Supplier Evaluation — Everything A Procurement Professional Should

The Benefits of Conducting an Evaluation of Suppliers

Although the main reason for evaluating your suppliers is to see their suitability with you and your goals, there are other reasons why it’s important. Here are the main benefits of supplier evaluation:

1. Enhance the visibility of the supplier’s performance

When organizations do not have the data to check their supplier’s performance, supplier management will tend to be based on assumptions. 

If the organization monitors its supplier’s performance, the supplier will be obliged to do its best.

 2. Mitigate risks

Insights into the supplier’s performance can help reduce business risk, particularly their key suppliers’ increasing dependency on organizations.

The risk can be financial or operational and it increases depending on the location or distance of the supplier from the organization.

3. Improve supplier performance

The goal of supplier evaluation is to ensure that the suppliers are still performing their best for the organization. Supplier assessment can be truly effective when it leads to continuous improvement activities that will enhance the supplier’s performance. 

4. Align customer and business practices

It is ideal that the suppliers should align with the customers and the organization by sharing the same business ethics. Through the evaluation, the supplier will be committed to sustainability and continuous improvement. 

Supplier Performance Evaluation Checklist

Now that we have tackled the benefits of supplier evaluation, the following are what you should include in your supplier performance evaluation checklist or form:

1. Establish performance indicators

Of course, the organization needs to establish a supplier evaluation plan to know the parameters it wants to assess. Without this, the organization cannot fully evaluate its suppliers or worse, reflect insights that are counter-productive to your business. 

The following are the parameters that organizations must include for an effective performance evaluation:

• Price – The organization can create a win-win situation with vendors who are able and willing to lower their prices. By lowering their prices, the organization would want to deal with them often. 

However, the organization must be observant. If there are any additional charges or surprise costs, then the organization must be wary of the vendor. 

• Cost – This can either be monetary or non-monetary when dealing with suppliers. It includes peripheral costs that are associated with movement, packaging, delivery, and disposal 
• Quantity – The organization can also consider the comparison between quantities ordered and received. Sometimes, the vendor will send a notice to confirm and explain anomalies in the delivery. 
• Quality – The organization must inspect the delivered goods to check any visible product defects, rejections, and returns.
• Service – This includes indicators such as the response time of resolving issues and client satisfaction engagement. 
• Delivery – This indicator focuses on the timeliness of the order process and the pre-delivery waiting period. 
• Payment terms – A fast payment method and terms are preferable to organizations than a slow payment process. 
• Financial health – Suppliers that have good financial health can provide for the needs of an organization much better.
• Compliance – You need to know how compliant your suppliers are in terms of their taxes, contracts, and procedures.

2. Classify suppliers

In order for the organization to classify its suppliers, it must classify them first into categories. One way to do this is by classifying them by their geography. 

3. Centralize the data

Many organizations have many suppliers across various functions. Bringing all of them into one centralized portal can allow you to manage and assess them well. 

4. Collaborate with suppliers for feedback

Not all evaluation or assessment needs to be quantitative. Constant collaboration with your supplier can bring out the bottlenecks more visibly. 

5. Create an actionable plan

After you have done the previous steps, the organization can start to create an actionable plan. This is necessary to ensure action against your findings to close the loop in the evaluation of the organization. Additionally, it helps to know the gaps in performance and devise strategies to fix them.

Conclusion

Supplier evaluation is a critical process in procurement that helps organizations select the best partners for their business. It involves assessing various aspects of a supplier’s performance, such as product quality, pricing, financial stability, and delivery times.

Supplier evaluation is essential for ensuring standards are met, mitigating risks, improving supplier performance, and aligning business practices.

To effectively evaluate suppliers, organizations should establish performance indicators, classify suppliers, centralize data, collaborate for feedback, and create actionable plans based on evaluation findings. Implementing these steps can lead to better supplier management and ultimately benefit the organization’s supply chain and business performance.