tax compliance, regulatory compliance, and
contract compliance. There are also other
5. Service: Some indicators of service regional and more specific domain-related
excellence include response times for requirements.
resolving issues, and constant client
satisfaction engagement. Step 2: Classifying Suppliers
To start comparing suppliers, start
6. Delivery: Timelines for the order with classifying them into buckets of
process and pre-delivery waiting period similar categories. One way to do this is by
directly related to your satisfaction with the geography, and another way is by product
supplier. types.
7. Payment terms: Agile payment Step 3: Centralizing and Integrating Data

methods and terms offer payment
20% of suppliers usually result in
flexibility to sourcing organizations, much
80% of business needs. However, your
more preferable than a rigid payment
organization might have hundreds or
process.
thousands of suppliers across various
functions. Bring all of them on one
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centralized portal. Consequently, a supplier commentary on emerging technologies for

evaluation tool like iPerform works very supplier evaluation.
well for this.
SUPPLIER
Step 4: Developing a Solid Evaluation EVALUATION APPROACHES AND
Approach METHODS:
Above all, to develop a solid evaluation Once you have decided to conduct a
approach, start with selecting a period, and supplier evaluation criteria, it is important
then move on to the method of evaluation. to choose the right approach and method.
Few examples include: There are many different ways to evaluate
supplier performance. Some companies
 Supplier scorecards choose to use a Supplier Scorecard, which
 Contract management
rates suppliers on a scale of 0-100. Other
 Six sigma
companies may prefer to use a more
Step 5: Collaborating with Suppliers for qualitative approach, such as conducting
Review Feedback interviews with customers or employees.
Not all assessments need to be

quantitative. Instead, constant supplier- The most important thing is that you
buyer collaboration can, at times bring out select an approach that best meets the needs
the bottlenecks much more visibly. While it of your company. You should also consider
is essential to conduct regular meetings, it’s the resources available to you when making
also essential to pay attention to the your decision. If you don’t have the time or
opposite team. Due to feedback manpower to conduct in-depth interviews,
conversations, many roadblocks are then a Supplier Scorecard may be the best
eliminated. option for you.
Step 6: Creating an Actionable Plan SUPPLIER EVALUATION TIPS:

Finally, it is time to create a feasible Here are some tips to help you conduct a
and actionable plan with ways of action for successful supplier evaluation:
individual supplier relationships. Also, it is
necessary to ensure action against your 1. Set clear objectives: Before you begin,
findings to ensure closing the loop on your it is important to set clear objectives for the
evaluation efforts. Supplier performance, evaluation. What do you hope to achieve?
when done the right manner through the
optimum combination of people, processes,
2. Identify your criteria: Once you have
and technology, work
set your objectives, you need to identify the
wonders. Furthermore, it helps identify
criteria that will be used to evaluate
performance gaps and devise strategies to
suppliers. This can include quality, delivery
plug them.
times, customer service, etc.
Therefore, for a more detailed

account of this checklist, and further
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3. Collect data: You will need to collect HOW TO ENSURE A

data from various sources in order to assess SUCCESSFUL SUPPLIER
supplier performance. This can include EVALUATION
financial statements, customer surveys, There are a few key steps that you can
employee interviews, etc. take to ensure that your supplier
evaluation is conducted effectively and
4. Analyze data: Once you have collected efficiently. Some of the most important
all of the necessary data, it’s time to analyze steps include:
it. This will help you to identify any areas
where the supplier may be falling short.  Define your objectives and
requirements.
5. Take action: Based on your findings,  Identify the Suppliers you will evaluate.
you may need to take action to improve  Collect data and information on
supplier performance. This could include Suppliers.
renegotiating contracts, changing suppliers,  Analyze Supplier performance.
or implementing new procedures. By  Take action based on findings.
following these tips, you can be sure that
your supplier evaluation is conducted
effectively and efficiently. By following these tips, you can be
sure that your supplier evaluation is
SUPPLIER conducted effectively and efficiently.
PERFORMANCE EVALUATION Supplier evaluations are an important part
TEMPLATE: of supply chain management, and can help
To assist you in evaluating supplier you to ensure that your business is getting
assessment, download our Supplier the best possible products and services. By
Performance Evaluation Checklist. This taking the time to conduct a regular
supplier performance evaluation template evaluation, you can identify any problems
provides a comprehensive list of early on and take corrective action before
parameters and criteria like pricing, quality, they impact your bottom line.
delivery, customer service, and capabilities
to consider when assessing supplier
performance.
It also provides a quantitative way

