When procurement professionals take the time to evaluate suppliers—both at the start of the relationship and on a continuing basis—the benefits are numerous. From better visibility into supplier performance and the ferreting out of hidden cost drivers, to reduced risk and shorter order cycle times, the overall benefits usually can add up to a 20% improvement in supplier performance metrics (e.g., on-time delivery, quality, and cost), according to the Institute for Supply Management.
“To buttress the supply chain and reinforce relationships with suppliers, most companies regularly evaluate their suppliers’ performance in search of inefficiencies or possibilities for further growth,” ThomasNet points out in “5 Key Factors to Consider When Conducting a Supplier Evaluation.” “These supplier evaluations are holistic assessments grounded in verifiable quantitative metrics and meaningful qualitative observations.”
By regularly assessing suppliers’ capacities, technological resources, delivery strategies, and general business practices, buyers can also ensure that their partners share their priorities. When done right, these evaluations also help improve visibility at every stage of operations while creating greater value for a company’s products and services.
Here are five key considerations to factor into every supplier evaluation:
- Production capacity. You need partners that can keep up with your demands and fulfill orders quickly. Ignore this step and it won’t be long before your external and internal customers are calling to find out where their orders are. “All supplier evaluations should thoroughly appraise the supplier’s abilities and limitations,” ThomasNet points out. “A supplier that cannot scale production in response to your production cycles will not fare well in any review.”
- Product quality. Quality isn’t always easy to evaluate, but it should always be a central component of a supplier evaluation. For example, ThomasNet reports, ISO BS/EN ISO 9001:2000 certification remains the industry standard in the U.S., indicating that the supplier excels in management responsibility, resource management, product realization, measurement, analysis, and improvement.
- Performance. Don’t be afraid to ask the tough questions related to performance. In fact, ThomasNet tells buyers to ask as many questions as needed to determine whether a supplier can handle your typical functions: “Previous experiences with similar companies, relevant recent projects, and possible advances on current products or processes are all valid subjects for discussion.”
- Competency. How competent is the supplier? Get that question answered by making a thorough assessment of the supplier’s capabilities measured against your needs, but then also look at what other customers think. Ask yourself questions like, how happy are they with the supplier? Have they encountered any problems? And why have former customers changed supplier? “Look for customers whose needs and values are similar to yours,” Mind Tools advises, “to ensure that the information you gather is relevant to your organization.”
- Commitment. Both new and existing supplier partners should be able to provide evidence that they’re committed to high-quality standards. Where appropriate, Mind Tools tells companies to look for quality initiatives within the organization, such as ISO 9001 and Six Sigma. “The supplier also needs to show that it is committed to you, as a customer, for the duration of the time that you expect to work together,” the company adds, noting that this is particularly important if you're planning a long-term relationship with the supplier. “You’ll need evidence of its ongoing commitment to delivering to your requirements, whatever the needs of its other customers.”
Make it a Regular Exercise
While it may seem obvious that supplier performance evaluation is an ongoing process, many companies still look at it as a purely remedial or punitive exercise. This is a mistake.
“Once your vendor is failing to meet delivery schedules or provide a reliable service, supplier performance evaluation becomes little more than a big stick with which to beat the offender,” Logistics Bureau warns. “It’s probable that the supplier is already well aware of its failings and is either not in a position to improve or doesn’t value your custom enough to respond to threats or demands for improvement.”
A better approach is to figure out how well a new supplier is positioned to meet your company’s needs before you start placing orders. “By doing so,” Logistics Bureau adds, “you can reduce the need for supplier micro-management and avoid situations where reaction is the only option.”