According to Hald and Ellegaard (2011), supplier evaluation is
"The process of quantifying the efficiency and effectiveness of supplier action."
Organizations conduct supplier evaluations both to qualify the potential suppliers and to assess relationships with the existing ones. Supplier evaluation represents one of the most important decisions in a company to remain competitive, especially in times like now when markets are changing very fast.
What is Supplier Evaluation?
In procurement, supplier evaluation means a formal assessment of suppliers to measure their performance against various criteria and determine if they meet the organizational needs.
The objective is to create a best-in-class and low-risk portfolio of available suppliers for use.
Supplier evaluation is a continuous process for procurement and Quality departments and is also a pre-qualification step in the process of purchasing and qualifying the suppliers.
Some of the benefits of supplier evaluation include
Risk mitigation:
By carefully examining suppliers, you can lower the regulatory, contract, and security risk factors associated with working with systems outside your company.
Enhanced supplier performance:
Enhanced supplier performance directly correlates with the overall performance of the procurement process.
Cost reduction:
Supplier evaluation is a significant process for any organization because it directly influences the quality and cost of purchased products. Also, a slight gain in cost and quality due to supplier selection has significant benefits for organizations.
Leveraged supply base:
Evaluating supplier performance helps organizations set a standard, and this, in turn, leads to superior results.
Strengthened supplier relationships:
Efficient supplier management encourages communication, collaboration, and loyalty, which lays the foundation of mutually beneficial working relationships that benefits everyone in the long run.
Improved business outcomes:
Engaging top suppliers will enable you to provide higher-quality and more competitively priced goods or services.
Supplier Evaluation Process
Supplier assessment is a multi-criterion problem that includes both qualitative and quantitative factors. That is why developing standard selection criteria and applying them indiscriminately to any situation does not suffice.
That said, supplier evaluation criteria should align with your company's mission, vision, and business goals.
Additionally, it should also include factors like quality, cost and financial integrity, corporate social responsibility, communication, and cultural commitments.
Supplier Performance Evaluation and Assessment
Every business requires insightful supplier evaluation to deliver the best value for procurement and compliance and undertake effective supplier risk management.
Most companies use a formal supplier evaluation and qualification process to select suppliers and maintain long-term partnerships.
But the entire process might seem difficult if you don't know how to assess your suppliers or lack the skills needed to conduct it.
To help overcome this barrier, you can use a supplier assessment template to conduct meaningful evaluations.
The template equips people with a harmonized approach to assess, manage, and communicate with their suppliers which in turn helps them identify efficiencies, realize cost savings and productivity benefits, and set the stage for innovation.
Key steps:
- Follow a systematic approach to supplier assessment
- Be transparent and communicative with your suppliers
- Ask the questions that can drive performance
- Get a clear picture of supplier compliance
- Systemically gather supplier data
- Use a template to evaluate the overall performance of suppliers you want to or are already working with. Include all information you need in the questionnaire. Then assign a rating (1-5) for each question.
This template then auto-populates and charts these ratings across all the assessment results to help you visualize:
- Performance indicator rating for a selected supplier against other suppliers (in spider charts)
- Average rating by performance indicator
- Total average rating by a supplier
- Total average rating by year
Read also:
Resource Person: BARBARA PIROLA