to rate supplier performance across critical
factors. The findings can be used to inform
future business and supplier management
decisions.
11
ROLE OF INFORMATION SYSTEMS so that the production of new products

PLAY IN SUPPLY CHAIN won't be stopped due to a lack of materials.
MANAGEMENT:
RFID (Radio Frequency Identification)
Information systems are made up of
interconnected parts that gather, process,
Radio-frequency identification, or
store and distribute data in order to assist
RFID. In order to remotely detect and track
organisational decision-making, control,
tags, this technology uses electromagnetic
and coordination. Although information
fields. Because so many products can be
systems can be paper-based, the majority of
scanned at once, this kind of technology is
information systems rely on information
excellent for keeping track of your
technology infrastructure, which consists of
inventory and supplies. No individual
hardware and software, to operate their
product will have to be manually scanned
information systems.
or counted. This might help firms save a
BENEFITS OF INFORMATION
tonne of time.
SYSTEMS :
With the help of information
 By using information systems, you can
systems, businesses can optimise every
reduce the cost and gain efficiency by
process in the supply chain efficiently.
streamlining the whole process.
 Data can be easily accessible so that
SUPPLY CHAIN ELECTRONIC
you can take the right decisions and do
SOURCING:
negotiations
 Useful during production planning,
inventory management and decision-
making throughout the supply chain
process.
TYPES OF INFORMATION
SYSTEMS:
 Operational Level Systems
 Management Level System ( includes
management information systems
(MIS) and decision support systems
(DSS))
 Knowledge Level Systems
 Intranets and Extranets
eSourcing, sometimes called
Examples of information systems include
electronic sourcing, uses web-based
software such as
systems to collect and compare information
ERP (Enterprise Resource Planning)
about several suppliers to help the buyer
Systems-
select a preferred provider.
Businesses can readily observe how
Simply put, eSourcing is a
their inventory and commodities are being
collection of digital tools that help
used with the aid of ERP software. It can streamline, simplify and improve strategic
also automate the purchasing of materials sourcing activities and Procurement
when stock levels drop below the threshold processes performed by an organization’s
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Procurement team. eSourcing tools The request for information (RFI) is used
improve Procurement’s ability to generate by a business procuring goods or services
value for the organization by managing to gather non-pricing information from
ALL spend and ALL suppliers, reducing potential vendors. In procurement, a tender
supply chain risk and increasing savings. is an invitation for potential vendors to
The technology offers several participate in the sourcing process and
benefits; it is designed to assist compete for a contract award for a project
organizations in generating savings from or large purchase solicitation. Some smaller
their supply chains, increase the visibility purchases only have purchase orders,
of key business information, and reduce the which turn into contracts after being
time it takes for procurement professionals accepted by both parties.
to do their day-to-day tasks.
Electronic sourcing is a small but BENEFITS OF ELECTRONIC
important part of the SOURCING:
overall eProcurement process. It includes:
The benefits of electronic sourcing (e
 Inviting potential suppliers to an sourcing) are:
RFxtender
 Collecting supplier information 1. Increased efficiency and effectiveness
 Running Sourcing events, tender from built-in best practices, streamlined
processes, and/or holding eAuctions workflows, and paperless automation
 Analyzing and evaluating responses 2. Better e-document distribution and
 Awarding the top response with a collection, communication,
contract. collaboration, status notifications, and
HOW DOES E SOURCING WORK? visibility in a unified online system with
a vendor portal
e Sourcing works by using digital
3. Cost reductions and better performance
documents distributed online and
likelihood from reaching more eligible
comparing vendor capabilities, business
vendor candidates and comparing e-bids
risks, and electronic bids to create and
or quotes and vendor risk profiles
electronically award contracts through e
Sourcing software. 4. Complete and unbiased vendor scoring,
vendor risk management, and evaluation
The 5 e-sourcing workflow stages are: process
5. Digital contracts and electronic PO data
1. Request for information
are available in a centralized document
2. Tender invitation repository and can be attached to
3. Evaluate tender transactions
4. eAuction bidding 6. Global supplier management
5. Award contract 7. Spend management control and analysis
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8. Ensuring that global vendors comply The eSourcing software may offer
with regulations eAuctions which are sourcing events with
different formats and templates within each
