Supplier evaluation

Supplier evaluation is a term used in business and refers to the process of evaluating and approving potential suppliers by quantitative assessment. The purpose of supplier evaluation is to ensure a portfolio of best in class suppliers is available for use.[1] Supplier evaluation is also a process applied to current suppliers in order to measure and monitor their performance for the purposes of reducing costs, mitigating risk and driving continuous improvement.[2]

Process

Supplier evaluation and take-on is a continual process within purchasing departments[3] and forms part of the pre-qualification step within the purchasing process, although in many organizations it includes the participation and input of other departments and stakeholders. Most experts or firms experienced in collecting supplier evaluation information prefer doing so using five-step processes for determining which to approve.[4][5][6] Their processes often take the form of either a questionnaire or interview, sometimes even a site visit, and includes appraisals of various aspects of the supplier's business including capacity, financials, quality assurance, organizational structure and processes and performance.[7] Based on the information obtained via the evaluation, a supplier is scored and either approved or not approved as one from whom to procure materials or services. In many organizations, there is an approved supplier list (ASL) to which a qualified supplier is then added. If rejected the supplier is generally not made available to the assessing company's procurement team. Once approved, a supplier may be reevaluated on a periodic, often annual, basis.[8] The ongoing process is defined as supplier performance management.

Benefits and drawbacks

There are various benefits associated with an effective supplier evaluation process such as mitigation against poor supplier performance or performance failures. The benefits typically include sourcing from suppliers that provide high standards of product and service levels whilst offering sufficient capacity and business stability. Supplier evaluation can help customers and suppliers identify and remove hidden cost drivers in the supply chain. The process of evaluating performance can motivate suppliers to improve their performance.

There are several other challenges according to the supplier evaluation.

To mitigate this, large corporations has a dedicated department (Procurement Department) performing cost-benefit analysis to evaluate if the company should engage the vendor or perform the task in-house. Such department can take a considerable amount of resource, thus management's commitment and support of a supplier evaluation process is essential.

Tools

Some of the challenges associated with supplier evaluation may be mitigated by the use of appropriate tools. For simple projects a spreadsheet can be used. But as evaluations become more complex or more frequent data management and data integrity issues become significant. Web Electronic RFP / Tendering systems are often used for initial selection projects. Some products provide functionality for combining both initial selection and ongoing evaluation and benchmarking.

Wider, within established procurement teaching, the Carter 10Cs model is an internationally recognised approach. This model looks at aspects which should be evaluated before contracting and as part of the ongoing supplier performance appraisal. The Cs are:

  • Capacity (Does the organization have the capacity to deliver the order)
  • Competency (Is the organization, its people or its process competent)
  • Consistency (Does the organization produce a consistent output)
  • Control of process (Can the organization control its process and offer flexibility)
  • Commitment to Quality (Does the organization effectively monitor and manage quality)
  • Cash (Has the organization got a strong enough financial base)
  • Cost (Is the product or service offered at a competitive price)
  • Culture (Are the supplier and buyer cultures compatible)
  • Clean (is the organization ethical, funded legitimately, doesn't engage Child labor, etc.)
  • Communication efficiency (Does the organisation have support technology of information integration)to support collaboration and co-ordination in the supply chain.

Other metrics that organizations increasingly starts to measure vendor includes: conformance to the government regulations, usability, cultural fit and CEO approval rating.[9] These metrics are placed into a table and weighted according to how importance is that metric to the organization.

For related topic: Procurement software

References

  1. ↑ Purchasing Performance: Measuring, Marketing, and Selling the Purchasing ... By Derek Roylance
  2. ↑ Sherry R. Gordon (2008). Supplier evaluation and performance excellence: a guide to meaningful metrics and successful results. J. Ross Publishing. p. 232. ISBN 978-1-932159-80-6.
  3. ↑ Purchasing Principles and Management By Peter Baily
  4. ↑ Robert M. Monczka, Robert B. Handfield, Larry Giunipero (2008). Purchasing and Supply Chain Management. Cengage Learning. p. 810. ISBN 978-0-324-38134-4.
  5. ↑ "An Investigation on the relationship for supplier performance metrics and supply chain strategies" (PDF). Singapore Institute of Manufacturing Technology. Retrieved 2011-03-21.
  6. ↑ Juhnyoung Lee (2006). Data engineering issues in e-commerce and services. Springer. p. 290. ISBN 978-3-540-35440-6.
  7. ↑ » Using effective supplier appraisal techniques to improve the supply chain. - Strategy squared
  8. ↑ Retail Product Management: Buying and Merchandising By Rosemary Varley
  9. ↑ UpGuard. "Why CEO Approval Ratings Matter for Risk Assessments". Retrieved 2017-07-27.
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