Supplier Evaluation and Election and Contract Management

Supplier Evaluation and Election and Contract Management

Introduction

Organizations across the world have increased their focus on the supply chain network for gaining a competitive advantage. If the supplier selection of an organization is inappropriate, then it will negatively affect the overall operative stability and the financial stability of the organization [CITATION Ste17 \l 1033 ]. The ability of an organization to select the best and reliable supplier is one of the characteristics of successful purchasing. Selecting the right suppliers for an organization is one of the key tasks that have an impact on all the important aspects such as the – profitability, cost reduction and the flexibility of a company[CITATION Abd14 \l 1033 ]. The process of supplier selection is a foundation for strategic sourcing and one of the important means of achieving the supply advantage [CITATION Sri14 \l 1033 ].

Supplier evaluation is a process that focuses on evaluating the suppliers and reducing the overall risk associated with purchasing along with maximizing the value for the purchaser[CITATION She151 \l 1033 ]. The process of supplier evaluation starts, when a need for supplier is recognized in an organization and management. For the complex and high cost contracts, a formal supplier evaluation process is used [CITATION Lau11 \l 1033 ].

The overall purpose of the process of supplier evaluation is to ensure that the supplier meets all the commercial, financial and technical requirements of the products or service. The process of supplier evaluation helps in assessing the performance of suppliers on the basis of certain set of criteria for a particular time [CITATION Pat16 \l 1033 ].

This particular project focuses on the evaluation and selection of the Car Hire Company by the organization. The car hire company will be for the staff of the organization for their business trips across Australia and other nations[CITATION kus11 \l 1033 ]. There are seven major steps in the process of selection and evaluation of the suppliers. These steps are as follows:

Need recognition, identification of the sourcing requirements, determination of sourcing strategy, identification of the supply sources, limiting the pool of suppliers, determination of supplier evaluation method and finally, selecting the supplier for the organization[CITATION Han162 \l 1033 ].

Need recognition - This is the first step of the supplier evaluation process that will be used by the organization for determining the actual need of the cars that will be used for the travel needs of the employees [CITATION Man16 \l 1033 ].

Identification of the sourcing requirements - This is the second step in which the focus of organization will be on determining the number of cars for each of the region. For this purpose, a historical analysis can be used that is presented below:

Historical data shows the following car hire usage patterns:

The above historical analysis indicates that in the year 2017, 2500 cars were hired for Port Headland, followed by 1100 cars for Melbourne and 1000 cars for Brisbane. Accordingly, the company can focus on hiring more cars for these regions.

Limiting the pool of suppliers -Once the sourcing requirement has been determined, the company needs to limit the pool of suppliers who are interested in offering the car hiring services to the organization. The categorisation can be done on the basis of some basic choices such as price and the number of Km offered by the car hire services every day.

Determination of supplier evaluation method –Once the organization has obtained a pool of limited suppliers, an evaluation method will be chosen for the supplier’s evaluation. There are a number of ways for evaluating the suppliersfor this organization. The supplier of car services will be evaluated with the help of Weighted Point Method. This method for the supplier evaluation has been selected because it a simple, yet effective method that includes all the criteria that are important for the evaluation supplier. [ CITATION Kha116 \l 1033 ].

Selection of the supplier -This is the last step of the process in which the supplier will be finally selected for the car services for the organization. The selection of supplier will be done on the basis of scores for each of the supplier. The Weighted Point Method will be discussed in detail with the help of example.

According to Monczka et al. (2011) the process of evaluation and selection of suppliers is an easy process, according to the actual needs of the organization. The above mentioned supplier evaluation process is an upper- level process but, it helps in bringing all the elements together that are essential for the supplier evaluation and selection for the car hiring services for the organization. The process discussed above includes the aspects such as – a preferred supplier list, survey of suppliers and the financial checks of the suppliers.

