Need For Effective Vendor Selection And Rating In An Organization

Project and Seminar Material for Purchasing and Supply PS

Abstract

This study is a survey on the need for effective of vendor selection and rating of some Nigeria companies, a case study of Nestle Food Nigeria Plc. The study is aimed at identifying, assessing and analyzing the various available methods of selecting suppliers in purchasing department, for the best of store keeping and material handling. The study also includes the examination of roles of sales strategies and improvement on the prospect. Primary data was collected by the means of questionnaires analyzed and interpreted mainly with the use of simple statistics and percentages. The finding shows that the need for vendor selection in organization is because; It ensures purchase of goods and / or services at an optimal total cost, It guarantees supply of goods in desired quantity and quality, It eliminates waste associated with procurement, It increased administrative efficiency and decision making, It optimizes the supply chain, engineers the production process and leads to customer satisfaction of the brand. The study recommends that Manufacturing firms Like Nestle Foods should train their supplier selection committees or procurement managers on how best to select the suppliers. This will enable the firms to get the right suppliers which will lead to harnessing the benefits associated with the practice that is shortened lead times, customer satisfaction and higher profit margins.

Chapter One

1.0 Introduction

Nestle Food Plc, case study of my project topic is well known for it vendor selection and rating. The study of purchasing and supply management can not be complete without proper selection of vendor and rating of their performance.The progressive manufacturing industries realizing the contribution of supplies department of profit, have this department to make the selection of supplier in order to maintain company’s own competitiveness which will also enhance better supplier relationship, reliable supplier performance, easier administration and fewer supply problems (Bali, Kose, & Gumus, 2013).

1.1 Background of the Study

Vendor selection and rating is becoming of vital importance in every manufacturing organization today in that it need for effective cannot be over looked of every manufacturing company’s budget. Is on materials, it is therefore very necessary that materials which meet organization taste as regards to sources, quality, price and delivery be given consideration. Prior to this, it is therefore of great importance to ensure that proper supplier are selected and rated according to their performance so as to ensure that proper suppliers are selected and rated according to their performance so as to ensure the need of the organization. It is therefore the responsibility of purchasing and supply department to select the best supplier, identify the major sources of information about potential supplier, through the use of trade journals, exhibitions, sales representative, colleagues in the company, professional associates, chambers of commerce and costly international sources, these sources of information can be very useful to the success of vendor selection. The organization must function in one of the most sensitive areas of vendor performance and rating. LAMER LEE JE AND DONALD W. DOBBLER, in their text said upon completing of list of all potential suppliers, a buyers (firm) next step is to evaluate each of these suppliers individually. By process of elimination, a selected list of vendors negotiate or solicit bids ( Chai,; Liu&Ngai, 2013) .

The vendor list should be comprehensive enough to bring to best to every of competition desired, price technological competition service competition etc.

Evaluation of company’s vendors is considered as an effective tool for improving their ability to serve more satisfactorily as a basis for making future purchasing decision. Finally, when suppliers have been selected, organizations have ensured that they maintain and create a good relationship with their suppliers as to maximize profit. Management must therefore ensure that proper supplier are selected and rated periodically in order to contribute to the profit ability of the organization so that purchasing and supply department will be accorded a high degree of honour.

1.2 Statement of Problem

The organization does not attach a lot of importance to vendor selection and rating.
There no qualified personnel available to handle the job vendor selection and rating in the organization.
The firm fears if is very costly to handle the issue of vendor selection and rating.
The firm’s organization structure has negative effect on the effective performances of vendor selection and rating.

Objectives

To find out whether the organization attach a lot of importance to vendor selection and rating.
To find out whether the organization has qualified personnel available to handle the job vendor selection and rating in the organization.
To also find out whether organization is fear of vendor selection and rating, because it is very expensive to handle.
To find out whether the organization structure of the firm has negative impact on the performance of vendor selection and rating

1.3 Objective of the Study

Research being a careful and systematic study which aims at producing facts, information and solution to problems, so the purpose of this study is to find out the important of vendor selection and rating in an organization, it becomes imperative to this researcher that there is need to go through the review of existing literarily works, which will help to know the importance of using this technique (tools) vendor selection and rating.

Furthermore, this research work also will help to find out the strategies of vendor selection and rating in Nigeria manufacturing industries so as to conduct an empirical finding into how suppliers are sourced, selected, evaluated, rated and developed. It is also intended to highlight on the development of goods supplier relationship, these area of exploration will help to contribute to organization profitability. It is believed that after this study, manufacturing companies which are not using this, will make effective use of it.

Lastly, this work will also identify its draw back and how to alleviate them and make suggestion and recommendations that might help them.

1.4 Research Question

What is vendor selection and rating?
What are the tools (techniques) used in selecting vendors?
To what extent can they be rated?
What are the strategies used in selecting vendors?
How can vendor selection be of help to an organization?
Does vendor selection bring profitability to an organization?
What contribution has vendor selection made in an organization?

1.5 Significance of the Study

This study will be relevance to all organization viz:

Manufacturing industries because proper selection, reliability, competitive price, long-term stability.
Selection and rating of supplier will enable organization to maximize profit, since a huge sum of money is being invested in materials procurement, strict adherence to the process of selection and rating of suppliers by the firm.

Some of the managers were reluctant to give out information fear of the information being traced back to them and consequent loss of their job from the company.

