Thus there are some definite commonalities between selection and evaluation

Thus there are some definite commonalities between

This preview shows page 17 - 19 out of 21 pages.

purposes, which may be closely related to driving supplier improvements. Thus, there are some definite commonalities between selection- and evaluation- focused TCO approaches. The next section discusses how to give leverage to these synergies. Importance of a TCO model for both selection and evaluation While TCO is a philosophy that involves evaluating suppliers and purchases on a basis beyond price, in execution TCO is a model. TCO models provide a snapshot of supplier performance at a point in time. If historical data are limited or unavailable, as in the case of a potential new supplier, TCO provides data regarding expected performance, based on estimates and externally gathered information. Thus, regardless of whether it is cost based or value based, selection focused or evaluation focused, TCO is an evaluative tool. Using total cost of ownership to select a supplier can be compared to interviewing a prospective employee. The interviewer knows what the organization is seeking in terms of qualifications and what the job duties are. The post should be filled with the best available candidate. Likewise, in performing a TCO analysis for supplier selection, the supplier’s qualifications, in terms of cost elements, are determined. The firm knows how the supplier will be required to perform to meet the firm’s needs. Thus, the best supplier is selected based on the right combination of low TCO and ability to perform additional “duties”, such as special delivery requirements, lead times, and so on. In order to understand and improve on performance, an employee requires feedback. After an employee has been working for an organization for a certain period of time, she or he usually receives a performance appraisal. This gives the employee performance feedback regarding strengths and areas to improve
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IJPDLM 25,8 20 on. An appraisal also verifies whether the hiring decision was a good one. Performance appraisals continue throughout the employee’s career, to ensure that she or he is still doing well and supporting the company’s goals. If the employee is not performing, improvement tactics are implemented, or the relationship is terminated. Likewise, a firm should continue to evaluate suppliers on an ongoing basis. As discussed in the transaction cost analysis literature, the potential for supplier opportunism exists; thus ongoing evaluation of the relationship is required[27]. The firm invested time and effort in choosing the right supplier. Does it not make sense to verify whether the supplier is meeting expectations? Might it not be valuable to give the supplier feedback regarding strengths and areas for improvement? Might it not also be wise to keep the supplier informed of the firm’s goals and expectations, and of how the firm perceives the supplier to be performing against those goals and expectations? How can the supplier be expected to improve without such dialogue? Generally, unless priorities have changed, the supplier should be evaluated based on the same criteria that were considered when the supplier was selected. If that is not the case, the supplier selection model is not looking at the “right things” initially. The two
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