evaluation of suppliers in business plan

Supplier Evaluation - How To Evaluate Your Suppliers

Table of contents

1, What is supplier evaluation?

2. How do you evaluate a supplier?

3. How to evaluate supplier performance template

4. How to perform supplier evaluation with Prokuria

In case you don't have time to read the whole article, here is a short video summary that contains the key points:

Most organizations tend to leave supplier management to chance, meaning they have no idea how their suppliers are performing and whether they are profitable or at risk.

But what isn’t measured cannot be improved. And awarding additional business based on suppliers meeting performance goals can bring dramatic results.

There are 2 main reasons you should perform supplier evaluation :

For existing suppliers, it can help you uncover and remove hidden waste and costs and achieve sustainable procurement;

For new suppliers, it can set a threshold that can lead to higher-quality results.

When organizations have a good understanding of their suppliers’ capabilities and performance levels, they can better plan new products and services. But before we go deeper into why and how to perform supplier evaluation, let’s first define what it means.

What is supplier evaluation?

Supplier evaluation is the process of assessing and approving potential suppliers through quantitative and qualitative assessments. This is done to ensure you only work with the best-in-class suppliers available.

The same process can also be applied to current suppliers to measure and monitor their performance to reduce costs, mitigate risk, and drive continuous improvement.

There are several ways you can carry out a supplier assessment - questionnaires, scorecards, site visits, and third-party standard certifications. Or you could use a supplier management platform like Prokuria.

The most important thing you should remember is that you should perform a supplier evaluation regularly (at least 2 times a year, but best-in-class organizations perform an evaluation every 3 months). Each time, you should check whether your suppliers get better scores than they previously got.

How do you evaluate a supplier?

Every organization is different. So, to ensure you’re evaluating suppliers as fair as possible, you must first determine what matters most to you. What are you looking for in a business partner? Quality products? A good relationship with you?

Once you write that down (using a supplier scorecard), it will be easier to decide which suppliers meet your criteria and which don’t.

Here’s what we think you should consider:

Fairness : when negotiating, do your suppliers abide by the highest standards of ethical business practices? Do they display fair play behavior to all stakeholders, including their own customers, employees, suppliers, and community?

Customer focus : are they dedicated to anticipating and meeting the expectations and requirements of your customers? A good business partner should have a thorough understanding of market trends and opportunities and act in your best interest.

Team spirit : do they value diversity? Do they advocate for trust, respect, mutual commitment, and boundaryless thinking?

Business approach : do their business objectives align with yours? Do they leverage their expertise to grow both their business and yours?

How to evaluate supplier performance template

Even though the information we described above is important, it’s not easily quantifiable - it’s more helpful for establishing a good business relationship with suppliers .

For a more objective approach, here’s a template of what criteria to use for supplier evaluation:

Production capacity

Environmental impact

Compliance to specifications

Meets specification requirements

Meets standards

Customer service

Policy and practice

Surveys customers

Systems to measure customer satisfaction

Backup and advice

Quality of deliverables

Certification

Documented system

Staffing structure

Availability of experienced staff

Experience in the industry

State of technology

Past performance

Previous experience

Customer recommendation

Leading technology

Financial viability

Does the supplier satisfy key financial ratios for the industry?

Can the supplier provide full financial disclosure?

Risk and insurance

Adequate insurance

Allocate and acceptance of risk

Legal aspects

Complies to the terms and conditions

Conflict of interest (existing, potential, or perceived)

Legal proceedings related to contractual issues (past or present)

The total cost of ownership

Ability to propose an innovative financial approach (gain-sharing, etc.)

Price breaks and quantity discounts

Satisfies best value analysis

Maintenance costs

Financial review

Lease vs. Buy

Foreign exchange

Payment terms

Business justification

Net present value analysis

Payment methods (i.e., EDI, etc.)

How to perform supplier evaluation with Prokuria

The template above enables you to perform an extensive analysis of your suppliers. However, to compare the results, you’ll need appropriate tools - if you have hundreds of suppliers, it would be almost impossible to perform supplier evaluation in an Excel spreadsheet .

This is where supplier management software like Prokuria can help. Our platform enables you to easily evaluate your suppliers and maintain a scorecard . Here’s how it works:

Fill in the “Score” column by entering a valid number in each cell that reflects the number of points awarded for each criterion;

A final score will be calculated for each supplier, based on the weight each criterion holds;

You can then export your scorecard as an Excel file and save it for future comparisons.

Evaluate your current suppliers

Try prokuria for free today.

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Vendor Assessment and Evaluation Simplified

By Diana Ramos | June 18, 2020 (updated March 23, 2024)

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Which vendors should become your long-term business partners? Using a framework and the right tools to make the selection process easier, Dr. Ray Carter offers expertise and best practices to help you become a vendor assessment pro. 

Included on this page, you’ll find a vendor assessment criteria checklist , a vendor assessment framework , tips for strong vendor assessment , a guide to the vendor evaluation process , and a list of disaster and pandemic readiness questions .

What Is Vendor Assessment?

Vendor assessment is an evaluation and approval process that businesses can use to determine if prospective vendors and suppliers can meet their organizational standards and obligations once under contract. The end goal is to secure a low-risk, best-in-class vendor and supplier portfolio.

Vendors and suppliers both furnish services or goods, but there is a distinction: The term vendor applies to business-to-business (B2B) and business-to-consumer (B2C) sales relationships, while supplier applies only to B2B relationships.

Benefits of Vendor Assessment

Although the vendor assessment process can be challenging, the benefits include finding low-risk sources for high-quality goods and services, as well as the development of mutually beneficial, long-term business relationships.