Electronic sourcing and procurement general type. Reverse Auctions are visible
systems provide accurate and efficient AI bids submitted by multiple qualified
data entry where possible and standardized potential suppliers, conducted in real-time
templates for customization. They enable with the buyer. If potential qualified
your company to keep track of vendors and vendors can’t see the activity of any other
ensure best practices in global supplier bidders, the eAuctions are called Step
management. Auctions.
Reverse eAuctions may have
Note that although eSourcing systems different characteristics, depending on the
may only focus on the sourcing workflow auction type. Types of reverse eAuctions
in procurement, many eSourcing tools include List, Cherry Lot, and Cherry
cover other procurement process aspects, Picking. Types of step eAuctions include
including post-purchase vendor evaluation. Dutch auctions and Japanese auctions.
A post-purchase vendor evaluation system Businesses should be able to
can continuously monitor vendor perform analyses of bids and suppliers after
performance and notify suppliers of auctions to make decisions. Spend analysis
required improvements or pending contract by vendor and category of purchase is a
terminations. It will also notify the valuable software feature.
company of these proposed actions and the The software may solely handle e-
need to begin e-sourcing an alternate sourcing or it may combine e-sourcing for
vendor. strategic sourcing and eProcurement to
assist procurement professionals. It should
COMMON ESOURCING TOOLS : provide an auditing trail for bids and
transactions.
You need to select the best TYPES OF ESOURCING TOOLS:
eSourcing tools for your business needs.
Specialized online software is an eSourcing
eSourcing tools often include an
tool that helps your company gather
proposals and bids, gain efficiency and cost online vendor portal for centralized
savings, and centralize document sourcing and contract documents, supplier
management related to eSourcing products communication, status notifications, and
and services from potential suppliers. collaboration between the company and its
current or future new vendors.
eSourcing tools help you prepare
Many eSourcing solutions use AI
documents like RFI questionnaires,
algorithms for sourcing and assessing
RFPs, RFQs, and customized contracts.
regulatory compliance by vendors.
The eSourcing platform should include an
online software portal for communication E-sourcing tools fall within the
between the supplier contenders and the category of source-to-pay (S2P) software,
buyer, document collection and review, and but outside procure-to-pay (P2P) systems
notifications.
14
that start after the sourcing process is these eRFX forms, and the capability for
completed. vendors to submit their completed RFIs,
RFQs, and RFPs through the system,
Types of e Sourcing tools included in enabling visibility for all stakeholders.
online sourcing software for procurement Some eSourcing tools include automated
are: vendor scoring and evaluation. See
Nanonets’ blog article for the differences in
 eRFX RFQ vs. RFP.
 eAuctions
eAuctions
 Direct sourcing vs. indirect sourcing
 Contract generation and signing tools Some companies use their
eSourcing solution to invite potential
eRFX
suppliers that passed the initial
qualifications screening to bid for the
The broad category of eRFX refers contract award for which a vendor is being
to electronic questionnaires with product or selected.
service specifications requesting
information, capabilities, and pricing from Competitive bidding can be used to
competing vendors. eRFX are requests find the low-cost bidder, but most informed
prepared by companies in the procurement procurement departments will also consider
sourcing process to be completed and quality, financial strength, delivery
submitted by competing vendors. performance, and sometimes sustainability
goals in choosing a supplier.
The eRFX purpose is to gather
information, quotes, or proposals from DIRECT SOURCING VS. INDIRECT
prospective vendor candidates. RF stands SOURCING:
for request for. The X is substituted with the
beginning letter of the type of request to Direct sourcing vs. indirect
title a customized but standardized form for sourcing is the difference between selecting
a contract award requiring potential vendors and buying items for use in
vendors’ responses. production for the eventual sale of goods to
customers (direct sourcing) vs. selecting
For example:
suppliers for other goods and services
purchased for general use in the business
 RFI is a Request for Information
(indirect sourcing).
 RFQ is a Request for Quote
eSourcing tools are used for both
 RFP is a Request for Proposal
direct sourcing and indirect sourcing.
eSourcing software tools include
Direct sourcing is for the purchase
templates for the procurement department
of raw material inventory parts and
to digitally prepare customized RFIs,
manufacturing supplies. Direct sourcing
RFQs, and RFPs, the ability to distribute
includes issuing contracts and blanket
15
purchase orders with multiple delivery 1. Pre-purchase questionnaire