The total cost of ownership (TCO)

The total cost of ownership can be defined as the assessment of the direct and indirect costs involved with a product or service. The total cost of ownership is used at the beginning of the purchase process so as to evaluate the most cost -effective choice. The concept of TCO is used during the making of selection decision.[ CITATION Vis15 \l 1033 ] There are a number of costs that are estimated but incurred yet. The calculation of TCO will help the organization in obtaining detailed information about the total cost that can be used for selecting the suppliers for the car services.[ CITATION Kri06 \l 1033 ]. The organization should consider the fact that quoted price is not only the price associated with the car hire services but, there are other costs that are involved in the same. The costs other than the purchasing cost for the organization while selecting the car hire service will include the following costs:

Value for money (VFM)

The value for money is not just about achieving the lowest price for the car hires services rather it is an optimum combination of life cycle cost and quality costs. Traditionally, the focus of VFM analysis was only on getting the right quality, quantity, price and time. This concept is now updated to obtaining better quality, suitable quantities, better prices and continuous improvement. The organization in order to achieve value for money, while selecting the suppliers should focus on 3 E’s which are, Economy- the focus should be on minimizing the overall cost of resources required for the car services. Efficiency – In order to achieve, efficiency all the tasks have to be performed in a right way such as choosing the right method of evaluating and selecting the suppliers and maintaining a smooth pick and drop services for the employees. Lastly, the focus should be on maintaining the overall effectiveness by ensuring the employees get high- quality car pick up and drop services at the best prices[CITATION DEP18 \l 1033 ].

Supplier evaluation

In this section, the evaluation of the suppliers of car services will be done with the help of weighted point methods, in which all the attributes are considered that are important for the overall performance of the supplier.[CITATION KRI14 \l 1033 ]. For this purpose, firstly, the criterion on which the evaluation will be done will be identified. The description of the criterion is given below:

1. Discounts offered –One of the first criteria for selecting the supplier includes the discounts that are offered by different car hiring services for the rides.

2. Price –The overall price of the car services should be optimum so that none of the parties is at loss. The pricing of the supplier 1 for the car hire services will include base fees that will be offered by the organization to the suppliers. The base fees for the car hiring services will be 9,50,0000 AUD. The base fees will also include the contribution of employees of 1000AUD every month. The total cost of ownership will also be included in the overall pricing of the company that is 308000 AUD.

3. Distance of pick and drop spots -The distance of pick and drop spots indicates the distance that the employees have to cover to avail the car services. This distance should be short as much as possible. This can be achieved by increasing the number of spots. The historical analysis of the car usage indicates that highest number of cars has been used in Melbourne and Port Hedland and therefore, the number of pick and drops in these regions should be more.

4. Presence of online Travel Management System –The car hiring services should have an online travel management system so that the rides of the employees can be managed and tracked effectively.

5. Authorized car hires –All the car hiring service companies should be authorized in the Travel Management System.

6. Availability of refunds and cancellations -The hiring costs are high and dynamic in nature and therefore, the car hiring services companies should also offer the facility of cancellation and refunds.

7. Different types of cars –The car service providers should have different classes of cars.

8. Unlimited Km’s per day –The car service provider should also provide unlimited Km per day rather than limited Km’s

The above example shows the weighted attribute analysis of the three suppliers of the organization for the car services. For this purpose, each of the attribute is firstly assigned a weighed on the basis of their importance. The attribute of discounts offered has been assigned the highest weight (0.30). The score of the suppliers is multiplied by the weight assigned so as to obtain the rating of the suppliers. From the above analysis, it can be indicated that the supplier 1 is the effective supplier for the organization, because it has scored high on most of the important criteria. One of the most important advantages of weighted point method is that it helps the organization in including all the important attributes related with the supply. [CITATION Fer14 \l 1033 ]. The numerous evaluation factors help in evaluating the supplier effectively. This evaluation method helps in minimizing the subjective factors. This method however, has one of the major limitations that, it is difficult to take into account the qualitative evaluation criteria. [CITATION Abd14 \l 1033 ].

The selection of supplier for the organization is one of the proactive methods that include the multi- decision criteria based on the needs and issues of the organization. The supplier evaluation and selection process is judicious and directly affects the success or failure of the organization. In order to survive in the dynamic and volatile market, the organization should choose the method that helps in solving the issues or fulfilling the needs. The quality, cost, services and delivery are the major criteria that can be used for the evaluation and selection of the suppliers for the organization. The criteria for the supplier evaluation and selection can vary from one organization to another.

