Question:
Discuss About The Appropriate Criteria For Supplier Selection?
Purchasing management refers to a department which takes place in the purchasing activities. It needs to be taken proper care in an organization like Wal-Mart as they are primarily concerned on the prices based on the suppliers. The essay would be helpful to understand the ways in which big retail units like Wal-Mart take care of its pricing and evaluate their suppliers by different methods of evaluation. This essay would also provide proper understanding and overview of Wal-Mart. The company is popular in the retail industry along with the cost leadership strategy in the operating market. Wal-Mart provides various retail products to the customers that are useful in their daily lives (Quintens, Pauwels & Matthyssens, 2006).
Strategy of the company is to be the cost-leader in the retail industry by providing quality products to its customers. In terms of purchasing, the suppliers of the company have the low-cost strategy and selected as the lower returns as the market strategy. There are many other companies in the retail industry that have effective purchasing strategy. Those companies are giving tough competition to Wal-Mart. Competitors of Wal-Mart are Amazon, Aldi, Apple Inc, Best Buy etc.
Supplier selection criteria for any commodity category can be explained as “cross functional” group of people presenting different sort of factors in the organization. In case of Wal-Mart they have suppliers all over the world as per their requirements and need in the market. Thus all Wal-Mart suppliers need to fulfill few important terms and conditions. These requirements are based on social and environmental situations in the industry (Yuh-Jen, 2011).
Suppliers need to ensure that the necessary process such as labeling and tagging, adding up food additives. Capable suppliers of Wal-Mart these conditions need to be fulfilled. GFSI (Global Food Safety Initiative) certification is necessary element for all the vendors working for wall-mart. Suppliers that import the products from other dealers need to give a check and do the inspection of the products to ensure safety and security (William, Xiaowei, Prasanta, 2010).
Products are made up of drugs, vitamins, food supplements; add on to tastes, preservatives and cosmetics products contain chemical and other ingredients. According to Wal-Mart all the companies dealing in such kind of industry must ensure the safety of health and wellness. The supplier must disclose each details of manufacturing its products, packaging, sorting and label the products. All the goods produces should also be registered with the FDA (Food Drug Administration).
Wal-Mart has their suppliers all over the world, they are always selecting their suppliers on different objectives and rules set by them. These criteria are pricing of the commodities, Time of product delivery, suitability, and methods in purchasing the product. They maintain all form of legal requirements with the suppliers and expected to follow the given set of instructions. Wal-Mart has specific set of rules that need to be followed by suppliers. If these requirements are not fulfilled by them their contract can be eliminated and they will be voided in selling their products to the company. They also ensure that the supply of the product is time based in case the order delivery is late or early no such loss is beard by the company. The basic idea is to deliver customers value by the business operations (Spina, Caniato, Luzzini & Ronchi, 2013).
ICT tools helps in supporting the entire human task performed by human’s resources and to improve buyer activities it helps in performing the task faster it helps in automatic decision making. ICT tools are really helpful in practice of autonomous decision making processes. Wal-Mart uses this process to make thing more transparent and have clear transparency with the stakeholders, Information technology is widely used these days for the service industries like retailers, transportation companies etc. ICT tools helps to increase efficiency and effectiveness of the firm. It helps in supporting the human resources organization. ICT brings higher transparency for the stakeholders, which results in implementing better adoption of fair policy and effectiveness in the company (Ziggers & Henseler, 2009).
Barcode is a readable format of words by a computer, the information is stored as a parallel lines and spacing between them, these days there are many set off codes like pattern of dots, set of circles etc. This procedure is easy and automatically fetches the data from the products. Bar-coding is often used for counting the goods as well as raw material so it help in making proper data of sales of good in the company and availability of inventory and raw material. Wal-Mart is using barcodes on its entire product from a washing machine to a small needle. It helps them to maintain the correct amount of stock details (Trent, 2004).
ERP is an important tool in the process of information communication it give the managers an opportunity to give a check on the functions of all the departments. These systems are based on different kinds of modules such as management of the supplier, manufacturing of goods and procurement of funds etc. Wal-Mart has basically designed well maintained ERP system so that managers can check all the departments, effectively and take the required decision according to the analysis of these modules (Haag and Cummings, 2010).
This system is highly based on tracking the manufacturing of products to the point of its assembling. Managers can analyze the production activity and can improve the cycle of production incase if they found any flaw. Wal-Mart effectively used this system to manage the rush orders, making a coordination among production and purchase of goods. They can also do sales forecasting, and take the decision if they want to recruit new individuals and making master budget.
Wal-Mart use DRP in order to distribute the inventory and existing stock in the different distribution points. This tool is really effective in the organizations like Wal-Mart and supermarkets where there are regional and local distributors for a product so it is highly important to maintain a regular check on the inventory and its distribution.
ICT tools are important component of every business these days. It helps the managers to check the operations of procurements, payment of suppliers, distribution of products; sales forecast and determine the budget of the firm. Efficient use of resources and minimum wastage of products is the main factor of high growth of Wal-Mart in the market. These tools make the production and distribution process easy and helps in preparing systematic data on every sale. Wal-Mart is a big chain in the retail sector thus ICT tools help in the proper communication in the different departments. Thus Wal-Mart should improve its operations and management by using better ICT tools and effectively using them.