Dr. Ray Carter is Director of DPSS Consultants (Developing People Serving the Supply Chain), creator of the 10C Model of Supplier Evaluation, and author of five vendor management and supply chain books, including Practical Procurement . Carter points to the COVID-19 pandemic as a prime example of the need for systematic vendor and supplier assessment that enables organizations to weather any storm in the business environment.

“What the COVID-19 emergency illustrates,” Carter says, “is the importance of engaging suppliers with sufficient resources and access to working capital to continue to operate, gear up if necessary to meet demand, and survive crises.” Assessing vendor and supplier crisis management plans is one of the aspects of risk mitigation you should consider during your vetting process. “Future crises driven by foreseeable factors — global warming, wild animal and nature conservation, human interactions, and political unrest — are almost inevitable. Therefore, exploring the quality and robustness of vendor and supplier contingency plans is crucial.”

Dr. Carter advises caution when selecting business partners for goods and services. “Deficient evaluation constructs begin with poorly defined specifications, which then feeds into the procurement process and award criteria and the selection of suppliers that lack the necessary expertise or resources,” Carter explains. “Post-award, this leads to a perfect storm: a fractious relationship characterized by ‘blame game’ disputes and, often, operational failure. A reliable process and careful vetting helps avoid that risk — and many others.” 

Additional benefits of vendor assessment include the following:

• Lower Regulatory Compliance Risk: Confirm compliance with the laws, regulations, and standards that apply to your business. If your vendor is in another country or you sell to another country, check those countries’ legal requirements, too. For example, if you do business in the European Union, the General Data Protection Regulation (GDPR) applies. 
• Scope of Service and Contract Compliance: Conduct a legal review of contract terms, nondisclosure agreements (NDAs), or partnership agreements to ensure that you’ve set favorable conditions and mitigated any risks. 
• Decrease Security and Cyber Risk: The threat of cyber risk grows as we increasingly move our work to the cloud. Therefore, it’s crucial to protect all your customer and company data. Your selection process should focus on assessing a third-party vendor or supplier to store your data. First, identify and evaluate the type of data that vendors and suppliers may need to access, and decide whether they need to access all, some, or none of it to do their work. It’s crucial to ensure the vendor takes the proper measures to encrypt and protect your data. Once you identify potential partners, have them complete a questionnaire that thoroughly covers security management system details.

Get more risk mitigation information, tools, and templates in the “ Definitive Guide to Vendor Risk Management .”

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Risk Assessment Matrix Template

Understand your organization’s tolerance for specific risks — this is an important factor when deciding which companies to contract companies for goods and services. This matrix captures the risk assessment information your company needs to review, estimate, and prioritize using rankings of generally acceptable (GA), as low as reasonably possible (ALARTP), and generally unacceptable (GU). Using this template, you can list each risk and determine their likelihood and rate the severity, all on a single color-coded chart.

Download the Risk Assessment Matrix Template

Excel | Word | PDF | Smartsheet

Find more useful tips and templates at “ Free Vendor Risk Assessment Templates ."

• Identify Top Vendors: Based on a considered combination of your essential vendor selection criteria and risk assessment, you’ll find vendors with the reputation, skills, and knowledge to solve your business challenges.
• Reduce Costs: While cost shouldn’t be the ultimate deciding factor, you will likely save by comparing top-notch vendors and the competitive environment by avoiding financial issues around poor service and delivery. Plus, once you establish your relationship, vendors may offer future opportunities to reduce costs through volume or continuity discounts further.
• Increase Efficiency: The ability of a business to act fast and move quickly depends on the smooth flow of your supply chain. With ongoing monitoring, you’ll notice when inefficiencies occur and be able to rectify them in partnership with your vendor or supplier before it’s too late. 
• Strengthen Relationships: Proper vendor management, which fosters communication, collaboration, and loyalty, bolsters your brand and supports mutually beneficial working relationships that serve everyone in the long run and improve your reputation.
• Improve Your Business: Proper vetting will help you engage top-notice vendors and enable you to provide higher-quality and more competitively priced goods or services. This results in serving your customers far better — as you improve decision-making and effectiveness, expect an upswing in customer loyalty and sales.

By performing extensive due diligence before you engage a vendor or supplier, you can save time and money, as well as support trust and your company's reputation. Base that due diligence on criteria that make sense for you and your organization. For example, if data and personal information security is of utmost importance because you are a healthcare company bound by HIPAA security rules, that criteria may override cost or efficiency concerns.

Supplier and Vendor Assessment Framework

A vendor or supplier assessment framework supports an organized approach to vet and rank potential vendors. The framework is based on a set of standard criteria to determine prospective vendors’ suitability and any risks they may pose to your company.

You can use an assessment framework to determine the best vendor or supplier based not only on price, but also on a full spectrum of concerns that Dr. Carter of DPSS Consultants delineates in his 10C Model of Supplier Evaluation.

Dr. Carter created his model because he saw that poor supplier selection causes business breakdowns. “I developed my framework to provide a simple and systematic process of investigating, analyzing, and verifying the resources and capabilities of potential suppliers (the extent of which is dependent upon the risk and value of the contract) leading to the appointment of an effective and sustainable source.”

Vendor and supplier assessment occurs most often within purchasing departments. It also forms part of the pre-qualification step within the purchasing area, although it usually includes the participation and input of other departments and stakeholders.

The 10C Model of Supplier Evaluation allows sufficient space for you to fill in the blanks with criteria in each category that applies to your specific business, business model, and goods and services needs.

