A General Purpose Pragmatic Vendor Selection Framework


With the increasing competition worldwide the bottom line of the firm strategy to make earnings in order to go towards expansion. Buyers contentment, pleasure, excellence of the products, superiority and safeguarding are the universal matter that manoeuvre all business associations that include profit or non-profit organizations, outsized or undersized organization, international or local companies (Hirakubo, 1998).

The reason why so much importance is given to vendor selection means to acquire excellent quality goods or/and services at the lowest possible cost. Lower cost and greater efficient production is the main element of procurement. As the businesses are getting extremely aggressive day by day, the imperative importance of the procurement is recognized by customers, vendors, manufacturers and all other stakeholders concerned the delivery of goods from customers customers to suppliers suppliers so this activity of supply chain is receiving more recognized as an essential part of organizations. (Cragg,2002).

The main concern for the manufacturing firms is to give the importance to the Vendor selection criteria as this is also considered as essential process in the purchasing process from the viewpoint of supply chain department. The primary responsibility of the purchasing department or the purchasing officer is to identify the best Vendor for the required Raw material from the best vendor offering who is offering the best terms. (Quesada, 2008).

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There are basically three types of Vendors; Vendors who are located in the same country to manufacture the raw material and supply only to local Industry. Second types of vendors are those the raw material who procure from different origins and from different manufacturers and then supply that ram materials to different manufacturing units who then further adds value to transform that into finished goods. This kind of vendors basically works as an agent and middle man in between the importers and the manufacturers. Third types of vendors are those who are located in different countries and companies directly approaches to them for their sourcing purpose. (Muralidharan, 2001).

Good vendors are considered as important assets of the organization as they contribute in achievement of companies overall objective.The relationship and the development of trust is of vital importance in order to get the desirable outcomes in terms of Service delivery, quality of the product, value added services and easy and relaxed payment terms.(Shen-Tsu Wang, Chih-Ming Liu and Ming-Hao Yeh, February 2008).

The studies of vendor selection depicts that the buyers consider multiple criteria when they are evaluating the vendors. The criteria important for the selection of vendor is expected to vary by the type of product, nature of the purchase being made and number of vendors available in the market and to be selected out of those. (Dickson, 1996; Dempsey '1978).

One other reason for considering the vendor selection process because most of the firms contribute 40 to 60% unit cost of the product this figure vary industry to industry but its contribution to the final product is always significant. (Corey , 1996).

The other crieteria which drives the selection choice are found "ability to meet quality standards" ,ability to deliver the raw material on time", and "performance history". Dickson concluded that the buyer decision is influenced by the nature of the purchase being made and, therefore, a single list of criteria could not be universally applied across industries. That is why the firms use multiple criteria when choosing the vendor. (Dickson, 1996; Dempsey '1978).

Manufacturing companies ranks quality of material and the services as one of the most important factor which drive the buyers selection choice when ever making the final decision before the concerned department involved in a purchasing process after the consideration of the price of that of the product because price is also one of the most important factor which affects choice of vendor selection. (John Asker and Estelle Cantillon, 2008).

The Most exigent role for the industrialist is to select the most apposite vendor. The selection of vendors now a days have become the part of the strategic decision and it is given more importance now a days. (John Asker and Estelle Cantillon, 2008).

Most of the companies tend to go for the multiple vendors, the main reason for going on with the multiple vendor strategy is to increase the competition between the vendors and decrease the dependency on one vendor which enables the buying firms to dictate their terms in more strong manner which are for e.g. better delivery timings, appropriate and better quality product plus buying firms ensures the best compensation and insurance in case of late delivery. (John, 2008).

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According to (Fiortio1990) The task for the firm of selecting the vendor becomes more complicated when selecting the overseas vendor because doing their evaluation as compared to when selecting the local vendor is much more easier since the local vendors picture is more apparent and the buying firms could give personal visits to the vendors organization in order to keep the quality checks, moreover selecting the local firm gives the buyer firms the ease of changing the orders on frequent basis if such need arises. (Fiortio1990)

The methodical search of overseas buyers is nearly impossible and the uncertainty on the buying situation has been found to generate inclined decision making and use of prejudice. Buyers while selecting the overseas buyer go for Stereotyping in order to simplify the factors on which their selection decision is based. (Liang and Parkhe 1997).

The Location of vendor is also one of the major factors which becomes the part of consideration when selecting the vendor. The proper evaluation of vendor's countries stability should also be taken into account while selecting the vendor (Bossert 1998).

The preferences that customers gave to the location of vendor have an effect on the process of vendor selection. It is much more easier decision to choose local vendors as compared to when going for the vendors who are located in other countries. (Hirakubo, 1998).

The selection for both international and domestic vendors involves sets of decision criteria (Hirakubo, 1998).

Timely delivery with the right quantity is regard as an imperative factor in vendor selection criteria when considering vendors from different import. Due to this reason that there is a use of technology in procurement process as a strategy has a momentous advantage to achieve cost efficiency, quality, and delivery targets. Capabilities of vendors is calculated and developed by this way. Production process can be enhanced by plummeting lead times and lot sizes, quality and cost competence, improving planning process correlated with the forecasting, inventory strategies and production schedule (Aghion, 1997).