Purchasing is a complex process in an organization, in traditional belief the ultimate goal of purchase is to get goods and services in exchange of money. Wal-Mart is using multiple sources in their company as its working is based on international basis and it cannot be centralized its suppliers at its original place where its headquarters are located. Thus they use multiple sourcing to cut the cost 0of transportation (Krichen, Laabidi, & Abdelaziz, 2011).
Figure 1: Cost in overall purchasing
(Source: Fliegner, 2015)
Wal-Mart make category of every buyer associated with it and keep track of all the detail and analyze them. In the regular meeting, Wal-Mart declares the analysis to the suppliers and help to bring down the purchase cost by increasing the competition in the market. This helps the company in reducing the purchase cost as well as this method is inexpensive.
This method helps in evaluation of supplier’s performance in the standard cost analysis. The total cost of each purchase of product is calculated on its Retail price plus the buyer’s internal organizational cost associated with the delivery of the products and it standard quality. Wal-Mart is using this method in its purchase analysis to cut down its cost.
Linear method is commonly used in the process of purchase evaluation, specific factors like performance, quality of products, delivery time and cost is included. The top judgment takes care of all the performance level this analysis focuses on overall quality of the suppliers. The results of these factors are added up to get the rating in numerical value for the suppliers. Wal-Mart uses these weighs as a multipliers and the analysis department give a complete check to the data provided to them. This method is useful for Wal-Mart has it is in retail industry and getting best supplier is helpful in long term growth of the company (William, 2009).
ABC analysis is an important tool to help the companies in strategic cost management and to measure the current status of inventory and supplies. “A” Category items basically represent approx. 15%-20% of an overall inventory by item, but represent 80% of value of an inventory (Hadi . 2010). “B” Category products interoperate 30%-35% of inventory products by product category, and about 15% of the value. “C” Category products interoperate 50% of actual items but only 5% of the inventory value. Many organizations can bear a relatively stable inventory process surrounding these products (Douissa & Jabeur, 2016).
Figure 2: ABC Analysis
(Source: Wannenwetsch, 2006)
Wal-Mart item comes in category A and monitored and recorded items as they are recorded. The items belong to this category are mainly the finished goods or ready to sell goods at retail outlets. Thus Wal-Mart major actions are influence on Category A. Category B is a necessity as an infrastructure to the company. However the category C is not that important and does not affect its transactions (Jack et al, 2010)
Conclusion
Wal-Mart is among the leading brand in retail because it has various methods to control the quality levels, they follow their own code and regulations in choosing the appropriate suppliers, fulfilling all the necessary rules and regulations. The company is actively using information; communication and technology tool in order to make a proper control over inventories, departments, raw material etc. Effective management is the key to success and helps in growth prospective. ERP and MRP are the main tools used by the Wal-Mart in relation to ICT. Purchasing analysis of Wal-Mart informs and details the small decisions taken by the company to reduce its purchase cost and provide best and cheapest price in the market. Linear averaging method is highly suitable for big enterprises like Wal-Mart. Cost ratio method and categorical method are also used in grading the suppliers, however it does not include over factors of analyzing.
However there are many different views of experts about these methods according to them there is no way in which a company can grade their suppliers, because companies like Wal-Mart have international market and conditions at every place is not same thus they need to focus on overall scenarios a supplier is facing, in decision of purchasing. As per the analysis of report Wal-Mart is trying all the necessary actions to reduce the purchase cost and provide best prices in the markets. Its strategy is to sell more products at less profit. Thus helped the country to grow manifold times and today it is world leading retail industry.
Reference
Chen, Y. (2011). Structured methodology for supplier selection and evaluation in supply chain: Information sciences. 18. 1651-1670.
Douissa, M. R., & Jabeur, K., (2016). A New Model for Multi-criteria ABC Inventory Classification: PROAFTN Method: Procedia Computer Science. 96. Pp. 550-559
Hadi-Vencheh, A. (2010). An improvement to multiple criteria ABC inventory classification: European Journal of Operational Research. 201(3). 962-965.
Ho, W., Xu, X., & Dey, P. K., (2010). Multicriterion decision making approach in supplier evaluation and selection: European Journal of Operational Research. 202. 16-24
Jack C.P. Cheng, A., Kincho H., Law, B., Hans B. C., Albert Jones , & Sriram, R. D., (2010). Modeling and monitoring of construction supply chains: Advanced Engineering Informatics. 24 435–455.
Krichen, S., Laabidi, A., & Abdelaziz, F. B., (2011). Single supplier multiple cooperative retailers inventory model with quantity discount and permissible delay in payments: Computers & Industrial Engineering. 60. pp. 164-172.
Management: Journal of Supply Chain Management. 40 (3). 4-18
Quintens, L., Pauwels, P., & Matthyssens, P. (2006). Global purchasing: State of the art and research directions: Journal of Purchasing and Supply Management. 12 (4). 170-181
Spina, G., Caniato, F., Luzzini, D., & Ronchi, S. (2013). Past, present and future trends of purchasing and supply management: An extensive literature review: Industrial Marketing Management In press
Stephen, H. and Maeve, C., (2010). Management Information systems: for the information age. (8th). NY: McGraw-Hill Inc,
Stevenson, W. (2009). Operations Management. (10th). NY: McGraw-Hill/Irwin
Trent, R. J. (2004). The use of organizational design features in purchasing and supply
Ziggers, G. & Henseler, J. (2009). Inter-firm network capability: How it affects buyer-supplier performance: British Food Journal. 111 (8): 794-810
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