• Competency: Ask vendors to provide evidence of proven quality with other customers, and review their training and development procedures, qualification records, essential personnel background and abilities, and recruitment methods. 
• Capacity: Look into prospective partners’ current and forecasted orders and customers, along with how that impacts the ability to meet your current and projected requirements. Ask for operational statistics around quality- or service-level challenges, which should be readily available if the supplier is ISO 9000 accredited. To learn more about this accreditation read “ The Ultimate Guide to ISO 9000 .”
• Commitment to Quality: Review the policies and procedures the company uses on an ongoing basis to monitor and manage quality and adherence to industry standards, such as ISO 9000 and HIPAA.
• Consistency of Performance: Ensure that your future partner will be able to deliver consistently high levels of quality and service throughout the life of the contract. For example, look for a vendor that assigns an account manager as a single point of contact dedicated to quality control and oversight; this indicates the vendor’s commitment to high performance.
• Cost: Review whether the product or service can be delivered at a reasonable price and keep your vendor or supplier in business. 
• Cash and Finance: Of course, you want to work with a financially stable entity. Request the most recent fixed and current asset lists, profit and loss (P&L) statements, and credit rating documentation. 
• Communication: Ensure that your vendor or supplier will set up and manage (or conform to your existing) communications channels, whether in person with your account manager and other key personnel, via virtual meetings, or with collaboration software.
• Control of Internal Processes: Ask for evidence of how the company manages inventory, quality control operations procurement, marketing, distribution and health, and safety. 
• Clear (Corporate Social Responsibility): Vendor and supplier services and products should conform to legal and environmental standards and requirements.
• Culture: Determine if you and your potential partner share values and working philosophies before you enter into a contract. A similar outlook makes for smoother work relationships and helps you establish long-term partnerships.

Vendor Assessment Criteria

Vendor assessment criteria should support your company mission, ethics, and business goals in the areas of technical competence and quality, cost and financial integrity, ability to communicate, social responsibility, and cultural commitments.

Assessing vendors and suppliers also involves reviewing the criteria that matter most to your company goals and your larger industry. For example, if a business looks for a packaging company, the most significant concerns might involve graphics and structural design and rely on a review of custom versus standard options and shipping durability. Use the following checklist, based on the 10C Model of Supplier Evaluation, to gather your criteria on vendors and suppliers, and then use it as a “go or no go” tool to assess prospective or current business partners.

Vendor and Supplier Assessment Criteria Checklist

Download Vendor and Supplier Assessment Criteria Checklist

You can apply these criteria to potential partners, as well as use them to evaluate and rate current partners. Paring down partnerships is not a bad idea: according to research conducted in 2020 by The Hackett Group, companies average 3,000 suppliers per $1 billion in spend. While you may not spend $1 billion a year with your vendors and suppliers, if you don’t have strict control over your business partners or which companies have access to your data, you’re taking a risk from a financial and security standpoint.

How to Evaluate a Vendor

When evaluating vendors and suppliers, you’ll need to make both quantitative and qualitative assessments to ensure a purchasing process that works for your organization. It's a good idea to track metrics on an ongoing basis to confirm contracts are still beneficial.

Vendor Evaluation Template

This third-party vendor assessment template includes areas to note corrective actions and observations, but you can also adjust it to reflect your company criteria. Additionally, the template includes a scoring system that makes it easy to rank individual vendors and suppliers, and you can use the aggregated scores to make comparisons. By compiling this information in one place, you can combine written descriptions with ease. 

Download Vendor Evaluation Template

Excel | Word

If you need more templates to manage your supply chain process, take a look at “ 13 Free Vendor Templates .”

Different Methods of Vendor Evaluation

There is no single vendor evaluation method that covers every circumstance. To evaluate vendors, take into consideration your business and the vendor classification, as well as whether the vendor is a prospect or already under contract, and if you're conducting a post-award review.

Following is a list of common methods that you may use to conduct your vendor evaluation:

• Commercial: When considering the commercial side of any potential vendor or supplier, keep in mind their reputation, market dominance, market and advertising presence, awards, ability to deliver promptly, and existing clients.
• Technical: A technical evaluation is centered on standards for compliance, innovation, technical equipment, and scientific capabilities. 
• Records: In this type of vendor evaluation, you collect data from public sources, such as financial records, industry news items, and award notices.  
• Before-the-Fact: In this type of evaluation, the evaluator plans and starts gathering data from public data sources and vendor or supplier endorsement or reviews early in the history of the project. Replies to RFIs and RFPs with substantiating documents should provide many of the necessary answers, too.
• After-the-Fact: For this evaluation, review a first engagement or shipment and assess performance and process. Ask critical stakeholders about successes, failures, and operations. Responses provide data for decisions, future planning, and discussions after an event is complete.

By performing these vendor analysis methods based on criteria and data, you will have support in making evidence-based decisions. Remember that in today’s competitive business environment, you shouldn’t simply be solving for cost — the price for poor quality or delivery can be too high in the end.

Vendor Performance Evaluation

 Vendor performance evaluation requires three elements: a vendor roster based on value to your organization; a system to track performance against metrics and service level agreement; and the utilization of a strategic ranking system.

1. Organize Your Roster: You can use the description of the goods or services a vendor supplies or rank them by their usefulness to the organization, then incorporate colors, numbers, letters, or words to categorize them in charts or spreadsheets. You can think about vendors by their value to the organization and how much you invest in their engagement to assign relative value by size, capability, or dollar amounts. 

