supplier selection - my liucmy.liuc.it/matsup/2009/y90102/3 supplier selection... · supplier...

Percorso di Eccellenza in PROJECT MANAGEMENT

SUPPLIER SELECTIONSUPPLIER SELECTION

Guido MICHELI & Enrico CAGNO02.2399.405602.2399.4054

Guido [email protected]@PoliMI.it

2

AgendaAgenda

Date Object Tutorial Examples Teamwork

Thursday 29/10Morning (4h) Project Procurement

(focus point)

Thursday 05/11

Morning(4h) Portfolio Approaches +Afternoon (4h)

Tuesday 17/11

Morning(4h) Supplier Selection +Afternoon (4h) & Vendor Rating

(hints)

Wednesday 02/12

Afternoon (4h) Project Work (follow-up)

Guido JL Micheli © LIUC - Supplier Selection

Guido JL Micheli © LIUC - Supplier Selection 3

Team WorkTeam Work

+ ResultsCommunication &Discussion

Guido JL Micheli © LIUC - Supplier Selection 4

Selecting the most proper supplier and assess its performance

Supplier Selection: the goalSupplier Selection: the goal

Getting the required supply from a supplier at an affordable level of risk, using resources efficiently

Guido JL Micheli © 5LIUC - Supplier Selection

A Supplier Selection process can consist of:

• Pre-qualification• Qualification• Selection

• Vendor Rating

Supplier Selection Process

Supplier SelectionSupplier Selection


LIUC - Supplier Selection 7


Guido JL Micheli ©

A Supplier Selection (& VR) process must be • Effective• Efficient

USE PORTFOLIO APPROACHES!


Introduction• Supplier Selection has strongly to do with

DECISION MAKING


Decision Making is a support for choicesChanging car? Use the Total Cost of Ownership to compare alternatives

Decision Making is intended to justify choicesTry to explain to your classmate why you have chosen a car/bike instead of another

Decision Making has to be consistent and repeatebleYou always need convincing arguments…

Decision modelling (elements) Decision process structure



Elements of a Decision

Objective

Strategies (alternative approaches)

States of the world (constraints)

Pay-offs



Typically: multi-parameter models (Scoring Models, AHP), used for selection/qualification

Which kind of benefits/limitations?

SS under CertaintySS under Certainty

cost

Suppliers

pa

pb

BA


Risk is MEASURABLE

Typically: Total Cost of Ownership & advanced methods (REBaSS), used for selection

A range of values as outcome…

SS under RiskSS under Risk

cost

Suppliers

CaMax

BA

CaMin

CbMax

CbMin


States of the world

Probability can make things different…

How can we make a decision?


0.6 0.3 0.1

High Medium Low

A 60 80 100

B 80 40 50

supplier

Probability and cost


Expected Value

EVa = 70EVb = 65

The difference is smoother…


0.6 0.3 0.1

High Medium Low

A 60 80 100

B 80 40 50

supplier

∑ ⋅= ii xpEV



Variance

Va = 180Vb = 345

Let’s consider both EV and V…


0.6 0.3 0.1

High Medium Low

A 60 80 100

B 80 40 50

supplier

22ii

2 EVxp −⋅=σ ∑



‘B’ is no more so PLAIN to be better!

Try to make risk-efficient decisions… by means of decision trees


Risk

cost

A

B


DECISION TREESThe problem

Supplier A asks for 80, B for 50.

‘B’ selected supplier?



DECISION TREESThe decision involves many scenarios…

Supplier A asks for 80, B for 50.‘A’ is a best in class company, and it is unlikely to go bankrupt. If ‘A’ is

late (Chance 0.1), the cost rises up to 130. No quality problems are expected.

‘B’ is an emergent supplier. If it goes bankrupt (Chance 0.1), the total cost is 250. If not, it is likely to be late 0.4, and the cost is estimated to be 100. In any case, quality problems are expected 30% probable, with re-making extra-costs of 40.



DECISION TREESModelisation

KEY

Decision

Chance event (beyond our control)



DECISION TREESModelisation


A

C 0.1 130

C 0.9 80

B C 0.1 250

C 0.9

C 0.4 100 + X

C 0.6 50 + X

C 0.3 40

C 0.7 0


DECISION TREESConclusion

Expected cost of

‘A’ = 85‘B’ = 98.8

Even if the price of ‘B’ was noticeably lower



Uncertainty is NOT measurable, or we do NOT want spend our effort to measure itThe problem

Typically: used for early selection phases (both pre-qual. & qualification)

SS under UncertaintySS under Uncertainty

No idea of probability zones

High Medium Low

A 60 80 100

B 80 40 50

C 90 60 70

D 80 60 50


supplier


MiniMin & MiniMaxOpposite attitudes


No idea of probability zones

High Medium Low

A 60 80 100

B 80 40 50

C 90 60 70

D 75 60 50


supplier


Coefficient of optimismMiddle attitudes


MiniMin MiniMax Weighted average

A 60 100 76

B 40 80 56

C 60 90 72

D 50 75 60

cost, provided alpha=0.6

supplier

MiniMax)1(MiniMin ⋅α−+⋅α


Coefficient of optimismChanging attitudes

Notice risk efficient decisions!


MiniMax)1(MiniMin ⋅α−+⋅α

cost

Alpha = 0.6

5040

B

A

60

8075

90100

C

D



Scoring Models criteria - ApplicationScoring Models criteria - Application

Scoring Models – Overall TeamworkScoring Models – Overall Teamwork

TeamworkSame groups of 4/5 people• 2 are buyers• 2/3 are competing suppliers (A, B, C)• RULES & ROLES: Group 1 is going to BUY something from Group 7;

Group 1 is going to SELL something to Group 2; …

• 2 buyers describe (a) supply to perform (generic description), (b) supplier selection process, and (c) (weighted) selection criteria consistent with (a)

• 2/3 suppliers (separately) describe their performance (supply and company, i.e. as in vendor rating) in both a quantitative way (1-100 for each criterion, average<=85) and a qualitative one (max 20 lines)

• The group selects the most proper supplier• The whole team comments the results

• Comments• Discussion


Presentations – Overall TeamworkPresentations – Overall Teamwork

TeamworkSame groups of 4/5 people

• Prepare a 20 mins presentation (assemble of teamworks sessions)

• Contents:1) Portfolio Analysis, Assumptions & Practices 2) General description of items to be purchased (to be revealed to suppliers,

without criteria and weights) 3) Description of Supplier Selection Process selected, Criteria used, Weights

fixed (consistent with PA) (do not reveal that content to the suppliers!) 4) Supplier Choice5) Comments on 1)+2)+3)+4)

Not to be presented: 2/3 Suppliers profiles and offers descriptions (criteria, qualitative description, weights, ...) (to be sent to buyers)


supplier selection - my liucmy.liuc.it/matsup/2009/y90102/3 supplier selection... · supplier...

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