Contract Management

Contract management can be defined as the process of creating the contract, executing the contract along with analyzing the contract so as to maximize both the financial and operational performance.[CITATION Gly12 \l 1033 ].The contract management also helps in reducing the financial risks and encounter the pressure to improve the overall performance of the company and reduce the overall cost of the organization[CITATION Con14 \l 1033 ].The contract management can also be referred to as theContract Lifecycle Management i.e. the management of contract from the customers, employees and the partners [CITATION MER13 \l 1033 ]. Contract management is important for the organization in context of purchasing the car hire services from a particular supplier because of the following reasons:

The organization firstly has the pressure to reduce the cost of organization along with improving the operational and financial performance. Organizations across the world are providing different types of facilities that can help in improving the efficiency and satisfaction of the employees. For this purpose, the organization is providing the travelling services to its employees. This service will help in commuting the employees from one region to another in Australia. Globalization, complexity and increase in the contract volumes have led to increased recognition of the contract management. There is a need for the organization to improve the overall contractual process so that the travelling needs of the employees can be addressed effectively in a cost -effective manner.[CITATION CHE12 \l 1033 ].

The document below provides the contract management plan for the organization for purchasing the car hire services from the chosen supplier. This contract management plan consists of different components that have to be essentially considered by the organization for purchasing the car hire services. However, the list discussed below is not all-inclusive.

Introduction

This particular document describes that how the contract between the ABC organization and the supplier 1 for the supply of car hiring services will be managed.

The major objectives of this contract management plan are as follows:

1. To define the responsibilities of organization and the supplier of car hiring services.

2. To clearly define the levels of services offered by the car hire services to the employees.

3.  To define the measures of KPI’s for the performance of the suppliers.

1. Document owner: The owner of this document is the contract manager of the ABC Company.

2. Document review:The document will be reviewed by the contract manager of the ABC Company.

3. Document changes: The contract manager of the ABC organization is responsible for making the changes in contract along with recording the same.

4.  Document use: This document does not replace the contract(s). It is the primary reference document in the routine management of goods/services provided by the supplier to the organisation [CITATION Kib14 \l 1033 ].

Scopeof goods/services

The ABC organization has contacted the supplier- 1 to provide the services of car hiring for the employees of the organization to travel across Australia

The table given below describesthat howthe contract will be managed with the Supplier 1.

This CMP describes how the following contract(s) will be managed:

The scope of the activities performed by the supplier-1 is discussed below:

The provision of Supplier -1 is to provide the car hiring services to the employees of ABC organization along with managing their travel within Australia. The supplier-1 has the provision to use the technology such as the online travel management system that will store all the information about the rides along with booking the rides. Further, the supplier-1 also has the provision to improve their pick up and drop services and increase the satisfaction of employees and the requirements of the organization. The supplier 1 also has to manage the relationships that have a direct impact on the car service delivery. Lastly, the supplier also has to provide and maintain the billing information[CITATION Yeg18 \l 1033 ].

Relationship structure

Key contact information

The table below presents the contact information of the people who are associated with the contract.

The contact information of responsible persons associated with this contract is listed below.

Roles and responsibilities

The roles and responsibilities of the managers in the ABC are described below:

1. Responsible: The contract manager is responsible for the management of the contract

2. Accountable: The human resource managers and the service department managers.

3. Consulted: Senior management

4. Informed: Employees

Communication plan

This particular section focuses on the plan of internal communication for the supplier and ABC organization.

1. The Stakeholders will be informed about the care services provided by the developing organization to its employees with the help of e-mails and open house meetings. The open house meeting will be used to clear the doubts and queries of the people regarding the same.

Supplier

The above stakeholder analysis can be indicated to determine the power and influence of the stakeholders involved in the contract management of ABC organization. The matrix indicates that the stakeholders will be informed and engaged on the basis of their power and influence.[ CITATION Kiv11 \l 1033 ]

The stakeholders of the ABC organization should have to contact to manager of service department for giving the feedback about the car services or ask the queries [CITATION Ben14 \l 1033 ].

Meetings

This section will discuss the major aspects of the meetings that will be conducted with the suppliers and the organization.

This section contains a summary of the purpose, attendees, frequency and format of various contract meetings. The meetings proposed below are a guide to the types of meetings that one might arrange to manage the contract. Adjust the table as needed.

