What is Supplier Evaluation?
Supplier evaluation is an assessment of the suppliers to your organisation. The goal of supplier evaluation (sometimes referred to as supplier appraisal) is to come up with a portfolio of the best suppliers available for you.
Why is this important?
You would not want to spend time and resources establishing a relationship with a supplier, to later regret this decision and realise there could have been better suited suppliers for your needs. This is why supplier evaluation is so important.
Supplier evaluation can also be used to evaluate already existing suppliers to your organisation. Then monitor their performance in order to ensure they are complying with their contract.
As Deming pointed out, at least 60% of a company's cost of goods sold (COGS) is typically externally purchased. Yes, almost two-thirds. There’s a lot of scary risk sitting in that percentage, but also a lot of wonderful opportunity.
How to conduct supplier evaluation?
The process of evaluating suppliers is continual. This process can take on various different forms, such as an interviews, or questionnaire to the suppliers.
This process will include evaluating many aspects of the supplier, such as their financials, quality assurance, capacity and overall organisational structure.
The information from these appraisals can then be looked at to decide whether the supplier be approved or not-approved.
When conducting a supplier evaluation, there are many elements you may need to consider, some of the key aspects to assess can be seen in the diagram below;
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1. Price and Delivery Costs
This is an important element to assess with your suppliers. If the Supplier's desired price is not in line with your organisation, they are automatically going to be removed from the supplier evaluation.
The cost of the products or services will often need to include any delivery costs, therefore it is effective to assess these elements together.
2. Quality, Delivery and Performance
In order to reach the goals of your system, one of the most important aspects to assess during supplier evaluation will be the quality, delivery and performance of the supplies you are receiving.
This can sometimes be hard to measure prior to working with a supplier, but you can assess the your supplier’s products by asking other organisations who use them as a supplier what their experiences have been like. You could also ask the supplier themselves a range of questions that will help determine whether they have the capacity to perform your desired requests.
Checking that a company complies with a standard is an easy way to identify that they work to high quality standards, and their products will likely be an outcome of this.
3. Financial Stability or Risk
This aspect is important because the financial stability of the supplier will directly impact whether they can actually keep performing for your organisation.
One way to gather financial information on a potential supplier could be through a credit report, which will indicate the status of their finances.
4. Environmental Impact and Philosophy
It is important to also evaluate what ethics this supplier has in place around their environmental impact.
Some companies will care about this more than others, but if your organisation sells products they claim to be environmentally friendly, they will need to source their supplies from an organisation with the same or similar philosophy. This aspect is important because it could lead to non-conformance within your organisation, such as making a false claim about your products, processes or services.
When considering these environmental impacts, you should investigate the suppliers waste management procedures, their hazardous waste reduction efforts, the materials they use to produce their products, and whether they try to be energy efficient, among many other environmental factors.
5. Potential long-term relationship
It is important that the supplier you are considering doing business with is going to be able to provide for you in the long-run.
All the other aspects may make a certain supplier attractive to do business with but if this is not a feasible option, it may cost you down the track.
When evaluating this aspect, you need to ensure the supplier and your organisation have shared goals on the business you will be carrying out.
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