dates that count towards receiving volume
discounts. Before doing business with any
supplier, it is imperative to identify if
Direct sourcing items have a bigger they’re appropriate to do business with.
payoff in procurement. Excellent pricing, Organizations achieve this with pre-
volume discounts, and prompt payment purchase questionnaires (PQQ), which are
discounts can create much higher gross detailed documents designed to assess a
margins on sales from lower cost of goods supplier's suitability. PQQs are common in
sold and better bottom-line profitability. the public sector, but the process can be
With eSourcing tools that improve the called a request for information (RFI) in
sourcing process and implement your other industries.
company’s procurement strategy, your
company will also achieve desirable cost In the past, procurement teams
savings, requiring lower cash outflows and would have to manually fill out these
financing needs. documents by hand or in software such as
Microsoft Word or Excel. With electronic
Indirect sourcing may include tail sourcing, the process is streamlined, as
spend/maverick spend items that are low in suppliers can upload their answers into
cost and bought in low volumes. The the eSourcing software, which is
eSourcing software may include online distributed directly to the business. It
software systems with hundreds of pre- allows organizations to collect information
approved vendors and controlled employee from more suppliers in a fraction of the time
limits. Maverick spend items like office and ensures consistency of completion.
supplies often don’t require POs because
you can’t justify the cost/benefit of 2. Invitation to tender
preparing a purchase requisition and
purchase order through the procurement Invitation to tender (ITT), also
department. However, companies can known as a call for tenders, generates
create e-contracts in advance with their competing offers from different suppliers.
preferred vendors through the system. Once they have filled out a PQQ and have
been selected to go to the next stage of the
CONTRACT GENERATION AND sourcing process, suppliers are sent an ITT.
SIGNING TOOLS:
The ITT document specifies all the
organization's requirements, including
E-sourcing tools can be used to
what goods or services are required, and
review and generate signed contracts
outlines a range of information the buyer
between a business and its vendors. These
will require the supplier organization to
tools may either be built into the system or
submit about its policies, practices, and
integrated as third-party software. The e-
processes and how the evaluation process
contract is digitally stored and accessed by
will be managed. Suppliers fill this
stakeholders.
document out to be taken to the next stage
of the procurement process.
E - SOURCING PROCESS:
16
3. Request for quotation be used after a tender process, or run as a

standalone event for finished goods.
In this process, price is the primary
factor for choosing a supplier. Buyers send Once suppliers have been selected, they
out forms for suppliers, asking all of them are invited to participate in an eAuction – a
to provide prices for the services they can process whereby suppliers bid on the right
render. to deliver the contract for which they’ve
been invited to tender.
Request for quotations (RFQs) can be
used before an RFI and ITT if a buyer is Many eSourcing tools offer different
seeking to understand price ranges in the eAuction types, each with unique benefits.
market. Auctions are designed to encourage
prospective suppliers to compete with one
It is worth noting that all three of the another and, as such, deliver the best
steps above are interchangeable. possible deal for procurement
professionals.
4. Evaluation
6. Contract award
Once the requested evaluation formats

