- Are you struggling with the identification of potential suppliers?
- Is it getting tough to assess relationships with existing suppliers?
Are you unable to optimize operating costs? If the answer to most or all the above questions is a YES, it is highly recommended that you do a supplier evaluation.
This article will discuss supplier evaluation, how to do it, and why this process is essential. You will also know how an effective supplier evaluation decreases the risks that can come up to any organization on choosing unproductive suppliers.
What is Supplier Evaluation?
In sourcing, supplier evaluation refers to supplier assessment on parameters of efficiency and effectiveness against the business requirements. It is a continuous process and a crucial step in strategic sourcing. It is applicable for both new and existing suppliers for risk mitigation, cost management, and improvement in the sourcing process.
This process ensures that you with the best suppliers based on multiple factors, including product quality, delivery time, financial stability, customer support, and prices.
Importance of supplier evaluation
Your organization must know about the core requirements and efficient utilization of resources. This is where supplier assessment makes space. Frequent evaluation ensures no risk of non-compliance as well as the performance of the supplier, leading to
- Reduction in costs
- Increase in quality and production
- Enhanced business performance
For consistent improvement of the supply chain, it is essential to do supplier evaluations regularly.
Benefits of Supplier Evaluation
Makes supplier's performance visible - Making the entire process data-driven will let the supplier give its best shot as what can't be measured can't be improved.
Risk mitigation - Knowing about the supplier's performance, you can control security risks, contracts, and regulatory risks associated with financial or operational segments.
Improves supplier's performance - Supplier evaluation is a must to assess whether the supplier is giving his best for the organization or not. It motivates suppliers to streamline operations and raise efficiency. Moreover, goal-based supplier performance decisions help uplift companies with excellent outcomes.
Improve supplier relationships - The supplier management process boosts collaboration and seamless communication that builds stronger working relationships.
Cost optimization - Supplier evaluation influences the cost and quality of product/service. Supplier selection builds healthy competition, thereby benefitting the company.
Now, the question is how to do it effectively.
How to do Supplier Performance Evaluation that Drives Result
The process starts with evaluating business needs and listing those for selecting the right supplier. Create performance indicators. There must be some set standard parameters based on which you will evaluate the performance of the suppliers, such as:
Pricing - Perform price/cost analysis to ensure it fits well to the required quality and industry standards. Further, the study helps identify suppliers' business conditions.
Quantity - Consider the comparison between ordered and received quantities of the order.
Quality - Do check for any defects, returns, or rejections. Ask for past customer reviews and the total quality management process. Have a glance at the corporate values and culture.
Service - Evaluate the response time of resolving any queries and customer satisfaction engagement.
Delivery- Timely deliveries speak of consistency, quality, and supplier efficiency.
Payment conditions- Always prefer a fast and transparent payment method when dealing with suppliers to avoid confusion later.
Compliance- An organization must be aware of how compliant its supplier regards taxes, contracts, and procedures. Check for legislative and regulatory requirements.
Categorize suppliers- An organization can categorize its suppliers based on its geographical location for an impact on quality and cost.
Data centralization- You can manage and assess everything about suppliers by bringing them under one centralized portal.
Right Supplier Evaluation Tips - Are you doing it correctly?
- Fix scoring criteria
- Qualitative measurement against criterion
- Create and manage a centralized database of suppliers
- Fix a stakeholder for evaluation
- Set a timeframe for selection and onboarding
Create an actionable plan
When you are done with all the necessary evaluations, you can make an actionable plan that will close any loop in the organization's evaluation. A plan will fix all these gaps and your organization's performance will skyrocket.
Supplier evaluation is an invaluable tool for identifying smart suppliers. It eliminates risk, unnecessary expenses, performance issues, and more. It helps build enduring and profitable partnerships with suppliers.
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