Table 6: Meeting schedule

Key Performance Indicators (KPIs)
Objectives

The major objectives behind the formulation of KPI’ in ABC organization are as follows:

1. To document and manage performance of car suppliers and the drivers of ABC company

2. To improve the service that is provided by the car hire services.

3. To set the goals for the suppliers and encourage them to meet the KPI’s

4. To provide a mechanism for awarding the bonuses to the supplier for a satisfactory service

Contract KPIs

The KPIs specified in the contract(s) are listed on the following pages. Each table contains:

Table 8: KPIs

KPI reporting

The KPI report will be created for the supplier of car hire services with the help of data obtained from the travel management system[CITATION Hei16 \l 1033 ]. The report will clearly highlight the failures of the supplier in providing the effective services to employees of ABC organization. The report will also use the KPI score measured by the service and contract managers. The KPI reporting will provide the actual record of the supplier 1 in context of managing the rides of the employees successfully.

The areas related to the service issue will be identified such as the failure of the driver to pick and drop the employees on time, bad behaviour of the drivers with the employees and ride cancellations from the end of drivers. Further, the reporting will also focus on minimizing the impact of supplier’s services on the employees of ABC, particularly, in the event of service failure. For example: the supplier and contract manager may agree to send another car at the spot of employees. The planning will also be done for preventing the future occurrences of service failures in the organization[CITATION And161 \l 1033 ]. Additional actions will be discussed along with deciding the value- added services that will be offered by the supplier 1. Escalations will be done internally by the service and contract manager.

Customer satisfaction

The customers in the case of ABC are its employees who are availing the travel services offered by the supplier 1 to ABC organization. The customer satisfaction is one of the most important aspects that help in determining the success or failure of the supplier 1. The review of customer satisfaction is one of the parts of the supplier review performance[CITATION God16 \l 1033 ]. The customer satisfaction of the employees will be measured with the help of quantitative scales in the questionnaire form. [CITATION Rep12 \l 1033 ]. The responses of the respondents will be kept confidential along with maintaining their anonymity[CITATION Ras16 \l 1033 ]. In addition, the supplier can also collect the feedback of the employees using the travel management system. This data will help in obtaining the real time data of the level of customer satisfaction with the car services[CITATION Mos15 \l 1033 ].

Contract term and extension options

This particular contract is between the ABC organization and the supplier 1 for an initial period of 1 year.

This contract has the extension option for the supplier 1 from 2-4 years. The evaluation for extension of the contract with the supplier 1 will be done 6 months before the expiry of the contract. The contract management plan will grant the extensions of contract only after the re testing of the market because of increased competition, entrance of new players etc.

Contract variation

The process of contract variation will help ABC organization to asses all the variations that have been made in the contract. [CITATION Ste17 \l 1033 ]. The variations should be analyzed on the basis of historical performance of the car hire services, the business needs and the overall impact of the car services on the employees of ABC. The contract variations should also be analyzed on the basis of price and the KPI. The contract manager of the ABC organization will be responsible for approving the variation made in the contract by seeking the approval of senior management. [CITATION Jos14 \l 1033 ].

Contract variation process

This section of the contract management plan focuses on the variations that have been made in the contract regarding the share passes offered to the employees of ABC.

The table below will describe the variation made along with the status, date of rejection /approval along with the additional comments.The following table lists all the agreed / in progress contract variations

It is the responsibility of the contract manger of the ABC organization to regularly review the contract management plan along with ensuring that the services of suppliers are improving[CITATION Jan13 \l 1033 ].

Conclusion

The above report presents a detailed discussion of the two major aspects that ABC needs to consider while selecting the supplier and maintaining long run relationships with the supplier of the car services. The evaluation of the suppliers has been done with the help of average weighted method. For this purpose, certain important criteria have been determined. Further, the contract management plan developed for the ABC organization includes all the elements that are essential for a long- term conflict free relationship between the suppliers and the organization[CITATION She151 \l 1033 ]. With the changes in the business environment and the increased number of suppliers in the market, the focus of ABC organization should be on using the other methods of evaluation of suppliers such as the categorical method or the Analytical Hierarchical process (AHP). The process of contract management can also be integrated with the technology so as to eliminate all the manual errors and make the process efficient [CITATION ess12 \l 1033 ].

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