Once the tendering processes and/or
have been sent and received, an evaluation
eAuctions have concluded and a buyer has
process occurs. The prospective buyer
been selected, a contract is awarded to the
evaluates whether the supplier's
winning supplier.
information renders them a viable
candidate.
Elements of this process can be
automated, automatically sending the
In the past, this process involved
winning bidder a contract.
manually sorting through swathes of
paperwork supplied by the suppliers invited
TYPES OF ESOURCING
to tender.
DOCUMENTS:
Documents relating to eSourcing
But electronic sourcing changes this
include RFI (request for information about
– and provides a sophisticated suite of
supplier capabilities), RFP (request for
analytics, dashboards, and tools like
proposal), questionnaires, RFQ (request for
automated scoring – allowing users to
quotation), RFB (request for bid) proposals,
automate evaluation process elements,
and contracts. The general term to refer to
saving precious time.
any type of request, including RFI, RFP,
RFQ, and RFB, is RFx.
5. eAuction
Documents can be uploaded into the
eSourcing portal. Formats that can be used
Much like RFIs, PQQs, and RFQs,
to import and export documents include
eAuctions can be run at any point in the
CSV and Excel.
eSourcing process. It can follow a tender,
17
CHALLENGES OF ELECTRONIC consequence of poor e-procurement

SOURCING: deployments.
Here are some challenges of

electronic sourcing:
 Infrastructure: In developing countries, a
lack of reliable internet access, electricity,
and hardware can prevent e-procurement
systems from functioning properly.
 Cost: The total cost of e-procurement may
be too high.
 Hackers: E-procurement systems may be
subject to hacker attacks.
 Supplier cooperation: It may be difficult to
get suppliers to cooperate electronically.
 Complexity: The system may be too
complex, especially if it uses a traditional
EDI.
 Legal challenges: Legal challenges include
lack of alignment in jurisdictions,
confidentiality, legal liability, insecurity in
e-transaction, and service dependency
risks.
 Vendor and buyer misalignment: Vendors
and buyers may have different priorities,
practices, policies, and needs, which can
create delays and inefficiencies.
 Integration: Some companies use multiple
ERPs, which may not be
compatible. Suppliers need to be able to
handle different e-procurement systems
customers are using.
 Training: Companies may lack adequate
training on how to use the technology.
 Employee resistance: Poor e-procurement
deployments can result in employees not
buying in and resisting change.
 Integration with existing systems: Poor
integration with existing systems can be a
18

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RVS Institute of Management Studies

BA4052 SOURCING AND SUPPLY determine clear targets for future

UNIT - IV  Establishing new processes or

BENEFITS OF SUPPLIER Training is crucial for improving

Quality control allows you to ensure o Adjust your supplier performance

(FPY), percentage of late deliveries, order

Depending on the context, a concrete SUPPLIER EVALUATION CRITERIA

BENEFITS OF CONDUCTING SUPPLIER

to its estimates – if additional charges, 8. Certifications: Industry and domain-

7. Payment terms: Agile payment Step 3: Centralizing and Integrating Data

centralized portal. Consequently, a supplier commentary on emerging technologies for

Not all assessments need to be

Step 6: Creating an Actionable Plan SUPPLIER EVALUATION TIPS:

Therefore, for a more detailed

3. Collect data: You will need to collect HOW TO ENSURE A

It also provides a quantitative way

ROLE OF INFORMATION SYSTEMS so that the production of new products

4. eAuction bidding 6. Global supplier management

5. Award contract 7. Spend management control and analysis

purchase orders with multiple delivery 1. Pre-purchase questionnaire

3. Request for quotation be used after a tender process, or run as a

Once the requested evaluation formats

CHALLENGES OF ELECTRONIC consequence of poor e-procurement

Here are some challenges of

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