Methods for dispassionately narrowing your supplier list.

What is value for money? Tricky question. It can mean so many different things to different people, and is often irrational, and the circumstances surrounding perceived value could also depend on personal or group philosophies.

When she lived in the UK, my daughter used to buy cheap clothes for nightclubs or bars. She had a “use once and throw away” mentality, partly because the clothes were cheap enough to be of no concern if damaged by cigarettes or wine spills, but also because of her perceived market awareness. She was unlikely to go to any event and see the same outfit on someone else. She has now matured beyond regular clubbing and needs clothes with a bit more durability; hence, she is prepared to pay more.

So, we have established that very low cost has its place in every market, but must never be the only controlling factor. Within companies, the cheapest solution may not provide enduring results, but a strategic cheap buy for a particular need may have some sense. Consequently, one cannot say, “always buy cheap” or “always buy expensive” because requirements may differ from time to time. One does, however, need a stable, qualitative method for determining the correct purchase for the current need.

I have banged the drum of user requirement specifications often and loudly, and you probably do not need a repeat prescription – not just yet anyway. Suffice it to say that a good URS will put you in good stead when sorting out rival suppliers. There is, however, a complimentary method of assessing equipment, or indeed anything that may be purchased.

Let’s assume you have done the job correctly from the outset and written a good URS. Now you have the problem of assessing the rivals who will all faithfully tell you their product is the best thing since sliced bread. It probably is the best thing for the correct circumstances, but you have to decide what those circumstances are.

The first piece of advice I can offer is be dispassionate. Many a purchase has been made in which the heart ruled the head. Sometimes the heart was lucky and the result turned out OK. But, sadly, there have also been occasions when the head should have won, and a better solution would have been found. I won’t point fingers at anyone in particular, but it never ceases to amaze how easy it is to conduct a solid procedure and then waste all the good work with a bizarre decision.

Back to cheap versus expensive. Clearly, all financial groups – be they internal to a company or outside advisors – will say to go for the lowest cost option to keep the balance sheets healthy. The more worldly ones will also be prepared to consider higher cost options if the justification is good. Even the most expensive solution to a problem can be the most effective when the total return on investment is measured over the expected life of the purchase. But, the tendency is to go for cheap options at present, mainly because there are so many available. (By the way, I am not employed by an equipment supplier!)

The “use once and toss” philosophy beloved by my daughter does not really apply to industry, although the price reduction of many pieces of equipment might lead one to think otherwise. There is still a world of difference between spending $4 or $5 on a blouse and, say, $55,000 on a soldering machine. Do we run the soldering machine for a year and then discard it? I think not. It all comes back to perceived value for money for the project in hand.

Let us have a quick look at the equipment selection methodology in its basic form. (Workshops have been presented on this subject and can last hours, so I do not propose to dwell on the details.)

For any given project, there may be as many as 20 possible suppliers that could sell a solution. Depending on the scale and importance of the project to its owners, it could be handled by a single internal project manager or might be big enough to justify a team. The team, just like any other team for project work (such as NPI, see my May 2007 column), must be built from key members of the company operating structure. Figure 1 is a typical team approach, but it is not the only way. Members must be chosen for their relevance and competence.

The core team leader is the project manager and will champion the cause of the project to its end.

Whether a team or an individual is right will depend on the project size and scope, but there will be a steady and strong level of work required. For example, trawling through enormous amounts of Internet data just to find the likely suppliers can take a long time. Having found a set of possible suppliers then requires a serious system of checking abilities. These tasks may be more than one individual can handle.

One can run through all the published specifications and compare basic supplier literature to get to a trial list of “possibles” and “no-hopes.” If there are only two or three possible suppliers for something, then the “no-hope” list might never exist. At least by the end of this part of the exercise you should have some suppliers that are reasonably good bets to supply close to what is wanted. But which one gives you your optimum requirements? You need the dispassionate, facts-only approach and to generate a list of criteria most important to you. Supplier A may offer thousands of “nice to haves,” but if they do nothing for your criteria list, it’s wasted time. Once you have the criteria to your satisfaction, you can start comparing weightings with the suppliers’ scores for each of your important criteria. You will end up with a few, hopefully two or three, suppliers that press all the right buttons and seem similar.

If they have identical scores, you may need to revisit the criteria list with a more critical eye. It may be that an item you considered important is not, in fact, after all, and weightings can be changed accordingly. The goal is to end up with one supplier that appears to be the best. But do not stop there. If the item being considered is made in quantity, for example an AOI or a conveyor system, then the supplier will usually be happy with an onsite trial; it is a good idea to ask the top three to put their products on your shop floor for a short period to prove your criteria were correct and choice of supplier founded. If the item is specific to your factory and requirements, and is a one-off, you cannot ask the supplier to build a trial model just to prove your point.

If you have used the system properly, the optimum supplier will emerge and the risks will be very low. The “put a machine on trial” approach is really belt-and-braces and is aimed at confidence building, versus informing those on the selection team.

Would my daughter have gone to this trouble? Certainly not. Her world is not industrial, and the product cost was low enough for a mistake not to have devastating impact. Even today’s low-cost equipment needs to be evaluated sensibly; the foregoing is just an idea of how to proceed.

Peter Grundy is director of P G Engineering (Sussex) Ltd. and ITM Consulting (itmconsulting.org); peter.grundy2@btinternet.com. His column appears bimonthly.