The factors which drives the choice of vendor also depends on the nature of the material which is being purchased. The significant factor for food industry to which the buying firm will give the priority is delivery time, quality of the raw material and the cost of raw material. These factors vary business to business and industry to industry.(W Richard Goe 1998)

The selection of international Vendor is very crucial process since there is lot of competition in the global world all the firms offers more or less the same terms in the beginning and the buyer have no confidence and are reluctant whom to choose out of the available vendors because their this decision has a long lasting impact on the performance of the buying company and to over come this uncertainty many companies have started partnering with their vendors who are also known as backward allies correct choice of vendor results as an important factor in company's success.[Hokey Min 1994].

Since the vendors have a significant contribution in the company's overall success firms, they have started considering vendors as important assets of the organization. The relationship between the vendor and the manufacturer is crucial in order obtain desirable outputs in terms of the production, value added services performance of the frim and payment schedule. It has also been seen in many instances where buying firms invest in their vendors who have expertise in their area but lack in competition due to financial instability. This is done when buying firms wants to eliminate the insatiability on being short of supply from supplier due to high dependency because buying firms investment into vendors it bound those vendors to become their exclusive suppliers. (Ackerman, 2001).

Successful procurement has significant features in vendor and manufacturer relationship in which capable Vendor can be placed as closer as feasible to the manufacturing plant that makes easier for the vendors to deliver goods more frequently in lesser and exact lot sizes as per the requirement of the buyer. (Croom, 2000).

The wrong Selection of International Vendor may result in increased material or input cost, inferior product quality, production delays, production breakdowns, Variation in quality of final products are some of the important factors which might result in companies success, because in industries like FMCGS and pharmaceutical has a substantial value in procurement because their final product have an impact on the health of the consumers and variation in quality of the final product could harm the brand and company image . The international vendor selection takes into account all necessary factors which affect the companies performance positively in terms of procurement, distribution timely delivery product quality and delivery timings(John, 2008).

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The Financial criterion is also considered as one of the important factor which affects the buyer's choice for selecting the vendor in terms of cost minimization and profit maximization. When ever the buying firm is going for overseas vendor its basic objective is get the optimum quality products at minimum cost in order to minimize its cost because the cost purchasing raw material includes the important part of the total purchasing cost. That is why firms tends to find the vendors with less low cost vendors they can minimize the costs of transportation, documentation, import duties are some of the cost which buyers undertake into consideration.(Hockey Min 1994)

Payment terms and freight terms also affect the vendor selection choice. The buying firm would be more inclined towards the vendor which would give more relaxation on payment and offers the best payment terms. .(Hockey Min 1994)

Quality Assurance:

The most important factor in overseas sourcing is the quality of the products because the companies success and reputation is dependent upon the quality of the product and the quality of the final product is influenced by the quality of input.[Minn and Galle's 1991]. The buying firm in order to prevent from getting the inferior quality of raw material should thoroughly analyze the potential of supplier and weather they follow the strict quality commitments or not. [Laske,1992]

International vendor selection is much more riskier when we compare it to the domestic vendor selection because the international vendor selection is affected by international risks of political instability, currency variation local price control inconvertibility of the currency are some of the most occurring risk which needs to considered when going for overseas vendor selection. The variation on any of the of the above mentioned factor will result in cost of procuring the raw material which will again affect the final price of the product. [Hokey Min 1994]

One of the major obstacles which buyers faced when going for overseas vendor is the transportation delays failure to get the on time delivery which results in production breakdowns. When choosing the appropriate supplier the buying firm should consider the strength of supplier and his past records for on time delivery. (Park et al., 1997)

The most challenging task for the manufacturer is to decide what, when, and how much to procure , other measure of purchasing is and the procedure to makes frequent quality quantity checks and to ensure that the specified goods are delivered on time (Cragg,2002).

The firms which are buying from the international buyers have to maintain the sufficient amount of stock in buffers in order to prevent itself from the production breakdowns in case of late delivery due to any risk or factor which are involved when trading from the overseas vendor, keeping the stock in buffer in order to avoid production breakdowns results in increase in cost in terms of maintaining the extra amount of inventory always available. . (Hockey Min 1994).

Buyer Supplier Relationship:

Large Number of organizations has started forming the strategic alliance with their backward allies (vendors) for mutual support which results in the sharing of the risk. In order to make this strategic partnership strong it is essential for Vendor to be financially stable. Since it is believed that the company's vendors has substantial contribution in the success of the company so it is important for the vendor firm to be financially stable in order to make relationship successful , weak financial position of the vendor company would have an adverse impact on the relationship and on the operations of the buying firm. This strategic alliance results in eliminating the differences and conflicts which may arise in either case because this relationship brings flexibility for considering each other's problems. (Hockey Min 1994).

Trade Restrictions:

The involvement of the Government is much higher in International trade as compared to the trade within the country. As the government of foreign countries work to attract the buyer from other countries In contrast the Government of the importing country tends to impose the certain trade barriers in order to discourage the import in the country to boost its economy by promoting its domestic industry. The reason behind imposing the trade barriers is to discourage the buying firms to import the raw materials from other countries so that the domestic industry is protected. The importing country must be very careful and consider the purchase price which tends to increase after the implementation of the tariff barriers inform of dumping duties before sourcing to any country. (Hockey Min 1994)

The appropriate selection of vendors help buying firm to develop the new products and process more frequently in cost efficient manner and provides it a competitive edge over their rival in terms of cost, differentiation coming up with new version of the products more frequently. (Goffin et al., 1997).




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