Critical Factors that Influence Supplier Selection - Essay Example

Capacity Capacity refers to a subject’s potential to meet particular expectations. An organization within a supply chain has demands to meet and requires necessary and sufficient supplies to meet such demands. As a result, a supplier’s ability to meet required capacity in delivery is of great importance. A good supplier should therefore be one that is able to deliver orders according to quotation’s specifications and one that is flexible and can adjust to emergency needs for high quantity deliveries.

Evaluating a supplier’s capacity should therefore look into the suppliers supply chain personnel’s competence as well as its production capacity and normal stock level in order to guarantee continuity in supply.1 A supplier’s capacity to deliver however goes beyond deliverables to long-term factors such as “financial capability, market share, personnel capability, process capability, and top management capability”.2 Financial stability, demonstrated by suppliers’ financial ratio analysis for example identifies a suppliers’ potential to guarantee a ‘long-term ‘contracts for supplies. . Integration of organizational roles in a supply chain for example ensures efficient delivery of a supplier’s commodities through outsourced logistics.

5 Cost Cost is another important quantitative factor that should be considered while selecting suppliers. One of the obvious reasons for considering suppliers’ costs is the fact that every organization aims at either maximizing its profits or minimizing its losses through reduced costs. As a result, a supplier that offers relatively lower costs is most likely to increase the buyer’s profitability level. Evaluating cost should however be comprehensive to factor every involved expense in acquisition and delivery of a commodity.

A buyer should for example consider the involved price of the commodity together with other costs such as logistics expenses, and installation or operational expenses. This comprehensive review of the suppliers’ costs is important because different suppliers offer different cost packages. While some costs may appear low at face value, they may be exclusive of other expenses and be more expensive in the end. It is therefore important to factor in differences in cost packages to ensure that more economically sound suppliers are considered.

6 The different elements of costs can also be explored differently as significant factors to suppliers’ selection. Commodities’ net prices for example rank high among critical suppliers selection factors. Consistency in findings, as was realized in Dickson’s research and Weber’s research that commodities’ net prices is one of the most highly considered factors when selecting a supplier affirms the factor’s essence. Other elements of total cost however ranked poorly in the two research