Use this scorecard as a selection or ongoing rating system template for your vendor roster. Once you've gathered your data and compiled it into the spreadsheet, you can use the roster to compare current vendors or to evaluate a single supplier. Easily edit the criteria checklist to match your business needs.

  ‌ Download Vendor Assessment and Scorecard Template - Excel

To learn more about vendor management scorecards, refer to “ The Ultimate to Vendor Scorecards .”

2. Establish Tracking and Performance: Pick an auditor or a small team that can promote or demote a vendor or highlight distinctive evaluations. Track vendor and supplier value on an ongoing basis, or take a survey based on trigger metrics that have raised concerns like quality issues, delivery delays, or damaged products.

Surveys can be helpful and provide a way to get input from purchasing or other personnel who may be closer to the situation than a manager. Set guidelines for employee feedback: Make sure they are fact-based and not just opinions. Answers to survey questions can be on a simple value scale from one to five. Survey categories and questions might include the following:

• Performance: Did the supplier perform according to specifications? 
• Delivery: Were deliveries on time? 
• Invoicing: How did the final price compare to the budget? 
• Customer Service: How well does the vendor respond to questions or solve problems?  
• Knowledge: How knowledgeable is the vendor about your company? 

3. Maintain a Strategic Vendor Evaluation System: Apply what you know about vendor and supplier performance to segment vendors strategically. The Kraljic Matrix is a vendor evaluation method used to apportion goods or services by dividing them into four quadrants or classes, based on the risk or complexity of market supply and the value of the purchased item based on the impact to your company’s profitability. The matrix allows your company to define the most advantageous purchasing strategies and avoid bottlenecks that prevent you from meeting your product or service delivery goals. 

Kraljic Vendor Segmentation Matrix Template

Use this template to maximize supply stability, lower costs, and shift procurement from a transaction to a strategic activity. In the Kraljic model, supply risk rises when there are few suppliers; when availability could be affected by natural disasters, pandemics, or government instability; or when delivery logistics are challenging. Profit impact is high when the item adds sizable value to the organization's productivity or impacts quality. 

The template prompts you to classify services and products you purchase as strategic, leverage , bottleneck, or non-critical , according to the supply risk and profit potential of each. Doing so helps you determine which vendors make the most sense based on business objectives.

Download Kraljic Vendor Segmentation Matrix Template

Perform ongoing vendor reviews to yield red flags when vendors don't meet expectations. The process should be easy if you have proper documentation and ongoing oversight. When problems occur, alert the vendor right away. You and the vendor should have contingency plans for potential workarounds when issues arise. If it looks like there's no remedy and the situation isn't an anomaly, you may need to end the partnership. If you terminate a relationship, be sure to have a post-mortem with your team and vendor.

Tips to Improve the Vendor Assessment Process

The vendor assessment process centers on clarity and a time-based, four-phase approach: prepare (lay the groundwork); discover (perform due diligence); evaluate (perform a vendor comparison); and select (make decisions and sign contracts). Below are two key best practices to keep in mind when assessing vendors: 

• Assign Responsibility: Decide who in your company is responsible for the assessment. It’s often an employee in the purchasing department, but for high-dollar or complex situations, you may hire an outside business analyst. The consultant takes over some of the time-consuming aspects of the process, including research, writing the request for proposal (RFP), and performing an in-depth financial analysis that may not be available in house.
• Set Up a Timeframe: Without a timeframe and process, getting to the final selection and hiring process can take up to a year. A good rule of thumb is to allow a maximum of three months to complete the process.

Vendor and Supplier Selection Process and Timeline

1. Prepare: This is the state when you define your basic requirements and create request-for-information (RFI) and request-for-proposal (RFP) packages. RFIs and RFPs provide a standard against which to evaluate potential vendors. They provide a detailed explanation of what you want and why, and you can use them to solicit bids and identify the best partner in developing the product. An RFI or RFP is a competitive process in which several companies may submit proposals. If you’re new to the RFI and RFP process, read “ Write a Winning Request for Proposal and Conquer the Process in Your Company .”

2. Discover: Research vendors and suppliers, and distribute RFIs and RFPs to companies that meet your criteria. 

3. Evaluate: Evaluate RFI and RFP responses. Select the top vendors, compare their qualifications, and review with stakeholders, legal, and business analysts.

After you’ve received RFIs or RFPs from potential vendors or suppliers, use this spreadsheet to quickly compare them based on criteria or business attributes in your screening documents. This template provides a simple way to compile statistics and background information to aid in your selection process.

‌Download Vendor Comparison Template

Excel  | PDF

4. Select: Based on criteria you set, choose and meet with the top two potential vendors. Have the purchasing lead or key decision-makers make a final selection. Prepare contracts, set up accounts, and prepare for onboarding.

Vendor and Supplier Selection Process and Timeline Gantt Template

This Gantt template provides all team members with a simple way to organize and track the vendor and selection process, as well as ensure that you’re sticking to deadlines. To begin your selection process, input the task data — organized here into the Prepare, Discover, Evaluate, and Select phases — along with who owns the task, as well as start and end dates, to generate a high-level visual overview. Customize and add more steps as your organization requires them.

