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Methods of Supplier Evaluation and Management

Within the supply chain function one area of control that you should establish is one of evaluation or appraisal of suppliers. Such a process may take place at a variety of times notably when a supply is added to your supplier database and/or when the procurement community wish to ensure that the supplier can meet the requirements being placed upon them – this is especially true within industries that require suppliers to comply with specific requirements (e.g they must hold an ISO certification).

Supplier evaluation should be balanced against risk – clearly if you are looking to place a supplier on your database for a small spend (e.g. less than $10 ) then it may not be appropriate to evaluate your supplier (questions should also be asked on why you are wanting to place that supplier on your database!) – however where your organisation is making significant operational or capital expenditure or there is a high risk associated with non-supply it’s important to manage the dangers involved appropriately.

Aside from risk, there are a number of other mechanisms where supplier evaluation is relevant – for example embarking on e-procurement programs where a level of technology investment or compliance is required, the purchase of non-standard items, and during the process of supplier development. This list is not exhaustive and there may be other triggers applicable to your industry.

When ascertaining what should be appraised – there are some fundamentals that should be taken into considerations – other elements, specific to your industry, may also be appropriate. Elements that should be considered are:

Firstly – the organisations finance should be assessed – this could be in the form of a 3rd party assessment (Dunn & Bradstreet for example) or a general assessment of financial robustness – this is especially important when the supplier relationship is likely to be long term – understanding what risks may be in store could be invaluable – knowing the organisations financial position can also be useful when considering negotiations with suppliers.

Quality should also be reviewed – this should be in form of standards achieved (e.g. ISO certification) –and the business management system and processes of the organisation – for example: what is the process of test and inspection before release of products – how do they manage subcontractors etc.

Performance – especially important if undertaken as part of a continual assessment program – performance should be measured over a suitable timeframe (12 months for example) – measures against deliver schedule adherence – quality rejections – communication etc should be analysed to ensure that they meet business requirements – ensure that targets are in place and check these within the industry to ensure that the standards which are met are appropriate for the organisation that is being analysed. Where the supplier is being used for the first time – consider the benefit of talking to an existing customer and ascertaining their thoughts.

Aligned with performance is the organisations capacity – this may or may not be relevant dependant on the volume that you may wish to procure – Capacity could be analysed through a number of variables – for example from a manufacturing perspective it is determined by output – you may also wish to consider the role of personnel in capacity – this is especially true of service orientated suppliers – personnel capacity will also have a role to play in the ability of the supplier to manage your enquiries and in order management.

You should also look at assessing the Human Resources at the companies disposal – take close look at the organisations structure – how does it train it’s staff – does it have a high turnover of staff – is the organisation tuned to your successfully provide against your requirements.

Consider also the use of Technology – good use of technology often enables efficient supply chain processes – can you transact through the suppliers website? How will you communicate – can you look at your order status online etc.

Overall there are a variety of considerations when analysing suppliers – there is obviously an administrative burden in analysing suppliers but this should be weighed against a poorly performing supplier that cannot provide the goods ordered on time and to the right quality. At the end of the day – Supplier evaluation is about identifying the risks associated with supply and it’s far better to understand any risks than to be caught short without your items.

 

 
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