This study is therefore important in the following ways:

It will review the different strategies of vendor selection and rating.
It will help manufacturing industries to select the right supplier and accurately evaluate their performance.
It will search as source of information/materials to other researcher’s who may carryout research on the topic or similar topic.
Finally, the work also help to increase the researcher’s knowledge on vendor selection and rating.

1.6 Scope of the Study

The geographical are study is Lagos. Lagos his undisputed number of suppliers through which these products get to the buyers and finally the end users. It has the highest concentration on purchasing activities in Nigeria.

The study is limited to Nestle Foods Nigeria Plc a major food processing company in the country. The level of participating worker in this study is of managerial level senior managers and some selected segment purchasing and supply staff.

1.7 Limitations of the Study

Time and money are the great constraint of this study. Consequent to the limitation of time and funds, the information for this study was obtained mostly from Lagos. But for time and money a more comprehensive and in-depth study covering the whole country would have been embarked upon. Also, because of time constraint and the tradition of many Nigerians organization to regard certain information as confidential, this study relied mainly on published documents.

Some of the managers were reluctant to give out information for fear of the information being traced back to them and consequent loss of their job from the company.

1.8 Definition of Terms

(1) Lead Time:

It is not only the possibility of lead time can itself be a factor in deciding order quantity. The length of lead time can itself be a factor in deciding order quantity for instance, it may be feasible to order a week’s supply at a time of some regular requirement on a one-week lead time, but it would be unreasonable to do this on a fifty-week lead time, with fifty small order for the one item outstanding at any one time.

(2) Minimum Order Quantity:

This is a process by which the inventory is not allowed to fall below this level. In order words, it supply men the minimum amount of stock that should be allowed in the store.

(3) Labour Relation;

This is very importance factor the buying company to take into account. If labour discontent exists, the buyer’s company could investigate the supplier’s wage structures and suggest ways of improvement.

(4) Quantity:

It is not just to accept to make. The question is, can the company meet capacity or engage in mass manufacturing so as to reduce cost throughout economic production. When quantity is too small for economic production, it is world wide to buy such a component.

(5) Quantity Control:

It is necessary to have the assurance of quality control and supervision when the process of fabricating the component are performed. The desire to certain quality is very important.

(6) Vendor Sources:

It also very important, a good supplier has well-developed sources or raw materials and components that will ensure continuity of production during periods of fluctuating business conditions.

(7) Societal Concerns:

The extent to which a vendor is evaluated in terms of it’s employment, abatement policies, and resource conservation is the most controversial and subjective aspect of vendor selection decisions.

(8) Location Of The Source:

It is very important to know where the source is located. The distance will help the buyer adjust lead time and prepare for transportation cost. It will also help the buyer to identify the nearest branch or depots if they exist.

(9) Inventory Turnover Ratio:

This ratio is the cost of goods sold divided by the average inventory. It indicates the degree of efficiency in inventory management and the freshness and salability of the inventory. If the ratio is low the firm is either over-inventionized or undersold.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

The study also includes the examination of roles of sales strategies and improvement on the prospect.
Survey research design was employed for the study and with aid of convenient sampling selected sixty-five (65) participant as the sample size for this study. The sources of data collection was both primary and secondary with the application of questionnaires as an instrument to gather the necessary data. The questionnaires were properly completed as well returned by only 50 respondent after being administered and this was a basis by which the primary data were collected. Textbooks, journals, articles, law reports, newspapers publications, were collected as secondary data, and also limitations to the study were indicated. Primary data collated was analyzed using frequencies and tables and the result were similar to those of the responses drawn from the questionnaires.

5.2 Conclsion

Across the globe, organizations have realized the importance of procurement performance in establishing and maintaining their competitive advantage. Supplier’s development was considered as one of the aspect that can enhance organization competitive advantage which would eventually result to effective organization performance through vendor selection.This new method comes with the purpose of organisational supply chain management performance growth, by improving the entire supply chain system and engineering process, and bringing contribution to the specialty literature in this field.Thus vendor selection is the process by which suppliers are inspected, evaluated and selected to eventually become part of the supply chain of an organization therefore this is crucial to the outcome of the business.

Findings of this study therefore reveals that several criteria involves in supplier development processes. These majorly included selection based on the following criteria; quality standards of products of the supplier, financial position of the supplier, flexibility of the supplier, supplier efficiency in service delivery, supplier charges, good market reputation of the supplier and increase in cost of operation.

Further findings reveals that the need for vendor selection in organization is because; It ensures purchase of goods and / or services at an optimal total cost,It guarantees supply of goods in desired quantity and quality, It eliminates waste associated with procurement, It increased administrative efficiency and decision making, It optimizes the supply chain, engineers the production process and leads to customer satisfaction of the brand.

5.3 Recommendation

Base on the findings of the study, the following recommendation were proffered:

Manufacturing age firms should train their supplier selection committees or procurement managers on how best to select the suppliers. This will enable the firms to get the right suppliers which will lead to harnessing the benefits associated with the practice that is shortened lead times, customer satisfaction and higher profit margins.
Manufacturing firms when considering supplier selection should emphasize on production of quality standard products of suppliers, decrease in cost and suppliers good marketreputation as they enable manufacturing firms acquire quality inputs for quality output and market competitive edge.
Organizations should ensure they use supplier evaluation form in other to provide them with accurate information on the best supplier to patronize as this optimizes the supply chain, engineers the production process and leads to customer satisfaction

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