Download the Vendor and Supplier Selection Process and Timeline Gantt Template

Excel | Smartsheet

• Verify Information by Quality: When you evaluate vendors and suppliers, obtain the best possible information. “A key aspect of the 10C Model is the need to assess the quality and validity of the information submitted by potential partner companies,” advises Dr. Carter. “The model defines verified and high-quality evidence as complete, verified by a third party, current and comprehensive. Medium-quality evidence is almost complete, offers some verification, some observation, and a contribution of desk research and limited observation. L ow-quality evidence relies on records and desk research, is incomplete, and has limited verification. You can use these scores in the overall evaluation of the contractor or supplier,” says Dr. Carter.
• Establish Key Performance Indicators (KPIs): KPIs are business metrics deployed to evaluate the performance of specific factors and strategic goals that are crucial to company success. You can use KPIs in vendor evaluation to help vet their performance. Find out more about developing your own KPIs and how to organize them with “ All About KPI Dashboards .”
• Consider a Common Playbook: If you’re working with other vendors on a large project, Dr. Carter says a common pre-qualification process makes sense. “The principal contractors working on HS2 (UK’s £100M proposed high-speed rail link) have collaborated to create a common pre-qualification system that will cut costs and streamline tenders for subcontractors,” he explains. “Bidders who want to work with four of the main contractors on the HS2 scheme will go through an identical pre-qualification process, thus reducing duplication and the constant reworking of submission information to meet the varied formats of the customer.”
• Emphasize Communications: Give and take to improve relationships and deliverables. Be clear with vendors early in any process or project about expectations, deadlines, and critical information without overwhelming them. Personalize communication and respond promptly to concerns.
• Make a Site Visit: Conduct a site visit to verify that information submitted in writing or through conversation reflects reality. An in-person inspection reveals how the supplier conducts business, as well as their capacity to meet your criteria.
• Onboard: Once you’ve gone through such an exacting process, you’ll want to maintain good relationships with your vendors. A proven way to start on the right foot and ensure a smooth interaction is with a transparent process to bring your new suppliers online. Learn onboarding best practices with “How to Streamline Supplier and Vendor Onboarding: Best Practices, Process Flows, and Checklists .”

Leverage Cloud-Based Software: Use cloud-based software to simplify compliance, reduce risk, and help organize and speed vendor assessments.

Disaster and Pandemic Readiness

Assessing vendors should include questions about disaster and pandemic preparedness. The COVID-19 pandemic has underscored the need to assess vendors’ ability to deliver the services and products you need to maintain critical operations under emergency conditions.

Diversity of customer, supplier, and third-party providers across geographies will help avoid single points of failure and decrease your organization's exposure to local outages, as well as geopolitical and pandemic events.

Here are some disaster and pandemic readiness questions to ask of present and potential vendors:

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Supplier Evaluation Form : Example, Tools and Benefits

What is a Supplier Evaluation Form?

Supplier evaluation is a term used by many businesses and organizations to evaluate and approve their existing and potential suppliers through a series of assessments. One of the best ways is to create a supplier evaluation form.

This evaluation consists of a series of questions based on parameters like competency, capacity, consistency, quality etc.with a view to assessing the suppliers to ensure a portfolio of best in class vendors.

This evaluation form is essential in order to monitor and measure the supplier’s performance for businesses to reduce the cost associated with the activities, analyze risk management and maintain scope for constant improvement in selecting the suppliers.

Did you know 66% of the organizations don’t have the internal resources to verify their third party supplier!

Learn more:  Vendor Security And Assessment Sample Questionnaire Template

Tools for Supplier Evaluation

Evaluating suppliers can be challenging, hence the best practice is to create an evaluation form, that will help any business to organize and evaluate the suppliers more efficiently. There is a Web Electronic RFP/ Tendering system that is used for initial screening but a more robust method is, the Carter 10Cs model that is recognized worldwide.

This model looks into the aspects of evaluating the supplier before being appointed. These are the Cs:

• Capacity – Does the supplier have the bandwidth to deliver?
• Competency – Is the supplier diligent and can complete the task in a given period of time?
• Consistency – Is there a consistent output from the supplier?
• Control of process – Does the supplier offer flexibility and have systematic control over his/her process?
• Commitment to Quality – Is there a system established by the supplier that works constantly for quality management checks?
• Cash – Is the supplier financially independent or is there a third party involvement?
• Cost – Are the products and services offered by him/her cost-effective?
• Culture – Does the supplier have a good work culture and market reputation?
• Clean – Does the supplier have a  legal license, doesn’t favor uncertified professionals and is risk management certified?
• Communication efficiency – Does the supplier have the latest means of communication to answer queries put forth to them?

Based on these important parameters the evaluation form can be created and the supplier organization can be asked to furnish all the details right after the screening process is completed.

Supplier Evaluation Form Example

3 Benefits of Supplier Evaluation Form

Collecting supplier information before finalizing them is a good practice. For this, the evaluation form plays an important role. The questions asked in the evaluation form help organizations come to a solid conclusion whether or not the supplier should be appointed.

Apart from this, there are other benefits of having an evaluation form ready for supplier or vendor evaluation:

1. Helps in assessing any risk involved: If an organization is not aware of the supplier, getting an assessment done will help the organization know their supplier and they can assess any risk associated with hiring them. As the Carters 10C model suggests, risk management can be associated with capacity, competency, and commitment to quality.

2. Helps in protecting the brand reputation: Through these evaluation forms, organizations can hire suppliers with a good market repute and in turn minimize any risk associated with tampering their brand reputation. Carter’s 10C model suggests brand reputation can be associated with control of the process, clean (has a legal license) and culture.

3. Helps in stimulating the cost factor: There are various cost factors associated with hiring the suppliers. A huge sum of money is invested by organizations while finalizing on their suppliers. By having a systematic evaluation form the organizations can understand the overall ability of their vendors to fulfill the organization’s expectations and requirements. Associating with Carter’s 10C, the cost factor is in tandem with cost and monetary competency.  

