5 key criteria for evaluating your suppliers
In any supplier evaluation, whether of a new or existing supplier, it’s important to measure the company’s production capacity, performance, risks, quality and environmental impact. However, evaluating these factors on their own will get you nowhere if you don’t have an organized approach to evaluation and a broader framework to make the evaluation information work for you.In this article, we’ll review some of the most crucial factors in conducting supplier evaluations, as well as how to ensure successful evaluations. First, however, we’ll look at why supplier evaluations are important, and how to set up a broader supplier evaluation system to ensure you can get the most out of your evaluation data.
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Why conduct a supplier evaluation?
A strong supply chain is the backbone of a successful business. Whatever your industry, close working relationships with your suppliers will enable you to streamline production lead times, minimize operating costs and guarantee the quality of your products.Most companies regularly evaluate the performance of their suppliers insearch of inefficiencies or growth opportunities to consolidate the supply chain and strengthen supplier relationships. By examining a supplier’s capabilities, technological resources, delivery strategies and general business practices, you can ensure that your partners share your priorities, and can then adjust their operations in the interests of your company’s competitiveness. By doing so, you can significantly reduce your own risks, improve visibility at every stage of operations, and create greater value for your products and services.
Setting up a supplier evaluation system
Evaluating supplier performance should be an integral part of your company’s procurement activities, not a procedure reserved for reviewing new suppliers. A robust supplier evaluation system will regularly assess suppliers, using categories and rankings within those categories to determine procurement strengths and weaknesses.Even for companies that are limited only in the number of suppliers they can use, evaluations help to distinguish which suppliers are to be preferred, as well asidentifying areas of potential risk.
The ultimate aim of the system is to monitor the consistency of supplier performance in a way that is integrated with the purchasing process.Supplier performance should include key performance indicators (KPIs) and clear metrics focused on business priorities, including alert measures to show when a supplier is not meeting standards. Buyers should evaluate suppliers every time they call on them, with deadlines for sending feedback after a purchase. Feedback should also be reviewed regularly by the person or group responsible for ranking suppliers. It can be easier to implement software when buyers rate supplier performance, as the final scores can be used to easily rank companies.
These ratings and indicators don’t have to exist only internally, either. It’s important to agree them with your suppliers so that they are aware of expectations and can provide feedback on them. The inclusion of a system for recognizing and rewarding improvement can also help to clarify expectations of them, and motivate them to improve. Common mistakes in supplier evaluation systems include inconsistent use of KPIs and agreed metrics, failure to give suppliers regular feedback on their performance, ignoring supplier feedback in discussions and setting metrics, and the use of confusing metrics and KPIs.
What should be assessed in a supplier evaluation?
Supplier evaluation is largely data-driven. It must therefore be a carefully structured process, focused on quantifiable performance indicators such as delivery times, production costs and stock levels. A standardized set of supplier evaluation criteria provides a necessary frame of reference with which you can assess a supplier’s capabilities and compare them to those of its competitors.However, before evaluating a current or potential supplier, the company needs to set clear expectations for the relationship between them. From the outset, you need to state your objectives clearly, so that the supplier fully understands the obligations involved, and can adjust its operations accordingly if necessary.While the evaluation of a supplier can be based on a number of factors, there are several elements that every company needs to take into account, whatever the industry concerned. Some of these factors include
Production capacity
All supplier evaluations must address the supplier’s capabilities and limitations. A supplier who can’t adapt production to your production cycles won’t do well.
Quality
Although it can be difficult to quantify product quality, it should always be a central element in supplier evaluation. ISO 9001 certification remains the industry standard in this area, indicating that the supplier excels in management responsibility, resource management, product realization and measurement, analysis and improvement.
Performance
Your company should ask as many questions as necessary to determine whether a supplier can perform your typical functions. Previous experience with similar companies, relevant recent projects and possible advances on current products or processes are all valid topics for discussion.
Risk
Every company invariably faces certain risks, but suppliers should strive to minimize them throughout the supply chain. Examining performance measures such as overall delays, average response time and corrective actions can help you develop a reliable quantitative assessment of the risks posed by a particular supplier.
Environmental impact
Sustainable development is an essential element of a company’s success, for both financial and ethical reasons. The assessment should cover the supplier’s waste management strategies, waste minimization practices and materials procurement procedures, as well as its energy efficiency efforts and protocols for handling hazardous materials.
How to ensure a successful supplier evaluation
While many companies can easily identify the criteria required for supplier evaluation, it can be difficult to follow the practices necessary to ensure its success. The following guidelines can help your company stay focused throughout your evaluation.Establish a timetable. By clearly defining the necessary tasks and setting deadlines for them, you ensure that everyone understands their responsibilities and will strive to complete them correctly and promptly.Provide your suppliers with a concise but detailed questionnaire at the start of the process. The questionnaire should ask for both factual and subjective answers, should solicit only the necessary information, and should not contain questions that the respondent cannot answer.
Visit your supplier’s website
A personal visit to your supplier’s site can confirm the data obtained from the questionnaire, while offering insight into intangible aspects of the supplier’s business, such as workplace culture. It’s also an opportunity to examine the supplier’s quality control strategies, the current state of equipment and the technical skills of the workforce. Make sure the right staff members are involved in the assessment. If you need to evaluate the performance of a Tier 1 supplier, for example, the CFO should probably be involved, as well as purchasing department managers.Be courteous to your supplier. A strong working relationship with your supplier can onlyimprove productivity. Don’t hesitate to congratulate the best-performing suppliers and give them a warning and advice so that they can try to solve the problem before you end your partnership.
The benefits of supplier evaluations
Supplier evaluation criteria are a valuable tool for your company. By carrying them out regularly, your company can better understand its operations, proactively identify opportunities for growth, reduce risk, streamline lead times, eliminate unnecessary expenditure and improve the performance of your suppliers. These competitive advantages cannot be overstated, and while supplier evaluation must, of course, be comprehensive, it need not be difficult. By following the right protocols within a broader framework, it can be a straightforward process for companies and suppliers alike, enabling both to better understand each other’s strengths and weaknesses, and encouraging them to work together to build a stronger, more prosperous partnership.
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Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.