Supplier Evaluation - How To Evaluate Your Suppliers
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In case you don't have time to read the whole article, here is a short video summary that contains the key points:
Most organizations tend to leave supplier management to chance, meaning they have no idea how their suppliers are performing and whether they are profitable or at risk.
But what isn’t measured cannot be improved. And awarding additional business based on suppliers meeting performance goals can bring dramatic results.
There are 2 main reasons you should perform supplier evaluation:
For existing suppliers, it can help you uncover and remove hidden waste and costs and achieve sustainable procurement;
For new suppliers, it can set a threshold that can lead to higher-quality results.
When organizations have a good understanding of their suppliers’ capabilities and performance levels, they can better plan new products and services. But before we go deeper into why and how to perform supplier evaluation, let’s first define what it means.
What is supplier evaluation?
Supplier evaluation is the process of assessing and approving potential suppliers through quantitative and qualitative assessments. This is done to ensure you only work with the best-in-class suppliers available.
The same process can also be applied to current suppliers to measure and monitor their performance to reduce costs, mitigate risk, and drive continuous improvement.
There are several ways you can carry out a supplier assessment - questionnaires, scorecards, site visits, and third-party standard certifications. Or you could use a supplier management platform like Prokuria.
The most important thing you should remember is that you should perform a supplier evaluation regularly (at least 2 times a year, but best-in-class organizations perform an evaluation every 3 months). Each time, you should check whether your suppliers get better scores than they previously got.
How do you evaluate a supplier?
Every organization is different. So, to ensure you’re evaluating suppliers as fair as possible, you must first determine what matters most to you. What are you looking for in a business partner? Quality products? A good relationship with you?
Once you write that down (using a supplier scorecard), it will be easier to decide which suppliers meet your criteria and which don’t.
Here’s what we think you should consider:
Fairness: when negotiating, do your suppliers abide by the highest standards of ethical business practices? Do they display fair play behavior to all stakeholders, including their own customers, employees, suppliers, and community?
Customer focus: are they dedicated to anticipating and meeting the expectations and requirements of your customers? A good business partner should have a thorough understanding of market trends and opportunities and act in your best interest.
Team spirit: do they value diversity? Do they advocate for trust, respect, mutual commitment, and boundaryless thinking?
Business approach: do their business objectives align with yours? Do they leverage their expertise to grow both their business and yours?
How to evaluate supplier performance template
Even though the information we described above is important, it’s not easily quantifiable - it’s more helpful for establishing a good business relationship with suppliers.
For a more objective approach, here’s a template of what criteria to use for supplier evaluation:
Compliance to specifications
Meets specification requirements
Policy and practice
Systems to measure customer satisfaction
Backup and advice
Quality of deliverables
Availability of experienced staff
Experience in the industry
State of technology
Experience in the industry
Does the supplier satisfy key financial ratios for the industry?
Can the supplier provide full financial disclosure?
Risk and insurance
Allocate and acceptance of risk
Complies to the terms and conditions
Conflict of interest (existing, potential, or perceived)
Legal proceedings related to contractual issues (past or present)
The total cost of ownership
Ability to propose an innovative financial approach (gain-sharing, etc.)
Price breaks and quantity discounts
Satisfies best value analysis
Lease vs. Buy
Net present value analysis
Payment methods (i.e., EDI, etc.)
How to perform supplier evaluation with Prokuria
The template above enables you to perform an extensive analysis of your suppliers. However, to compare the results, you’ll need appropriate tools - if you have hundreds of suppliers, it would be almost impossible to perform supplier evaluation in an Excel spreadsheet.
Fill in the “Score” column by entering a valid number in each cell that reflects the number of points awarded for each criterion;
A final score will be calculated for each supplier, based on the weight each criterion holds;
You can then export your scorecard as an Excel file and save it for future comparisons.