Thinking of evaluating the service of your suppliers? Here’s QuestionPro’s free supplier service evaluation form template.

After being chosen as a vendor/supplier by a company, it is important for a vendor/supplier to communicate with his customer as well. From a vendor’s perspective, he has to make sure he takes care of the above points in order to stay ahead of his competition and make his client a loyal customer. In order to do so, he needs to identify the requirements of a customer and what are the factors that can strengthen the vendor-customer relationship. In such a case, the vendor can carry out a small survey with his clients, which will enable him to improve in certain areas after understanding the customer’s expectations.

Top 3 free supplier evaluation forms and survey templates:

• Supplier or vendor satisfaction template
• Supplier or vendor security evaluation template
• Supplier or vendor service evaluation template

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5 Key Factors to Consider When Conducting a Supplier Evaluation

In this guide, we’ll be going over some of the most crucial factors in conducting supplier evaluations, as well as how to ensure evaluations are successful.

In any supplier evaluation, whether for a new or current vendor, it’s important to gauge the company’s production capacity, performance, risk, quality, and environmental impact. However, gauging these factors by itself will get you nowhere without an organized approach to the evaluation and a larger framework to make the assessment information work for you.  

In this guide, we’ll be going over some of the most crucial factors in conducting supplier evaluations, as well as how to ensure evaluations are successful. First, however, we’ll be diving into why supplier assessments are important and how to set up a larger vendor evaluation system to ensure you can get the fullest benefit from your evaluation data.

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A strong supply chain is the backbone of a successful business. Regardless of your industry, close working relationships with your suppliers will streamline production timelines, minimize operating costs, and guarantee the quality of your products.

Most companies regularly evaluate their suppliers’ performance in search of inefficiencies or possibilities for further growth to buttress the supply chain and reinforce relationships with suppliers. These supplier evaluations are holistic assessments grounded in verifiable quantitative metrics and meaningful qualitative observations.

By examining a supplier’s capacities, technological resources, delivery strategies, and general business practices, you can ensure that your partners share your priorities, and can then adjust their operations to your company’s competitive benefit. In the process, you can significantly reduce your own risks, improve visibility at every stage of operations, and create greater value for your products and services.

Putting a Vendor Evaluation System in Place

Vendor performance should include clear KPIs and metrics slated toward company priorities, including red flag metrics to show when a supplier fails to meet standards. Procurers should rate suppliers each time they are used, with deadlines for when they submit the feedback after a purchase. The feedback should also be reviewed regularly by the person or group classifying vendors. It can be easier to adopt a number evaluation system when procurers rate supplier performance, as the final scores can be used to easily rank companies.

These ratings and indicators shouldn’t just exist internally either. It’s important to agree on them with your vendors so that they’re aware of expectations and can provide feedback about them. Including a system of recognition and reward for improvements can also help to clarify expectations for them and motivate improvements. Common mistakes in vendor evaluation systems include inconsistent use of agreed-upon KPIs and metrics, not giving regular feedback to suppliers on their performance, ignoring supplier feedback in discussions and determining metrics, and using confusing metrics and KPIs.

What to Assess in a Supplier Evaluation

Vendor evaluation is largely founded on data. Therefore, this should be a carefully structured process, centered on quantifiable performance indicators such as delivery times, production costs, and inventory levels. A standardized set of supplier evaluation criteria provides a necessary frame of reference with which you can assess a supplier’s abilities and compare it with those of competitors.

Before evaluating a current or potential supplier, however, a company must set clear expectations for the relationship between them. At the outset, you should clearly articulate your goals so that the supplier fully understands the obligations involved and can adjust operations accordingly if needed.

While supplier evaluation can be based on a number of factors, there are several considerations that every company should address, regardless of the specific industry. Some of these elements include:

• Production Capacity All supplier evaluations should thoroughly appraise the supplier’s abilities and limitations. A supplier that cannot scale production in response to your production cycles will not fare well in any review.
• Quality While it can be difficult to quantify the quality of a product, this should always be a central component of a supplier evaluation. ISO BS/EN ISO 9001:2000 certification remains the industry standard here, which indicates that the supplier excels in management responsibility, resource management, product realization, and measurement, analysis, and improvement.
• Performance Your company should 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.
• Risk Every business invariably confronts some risks, but its suppliers should actively work to minimize them throughout the supply chain. Reviewing performance metrics such as overall delays, average response time, and corrective actions can help you develop a reliable quantitative assessment of the risks posed by a particular supplier.
• Environmental Impact Sustainability is an essential element of a successful business for both financial and ethical reasons. An evaluation should cover a supplier’s waste management strategies, waste reduction practices, and material procurement procedures, as well as efforts to achieve energy efficiency and any protocols employed when handling harmful materials.

How to Ensure a Successful Supplier Evaluation

While many companies can easily identify the criteria needed for a supplier evaluation, it can be a challenge to follow the practices needed to guarantee its success. The following guidelines can help your company retain its focus throughout your evaluation.

