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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Understanding Procurement Evaluation

Key take-aways

  • Procurement evaluation is the systematic and an organized assessment of suppliers, prodcts, and services to determine their suitability, quality, and overall alignment with your own goals.
  • There is a step-by-step process to perform a procurement evaluation.
  • Before doing a procurement evaluation, you shouhld be able to determine the purpose of why you’re doing it and up to what extent.

The procurement process is an intricate process to come across. One of the few things to understand about it is the evaluation that stands as a crucial process that ensures optimal decision-making and resource allocation. Yet, you may ask: What is procurement evaluation? How is it relevant to my company?

Let’s discuss what procurement evaluation is, its steps, and process, how to create an evaluation plan, and how important it is.

What is Procurement Evaluation?

In simplest terms, procurement evaluation is the systematic assessment of suppliers, products, or services to determine their suitability, quality, and overall alignment with your own goals. Ultimately, this process is crucial because it helps you identify the best possible options, foster transparency, and mitigate risks in sourcing decisions.

Moreover, it literally means what it says. It is an evaluation process of both your suppliers and your own company in the procurement process, especially with the quality and delivery.

Step-By-Step Process of Procurement Evaluation

You can never do a procurement evaluation at once. In order to maintain a smooth-flowing procurement evaluation, you need to keep in mind its intricate process. 

Here are the 7 steps to follow for the step-by-step process of procurement evaluation:

Step 1: Define Evaluation Objectives

You have to clearly outline the goals and objectives of your procurement evaluation. It doesn’t matter whether it’s cost-effectiveness, quality assurance, or both parties’ adherence to compliance standards. List down what you want to achieve after the said evaluation.

Thus, having well-defined objectives will set the tone and standards for an effective evaluation process and naturally, a successful procurement process.

Step 2: Get Information

The next step is to collect all relevant data about suppliers, products, or services. This includes detailed specifications, pricing, delivery timelines, and other pertinent information.

With that, you’ll be able to compare and contrast the cost and quality of the products.

Step 3: Establish Evaluation Criteria

Right after you have gathered and analyzed all data, it’s now time to develop a set of criteria that you will use to evaluate different options.

Meaning, this criteria will encompass factors such as quality, cost, performance, history, environmental impact, and more that matter to you and your company.

Step 4: Add Value

Assign relative importance to each evaluation criterion. This would help you identify which matters most to you and your company. This would also help in quantifying the significance of different factors and aid in making objective decisions.

Step 5: Score and Rank

Evaluate your suppliers and the products or services they offer against the established criteria. Assign scores based on how well each option meets the defined parameters and rank the options based on their total scores. In this step, you’ll also see in which areas need improvement and maintenance.

Step 6: Risk Assessment

After ranking, make sure to assess the risks associated with each option. Address concerns regarding financial stability, potential disruptions, and even supplier relationships.

Step 7: Decision and Implementation

Based on the total evaluation scores and ranking, it’s time to make a decision. Ensure that your decision aligns with your company’s objectives and long-term strategies. However, don’t forget to decide with very careful consideration of your contract terms and negotiations.

How to Create a Procurement Evaluation Plan?

What is a procurement evaluation plan? Essentially, it is a document that mirrors the strategies and plans for monitoring and evaluating procurement processes.

It also includes the previous and current evaluation results to determine what kind of improvements to develop and to make well-informed decisions overall. Moreover, it is a plan that serves as a roadmap for the procurement evaluation process–basically an outline.

Here’s how you can make one:

1. Define Purpose and Scope

Start the process by clearly identifying the purpose of the evaluation. This is where you ask all of your “why’s” behind the procurement evaluation. This includes assessing supplier performance, evaluating the cost-effectiveness of procurement decisions, and promoting transparency and accountability in the entire procurement process. Moreover, in this step, you’ll also need to identify what will be included and excluded from the entire evaluation.

2. List Criteria and Relevance

This ensures that you and your procurement team have a clear understanding of what factors are most important when maintaining a great procurement process. In addition to that, it’s important that you make a list, enumerating the evaluation criteria, and assigning an appropriate weight of importance to each one of them.

3. Data Collection Method

Define and specify how data will be gathered–whether it be through documents, surveys, interviews, or on-site visits. In addition to this step, define data sources with required information to identify which appropriate methods to use. Moreover, it’s also imperative to use strategies like sampling methods to gain information faster.

4. Scoring System

Thoroughly explain the scoring system that will be used for assessment. Apply a customized scoring range best suited for your needs yet still ensure the procurement’s consistency and clarity. Apply scoring methods like absolute scoring, relative scoring, and weighted scoring. 

5. Risk Assessment

Put in detail how risk factors will be evaluated and incorporated into the decision-making process. This step is important so that you can identify potential risks that may endanger your procurement processes and plans to mitigate them. It’s also important to consider them when making decisions.

6.  Decision-Making Process

Describe how scores, rankings, and risk assessment will collectively guide your decision-making. All of the steps in the procurement evaluation will lead to deciding what’s best for your company and ultimately making decisions to ensure that your stay on top of your game.

Why Is Evaluation In Procurement Important?

Aside from getting better deals and overall assessment of the performance of both parties, here a few reasons why evaluation in procurement is important:

1. Quality Assurance

This might be the most prioritized criterion in the evaluation process. Evaluation ensures that purchased goods and services meet quality standards and up-to-par customer satisfaction while also decreasing the risk of defects as a potential money loss.

2. Cost-Effectiveness

A successful evaluation means a huge aid in selecting options that provide the best value for money and resource allocation optimization. Why? It’s because through careful evaluation you get to identify areas that you need intervention and improvement which will help you in increased revenue and decrease unnecessary expenses.

3. Risk Mitigation

As aforementioned, a thorough evaluation identifies and pinpoints potential risks which minimizes disruptions in the entire procurement process and supply chain.

4. Transparency and Accountability

A well-structured and defined evaluation process fosters transparency, accountability, and fair competition among suppliers and vice versa. Both parties will see where it goes wrong and will collaborate on making strategies to make things better.

5. Informed Decision-Making

Furthermore, evaluation equips your procurement project managers with data-driven insights that will ultimately lead to well-informed choices that align with your company’s objectives.

Conclusion

Procurement evaluation is an integral part of the procurement process because it empowers businesses like yours to make strategic decisions to enhance business efficiency and minimize risks in the future.

By following a systematic approach and crafting a well-defined evaluation plan, you can unlock transparency and accountability, cost-optimization, quality assurance, and your own company’s full potential in growing and advancing your business operations. 

Frequentlyasked questions

What is procurement evaluation?

Procurement evaluation, as its name suggests, is a process of evaluation of a company’s suppliers, product or service quality, and overall impact on customers’ satisfaction.

What are the steps for procurement evaluation?

Define objectives, gather information, establish evaluation criteria, add priority, score, and rank, and decide.

Why is procurement evaluation important?

The process is important in ensuring that your company provides products and services aligned with what is promised and advertised to the consumers. It is also crucial for companies to have a successful procurement evaluation to know which areas they need to improve.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics