The selection of a new supplier can be an arduous process, and the importance of the decision is inarguable. Changing suppliers when continuous improvement recommendations fail to succeed most surely will result in high switching costs. Ultimately, the decision is worth careful evaluation, which makes a grid analysis a useful and easy tool to use.< In addition to objective evaluation, using a grid analysis is an excellent opportunity to incorporate brainstorming to consider the importance of various factors that have an effect on the decision. This step is particularly important to the outcome of the process.
The grid analysis itself becomes less useful when factors are weighted incorrectly or excluded altogether. For the tool to work, the quality of what goes in (information) will directly affect the quality of what comes out (supplier selection).
Affinity diagrams are a complementary tool to incorporate if the objective is to pull information together and sort into primary groups. Use sticky notes to write down brainstormed ideas. Sort the notes into identified broader groups. These become the grid analysis factors.
As an example, consider three suppliers who are selected for closer examination. Originally, assume a larger number of candidates were reviewed using general questionnaires covering the most relevant and basic requirements. Through an individual or group review process, three are chosen for closer evaluation.
Initial supplier audits are performed on each of the three using applicable standards and/or guidelines. If ISO or other requirements do not exist, there are general systems audit reviews that can be conducted. The idea is that consistent comparative information is available on the final three. It should be noted that this is often an overwhelming amount of information.
The issue then presents itself as the human tendency to focus on one factor that may skew the overall evaluation. In supplier selection, it is easy to focus on the short-term to meet current objectives and go with the low-cost provider but long-term thinking has us also consider failure cost and the maintenance of the overall supplier partnership. The result is not positive when shipment delays, increased resource requirements and ultimately customer value are affected. To avoid this, use the grid analysis to back up the decision process.
Consider a brainstorming session where the same three suppliers were evaluated using the supplier audits or other method of consistent and objective observation. Factors that may be considered relevant in this example may include:
Cost – Initial quotations and negotiations are not always representative of future costs. However, this is certainly an important competitive advantage if that’s the desired positioning. Contractual commitments should be discussed to avoid incremental increases.
Quality/Standards – Depending on the industry, specific supplier audits may be required. If the organization requires ISO or other certifications, audit reports are a useful snapshot of the supplier’s strengths and weaknesses in specific areas. This should incorporate management as well.
Location – The geographic component of supplier selection not only affects cost but it can also be required for certain products.
Shipment Expectations – The quotation and audit reports should include enough information to reasonably determine how well the supplier complements your existing demand schedules.
Expansion Capabilities – Long-term strategy will require that any supplier partnership considered important during the expansion plans of the organization should not be overlooked.
Grid analysis can be done in two ways, with or without weights. If the assumption is that each factor decided on is equal in importance, go through each supplier and provide a rating for each factor based on all information available. Do this for each of the three and total each row. Scale each choice from 0 (poor) to 5 or 10 (great), and you don’t have to use different ratings for each one. Assign each factor and supplier the rating it deserves based on all of the available information.
The rating scale used here is 1 (poor) to 5 (very good).
For most situations, we know that all factors are not equal in importance. That being true, a grid analysis can adapt to placing weights of importance on each factor. To do this, multiply out the factors for more accurate results. Weights may include something that is not important at all, which may have no value assigned, or something that is very important that may be assigned a weight of 5 or 10. If a factor is determined to be twice as important than others, assign it a weight of 2.
Weighted Individual Example:
Grid analysis can also incorporate team decision-making and offers useful comparative perspective as well. If everyone on a team completes the grid analysis process individually, take the final score of each supplier from each team member and add them together. Divide that number by the number of team members. Do this for each supplier.
A grid analysis is great for almost any decision-making situation where you want to objectively compare multiple options. It also complements many other decision-making tools as well.
Note: The views expressed in this article are those of the author and do not necessarily represent those of his or her employer, GxP Lifeline, its editor or MasterControl Inc.