• Outline a schedule.  Clearly defining needed tasks and establishing deadlines for them ensures that everybody understands their responsibilities and will work to complete them correctly and promptly.
• Provide your suppliers with a concise yet detailed questionnaire at the beginning of the process.  The questionnaire should request both factual and subjective responses, should only solicit necessary information, and should not contain any questions that the respondent cannot answer.
• Visit your supplier’s facilities.  A personal visit to your supplier can confirm the data gained from the questionnaire while offering insights into intangible aspects of the supplier’s operations, such as workplace culture. This also offers an opportunity to review the supplier’s quality control strategies, the current state of equipment, and the workforce’s technical competence.
• Ensure that the right staff members are participating in the evaluation.  If you need to evaluate the performance of a Level 1 supplier, for example, the chief financial or revenue officer should probably be involved, as well as senior members of the procurement department.
• Be courteous to your supplier . A strong working relationship with your supplier can only heighten productivity. Don’t hesitate to congratulate strong performers, and provide less successful suppliers with a warning and some guidance so that they can attempt to resolve the issue before you end your partnership.

The Value of Smart Supplier Evaluations

Supplier evaluations serve as an invaluable tool for your business. By conducting them regularly, your company can gain greater insight into operations, proactively identify opportunities for growth, lower risks, streamline production timelines, eliminate unnecessary expenses, and bolster the performance of your suppliers. These competitive benefits cannot be overstated.

Although it should, of course, be comprehensive, supplier evaluation doesn’t need to be difficult. By following the appropriate protocols within a larger framework, it can be a simple process for companies and suppliers alike, allowing both to better understand their strengths and shortcomings, and encouraging both to work together to build a stronger, more prosperous partnership.

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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Supplier Evaluation — Everything a Procurement Professional Should

Table of content

What is Supplier Evaluation?

The importance of supplier evaluation, the benefits of conducting an evaluation of suppliers, supplier performance evaluation checklist, frequently asked questions.

Key take-aways

• Supplier evaluation is an instrument used to measure the effectiveness and suitability of suppliers to your company.
• Doing regular supplier evaluation gives a lot of benefits, especially improving your supplier’s performance.
• Supplier evaluation also helps companies choose and select the best partners for their businesses.

A supplier’s evaluation is crucial in procurement. The evaluation helps the organization filter the potential suppliers to get the best partner for its business. However, how do organizations evaluate these potential suppliers?

In this article, we will discuss what supplier evaluation is. We will also check how organizations assess their potential suppliers and their importance in procurement. 

Once you are done reading this article, you will know how crucial supplier evaluation is for every business. Additionally, it will decrease the risks that you can bring to your organization by sourcing ineffective suppliers. 

We know that you already have a hint of what supplier evaluation is due to its name. Supplier evaluation is a process in which the organization monitors and assesses the performance of its suppliers. The evaluation of suppliers is done either monthly or yearly. 

The assessment of the supplier includes a review of the supplier’s quality of product or service, price, financial stability, delivery times, and customer service. 

The purpose of supplier evaluation is to ensure that you will partner with the best suppliers available in the market. 

It is important to note that the supplier must have a clear understanding of the needs and requirements of the organization before conducting an evaluation. This will help the organization to know what areas its supplier falls short of.

Supplier evaluation is significant to ensure that the suppliers of the organization are meeting the standards and requirements. It also allows the organization to identify any problems that can affect it greatly. 

Conducting regular evaluations will lessen the risk of non-compliance and ensure that the selected suppliers of the company are doing their best. 

Measuring and assessing the performance of the supplier is crucial to the reduction in costs, increase in production, and business performance. Overall, it is what drives the organization to continuously improve its supply chain .

Although the main reason for evaluating your suppliers is to see their suitability with you and your goals, there are other reasons why it’s important. Here are the main benefits of supplier evaluation:

1. Enhance the visibility of the supplier’s performance

When organizations do not have the data to check the performance of their supplier, supplier management will tend to be based on assumptions. 

If the organization monitors the performance of its supplier, the supplier will be obliged to do its best performance. 

  2. Mitigate risks

Insights into the supplier’s performance can help reduce business risk particularly, the increasing dependency of organizations on their key suppliers. 

The risk can be financial or operational and it increases depending on the location or distance of the supplier from the organization.

3. Improve supplier performance

The goal of supplier evaluation is to ensure that the suppliers are still performing their best for the organization. Supplier assessment can be truly effective when it leads to continuous improvement activities that will enhance the supplier’s performance. 

4. Align customer and business practices

It is ideal that the suppliers should align with the customers and the organization by sharing the same business ethics . Through the evaluation, the supplier will be committed to sustainability and continuous improvement. 

Now that we have tackled the benefits of supplier evaluation, the following are what you should include in your supplier performance evaluation checklist or form:

1. Establish performance indicators

Of course, the organization needs to establish a supplier evaluation plan to know the parameters it wants to assess. Without this, the organization cannot fully evaluate its suppliers or worse, reflect insights that are counter-productive to your business. 

The following are the parameters that organizations must include for an effective performance evaluation:

• Price – The organization can create a win-win situation with vendors who are able and willing to lower their prices. By lowering their prices, the organization would want to deal with them often. 

However, the organization must be observant. If there are any additional charges or surprise costs, then the organization must be wary of the vendor. 

• Cost – This can either be monetary or non-monetary when dealing with suppliers. It includes peripheral costs that are associated with movement, packaging, delivery, and disposal 
• Quantity – The organization can also consider the comparison between quantities ordered and received. Sometimes, the vendor will send a notice to confirm and explain anomalies in the delivery. 
• Quality – The organization must inspect the delivered goods to check any visible product defects, rejections, and returns.
• Service – This includes indicators such as the response time of resolving issues and client satisfaction engagement. 
• Delivery – This indicator focuses on the timeliness of the order process and the pre-delivery waiting period. 
• Payment terms – A fast payment method and terms are preferable to organizations than a slow payment process. 
• Financial health – Suppliers that have good financial health can provide for the needs of an organization much better.
• Compliance – You need to know how compliant your suppliers are in terms of their taxes, contracts, and procedures.

