Selection of Source (Supplier)

‘Sourcing’ or ‘Selection of source/s’ is a major challenge for any Purchasing manager. Source of supply of required materials is basically selection of a suitable supplier. The Purchasing manager has to ensure, getting the material / service from the right source (one of 5 R). Once the Indent (also called requisition or Material Procurement Requisition/ MPR) is received in the Purchase department, the concerned dealing person scrutinizes it, in respect of:

• The complete specifications including drawings, if required
• Consumption pattern
• Stock in hand and dues in
• Budget availability
• Availability of all prescribed enclosures and certificates,
• Estimates
• Inspection guidelines, if any

On being fully satisfied that the next stage activities i.e. sourcing is now called for, the mode of selection of source, often called mode of tendering is decided. In many firms, if the number of items is not large then the sources are known and on the basis of suppliers record the Purchase order can be placed.

However, in government firms where opportunities are supposed to be given to any eligible supplier, tendering is resorted to. Tendering is a process by which a potential source is contacted through a notice called Notice Inviting Tender (NIT).

The NIT contains the details of material / service required, the terms and conditions applicable for entering into an agreement with the seller, offers made in response to NIT by the probable seller (Bidder), for finally reaching the point of agreement between the selected bidder and the buyer.

Cost of Money

Cost of Money is calculated by multiplying the applicable currency interest rate multiplied by the amount of money paid prior to the receipt of GOODS. If the money were to have remained in the Buyer’s account, interest would be drawn. That interest is essentially an additional cost associated with such Progress or Milestone payments.

Manufacturing Location

The manufacturing location is taken into consideration during the evaluation stage primarily to calculate freight costs and regional issues which may be considered. For instance, in Europe in is common for factories to close during the month of August for summer holiday. Labor agreements may also be taken into consideration and may be drawn into the evaluation if the particular region is known to frequent labor unions.

Manufacturing Lead

Time – the manufacturing lead-time is the time from the placement of the order (or time final drawings are submitted by the Buyer to the Seller) until the goods are manufactured and prepared for delivery. Lead-times vary by commodity and can range from several days to years.

Transportation Time

Transportation time is evaluated while comparing the delivery of goods to the Buyer’s required use-date. If Goods are shipped from a remote port, with infrequent vessel transportation, the transportation time could exceed the schedule an adjustment would need to be made.

Delivery Charges: The charge for the Goods to be delivered to a stated point. Bid Validity Packing Bid Adjustments Terms and Conditions Seller’s Services Standards Organizations Financial Review Payment Currency Risk Analysis – market volatility, financial stress within the bidders testing.