Supplier evaluation is 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 top-notch suppliers is available at the disposal of the company.
Supplier evaluation allows companies to analyze their suppliers’ performance and select the best ones for their operations. It also helps companies to track and monitor the performance of their suppliers over time. Supplier evaluations are essential to ensure that suppliers are meeting the standards and expectations set by the company.
What is Supplier Evaluation?
Supplier evaluation involves assessing the performance of your suppliers, to determine how well they are meeting your business needs. Supplier performance evaluations can help you evaluate suppliers and identify areas of improvement and weaknesses in your suppliers and take steps to ensure that they are providing the best possible service.
The supplier assessment process can also help you select the right suppliers for your business needs. An effective supplier evaluation process lays utmost importance in the current scenario of global purchasing methods and every organization especially manufacturing the ones into manufacturing operations needs to have an evaluation matrix or model in place. Supplier performance evaluation can help identify areas where improvements are needed such as supplier’s waste management strategies and also provide insight into potential new suppliers to consider.
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 their supply base, and align practices between the company management and the suppliers.
What to Assess in a Supplier Evaluation?
When evaluating suppliers, it’s important to consider the quality of their services and products, as well as their overall performance. Supplier evaluations should incorporate aspects of supply chain management, such as assessing the supplier’s ability to meet deadlines, the efficiency and accuracy of their processes, and their communication methods.
Supplier evaluations should also consider the supplier’s financial performance, adherence to regulations and safety standards, and compliance with contractual obligations. Suppliers should also be evaluated on customer service and their ability to handle customer complaints quickly and effectively. The supplier’s overall sustainability practices should also be taken into account. Some of the key elements of the supplier evaluation criteria to evaluate supplier performance are-
Suppliers need to have a certain level of production capacity to meet the needs of their customers. Suppliers should be assessed on their production capacity, including their ability to scale up or down as needed.
Suppliers should have processes in place for ensuring that the products they provide meet customer specifications and expectations. Suppliers should be assessed on the accuracy and consistency of their quality control processes.
Suppliers should have processes in place for monitoring and managing the performance of their products and services. Suppliers should be assessed on how well they are performing on key metrics such as order fulfillment, on-time delivery, and customer satisfaction.
Suppliers should have processes in place for identifying and mitigating potential risks associated with their supply chain. Suppliers should be assessed on their ability to identify risk and come up with strategies for managing it.
Suppliers need to have processes in place for reducing their environmental impact, such as recycling or embracing renewable energy sources. Suppliers should be assessed on how well they are meeting sustainability goals.
How to Ensure a Successful Supplier Evaluation?
- Outlining a schedule: Supplier evaluation should always be scheduled in advance to ensure everything is taken into account. This means having a timeline for the evaluation that outlines what needs to be done and when. This should incorporate feedback from all stakeholders, so everyone can get their views across.
- Giving suppliers a concise yet detailed questionnaire at the beginning of the process: Suppliers should be given a clear and concise questionnaire at the start of the evaluation process. This should give them enough information to understand what’s expected from them, and what criteria will be used to rate their performance.
- Visiting your supplier’s facilities: Supplier assessment should always include a physical visit to the supplier’s facilities so you can get an accurate picture of their operations. This will give you a better idea of the supplier’s capacity, commitment to quality control, and processes.
- Making sure that the right staff members are participating in the supplier performance evaluation: Supplier performance evaluations should always involve the right team members. This means having staff from the relevant departments such as Purchasing, Quality Assurance, and Supplier Management involved.
- Being courteous to your supplier: Supplier assessment is never easy for the supplier. It’s important to be courteous and professional throughout the process and ensure that you treat the supplier with respect.
Benefits of the Supplier Evaluation process
- Increase performance visibility: When companies have no or little knowledge of how their suppliers are performing, supplier management tends to be based on the game of guesswork with the factor of ambiguity. 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 when companies award additional business on the yardstick of suppliers meeting their performance goals.
- Remove hidden waste and cost drivers in sustainable procurement: The sustainable process of procurement is full of potential risks that can originate from suppliers regarding the aspect of corporate social responsibility. Some of these risks can be avoided through the way of a better and clear communication channel between customers and suppliers. With a better understanding of supplier performance and supplier business practices, customers can help suppliers drive waste and inefficiency out of the business processes that result in higher-quality suppliers and lower costs of the goods procured.
- Leverage the supply base: Through the process of Supplier Evaluation, the company can set a threshold for its suppliers that can result in higher-quality results. Companies can plan a better and new range of products and services based on a good understanding of their suppliers’ expertise, vital capabilities, and performance levels.
- Align customer and supplier business practices: In the ideal case scenario, the suppliers should run their business operations in alignment with their customers sharing similar business ethics, expecting similar levels of excellence, showing commitment towards the aspect of corporate social responsibility, and working towards the continuous improvement of their operations.
- Diminish risk factors: Proper insights into the performance of the suppliers and their overall business practices help to reduce the business risk, particularly when the companies increase their dependency on their key suppliers. Risks can range from financial to operational and increase with geographic distance.
- Improve the supplier’s performance: 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, 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
While doing supplier assessment, understanding your supplier risk portfolio is important. For this, individualized risk evaluations should be made on the performance of 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 supplier assessment 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
To evaluate supplier performance, 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 products 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 despite 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 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 extraordinary. By evaluating the risks of the supplier and the related factors, giving details for both the 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 them, an unexpected visit to the company might be a good option to 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 evaluate the process.
Supplier evaluation is a critical part of the procurement process. Suppliers must meet performance and service criteria, as well as adhere to waste reduction practices to be considered strategic suppliers.
The procurement department must evaluate potential suppliers and select the best fit for the organization. Supplier performance indicators should then be used to measure and improve supplier performance.
Ultimately, a comprehensive supplier selection process will help reduce production costs, speed up the purchasing process, and ensure the highest quality materials are procured for the organization. Overall, supplier evaluation is an important part of any material procurement procedures and should be taken seriously.
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