The concept of Supplier Evaluation can be defined as the process of assessing and approving the potential line of suppliers of the company through various quantitative and qualitative evaluation measures. The main and vital purpose of the process is to ensure that the portfolio of the top notch suppliers is available at the disposal for the company.
Importance of Supplier Evaluation :
The overall process and approach of the Supplier Evaluation are usually applied to the current set suppliers to measure and monitor their performance for the purposes of reducing costs of the goods required on the regular basis, mitigating the chances of risk involved, and driving continuous improvement in their performance.
The process lays utmost importance in the current scenario of global purchasing methods and every organization especially manufacturing the ones into the manufacturing operations needs to have an evaluation matrix or model in place.
Companies that regularly evaluate the performance of their suppliers find that they have better visibility into supplier performance, remove hidden costs, reduce risk, get a competitive advantage by reducing order cycle times and inventory, gain insight on how to elevate on their supply base, and align practices between the company management and the suppliers.
Benefits of Supplier Evaluation process :
1) Increase performance visibility
When companies have no or little knowledge on how their suppliers are performing, supplier management tends to be based on the game of guesswork with the factor of ambiguity. With the simple process of measuring the performance of the suppliers can help improve the overall performance of the company. This improvement can be even more dramatic and lucrative in nature when companies award additional business on the yardstick of suppliers meeting their performance goals.
2) Remove hidden waste and cost drivers in the sustainable procurement.
The sustainable process of the procurement is full of potential risks that can originate from suppliers with regards to the aspect of corporate social responsibility. Some of these risks can be avoided through the way of better and clear communication channel between customers and suppliers. With the better understanding of the supplier performance and supplier business practices, customers can help suppliers drive waste and inefficiency out of the business processes that result in the higher-quality suppliers and lower costs of the goods procured.
3) Leverage the supply base
Through the process of Supplier Evaluation, the company is able to set a threshold for its suppliers that can result in the higher-quality results. Companies can plan better and new range of products and services based on a good understanding of its suppliers’ expertise, vital capabilities, and performance levels.
4) Align customer and supplier business practices
In the ideal case scenario, the suppliers should run their business operations in alignment with their customer sharing the similar business ethics, expect similar levels of excellence, show commitment towards the aspect of corporate social responsibility, and work towards the continuous improvement of their operations.
5) Diminish risk factors
With the proper insights into the performance of the suppliers and their overall business practices helps to reduce the business risk, particularly when the companies increase their dependency on their key suppliers. Risks can range from financial to operational in nature and increase with geographic distance.
6) Improve the performance of the suppliers
The main goal of the Supplier Evaluation process should be the improvement of the performance of the suppliers. While simply measuring their performance has a positive effect, the supplier Evaluation can be more effective when it leads to continuous improvement activities and actual performance improvement of the suppliers. Follow-up activities, such as supplier training and development, and counteractive actions to address the evaluation findings are the best ways to attain measurable and positive results.
Tips for a Successful Supplier Evaluation :
1) Assessment of Risks
In order to have a full understanding of your supplier risk portfolio, individualized risk evaluations should be made on the performance of each and every supplier.
Usually, the purchase and quality control managers send their agents for on-site reviews to see precise production lines, processes, and outcomes. Another approach is to incorporate it within the quality agreements by obtaining the audit and data reports for the duration of the contract at regular intervals.
2) Percentage of Products in Compliance
This is one of the significant and crucial metrics in regulated enterprises such as food and beverages and pharmaceuticals. Indeed, even in ventures such as national defense, automotive and aviation, this metric plays a vital role. It measures the percentages of product that are quite consistent with their internal guidelines, processes, and compliances with the government authorities.
3) Quantification of Risks
The risk of suppliers can be evaluated as an element of two factors that are the probability and effect of adverse events occurring in the internal and external environment of the company.
The principal variable identifies the supplier’s performance by breaking down the performance pointers in a way that highlights the metrics such as corrective actions, average response time, customer complaints, inventory levels, and delivery timelines amongst others.
The second risk factor greatly relies on the factor of the supplier’s production capacity. For example, if there is no viable substitute for a material used for the production, that supplier should consequently be viewed as riskier in spite of his good and positive performance levels. If production cannot go ahead without this specific supplier, it should hold extensive weight in the risk portfolio of the company.
4) New Products Introduction
The approach of the New Products Introduction as a metric is that characterized as a rate of new items presented at the marketplace that hit quality targets, volume, and time. New items are frequently introduced in the market by the company and are a source of competitive advantage specifically in consumer electronics and automotive domains.
The growth of profit and revenue for the firm depends not just on how successful the business is at introducing new and novel items into the market to the customers, but how successful the business is at hitting at the targets of New Products Introduction.
5) Prioritization of Risks
As the fraternity of businesses hugely depends on the aspect of the supply chain, providing high-quality services has to be of extraordinary in nature. By evaluating the risks of the supplier and the related factors, giving details for both criticality and performance of the operations can viably treat important issues that require the most contemplation. It is very imperative to treat the external risks such as gaps or internal inefficiencies of the business.
6) How Frequently Suppliers Are audited in the company
There is no particular number of times as such that suppliers should be audited by the company. But if there are any sort of persistent issues and the supplier has not addressed it, an unexpected visit to the company might be a good option for fix the issue. Major suppliers of the company should be visited once every year by the main management or by a subcontractor to inspect. Spontaneous audits are better as the supplier is not at all ready for the visit and you can review the operations on an ordinary production day at the company.
7) Review of Audit Priorities
The utmost significance of an audit is for the top management to guarantee that quality is a top priority and they understand the quality and evaluating the process.
Few questions to consider :
- What is the company’s quality standard and objective?
- What are the overall objectives and goals?
- Is there any set up of the Supplier Quality Manual?
- What does the quality financial judgment look like?
- Who manages the quality of ongoing education and training?
- Is the Quality Manual continually updated regularly?