What is Supplier Evaluation?- Definition
The process of analyzing and approving potential suppliers is known as supplier evaluation. This evaluation is carried out through quantitative and qualitative assessments. The purpose of supplier evaluation is to ensure a portfolio of best-in-class suppliers is available for use. Also, these methods are used to evaluate and monitor current suppliers' performance. The evaluation is aimed to reduce procurement costs, mitigate supplier risks, and drive continuous improvement.
Understanding Supplier Evaluation
The evaluation process's leading and most important goal is to ensure that the company has access to a portfolio of top-tier suppliers. Furthermore, assessing supplier performance is critical to lowering costs, increasing process efficiency, and improving business performance. There are different methods to vet suppliers with an emphasis on CSR practices. Some of the examples include questionnaires, scorecards, site visits, and third-party standard certifications.
A concrete supplier evaluation plan, depending on the context, can aid you in varied situations, like:
- Planning and considering to go for a repeat purchase with the same vendors
- Choosing the best vendor from a pool of high-rated suppliers within a category
- Getting rid of low-performing suppliers and replacing them with higher-performing ones
- Initiating a cost-benefit analysis practice on a regular basis
Benefits of Supplier Evaluation
Elimination of hidden cost drivers
Costs borne by the organizations, monetary or non-monetary, while dealing with suppliers is a crucial element in a source-to-pay cycle. The procurement process's long-term viability is fraught with possible hazards posed by suppliers. The perfect supplier evaluation plan and strategy can help suppliers drive waste and hidden costs out of business, resulting in high-quality and low-cost procurement.
Boost performance visibility
Often in the majority of the organizations, supplier management works based on educated guesses because none actually knows how their suppliers are performing. But when you have a set process to evaluate your suppliers on a timely basis, you can get visibility and help them improve performance. This improvement can be even more dramatic when companies award additional business based on suppliers meeting set performance benchmarks.
Reduce risk factors
By measuring supplier performance, an enterprise can set a benchmark for its vendors to lead to best-possible quality results. The best supplier performance management practices drastically lessen business risks by quantifying and analyzing them. These risks could be financial or operational and increase with geographic distance.
Raise supplier performance
The ultimate goal of the process of vendor evaluation should be the improvement of their performance. In most cases, assessing performance has a positive effect. The supplier assessment can be most effective when it leads to actions of quality management and significant ongoing improvements in supplier performance.
Ensure the sync between customer and supplier business practices
Vendors should, ideally, run and manage their businesses in tandem with their clients.: i.e., share the same business ethics, expect similar standards of excellence, demonstrate equal commitment to corporate social responsibility and continuous improvement.« Back to Glossary Index