2. Classify suppliers

In order for the organization to classify its suppliers, it must classify them first into categories. One way to do this is by classifying them by their geography. 

3. Centralized the data

Many organizations have many suppliers across various functions. Bringing all of them into one centralized portal can allow you to manage and assess them well. 

4. Collaborate with suppliers for feedback

Not all evaluation or assessment needs to be quantitative. Constant collaboration with your supplier can bring out the bottlenecks more visibly. 

5. Create an actionable plan

After you have done the previous steps, the organization can start to create an actionable plan . This is necessary to ensure action against your findings to close the loop in the evaluation of the organization. Additionally, it helps to know the gaps in performance and devise strategies to fix them.

In conclusion, supplier evaluation is a critical process in procurement that helps organizations select the best partners for their business. It involves assessing various aspects of a supplier’s performance, such as product quality, pricing, financial stability, and delivery times.

Supplier evaluation is essential for ensuring standards are met, mitigating risks, improving supplier performance, and aligning business practices.

To effectively evaluate suppliers, organizations should establish performance indicators, classify suppliers, centralize data, collaborate for feedback, and create actionable plans based on evaluation findings. Implementing these steps can lead to better supplier management and ultimately benefit the organization’s supply chain and business performance.

It is a process in which the organization monitors and assesses the performance of its suppliers.

Why is it needed?

Supplier evaluation is needed to make sure that the suppliers of the organization are complying with the standards and requirements.

What are the indicators that the organization must include in its evaluation?

Some of the indicators that you need to consider are the price, quality, cost, quantity, service, delivery, payment terms, financial health, and compliance of the suppliers.

About the author

"> "> My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

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Article • 11 min read

Carter's 10 Cs of Supplier Evaluation

Improving your supply chain management.

By the Mind Tools Content Team

Making the right choice of supplier for any part of your organization is critical. Get it right, and you can build a lasting, mutually beneficial relationship. Get it wrong, and the results can be both costly and disruptive.

You might find a supplier that offers a good price, but later realize that the quality of their products do not meet your expectations. Or maybe they don't keep you up to date with the progress of your orders.

Mismatches between your procurement needs and what a supplier offers can add costs, cause delays, and even damage your organization's reputation – for example, if the equipment or resources supplied are substandard.

In this article, reviewed and endorsed by the model's originator, Dr Ray Carter , you can learn how to use the 10 Cs of Supplier Evaluation to identify your organization's needs, understand how suppliers can meet them, and choose the right supplier for you.

Defining The 10 Cs

Dr Carter, director of DPSS Consultants, first outlined his Seven Cs of Supplier Evaluation in a 1995 article in the Journal of Purchasing and Supply Management. He later added three new Cs to the model. [1]

The 10 Cs are criteria for assessing the suitability of a potential supplier. Use them as a checklist when deciding who to approach, and who to avoid. They are:

• Competency.
• Commitment.
• Consistency.
• Communication.

This model was first published in the Journal of Purchasing and Supply Management , Carter, R., 'The Seven C's of Supplier Evaluation,' 44-46, © Elsevier (1995). Model reprinted with kind permission of Dr Ray Carter.

Using the 10 Cs in Procurement Management

Carter's 10 Cs can form the basis for a strong Procurement Management policy. They help you to evaluate potential suppliers in the areas that matter to you, and can greatly improve your supply chain management. Bear in mind also, that with the more agile and gig economy prevalent today, suppliers might well be micro or Small to Medium Enterprizes (SMEs) and not just big corporates.

First, you can use the 10 Cs to analyze different aspects of a supplier's business: examining all 10 elements will give you a broad understanding of the supplier's effectiveness and ability to deliver.

If you have only a few suppliers to assess, and you want them to excel in all 10 Cs, you might quickly eliminate all of them. To avoid this, use a grid-based tool such as Decision Matrix Analysis to score each supplier against each of the 10 Cs. Then choose the supplier that scores best against the conditions that are most important to you.

Remember to double-check the areas where the supplier is weak – some of these could make a relationship impossible.

The checklist can also help you to negotiate a better price. For example, if you identify a particularly weak area in a supplier, you can use this insight to bargain for a lower price – especially if you perceive that the supplier's weakness poses a risk for your firm, and you need to take action to minimize this risk.

You can adapt Carter's 10 Cs checklist to outline your organization's needs in a tendering process . Use each of the elements to state the standards that you want your bidders to meet.

The 10 Cs Model in Detail

It's worth putting a lot of effort into supplier evaluation for business-critical resources, for situations where you will be spending a lot of money, or where you want a long-term relationship with a supplier.

When you research a supplier, prepare probing questions – ones that will reveal the level of detail that you need to make an informed decision. Where possible, talk to existing customers as well as the suppliers themselves.

In the following sections, we look at how you can apply Carter's 10 Cs model to find the supplier that will best fit your organization's needs and values.

1. Competency

First, look at how competent the supplier is. Make a thorough assessment of their capabilities, and measure them against your needs. Then look at what other customers think. How happy are they with the supplier? Have they encountered any problems? And find out why former customers changed supplier.

Look for customers whose needs and values are similar to yours, to ensure that the information you gather is relevant to your organization.

2. Capacity

The supplier needs to have enough capacity to handle your company's requirements. So, ask how quickly they will be able to respond to your needs, and to market and supply fluctuations.

Look at the supplier's resources, too. Do they have the means to meet your orders, taking into account their commitments to other clients? (These resources could include staff, equipment, storage, and available materials.)

3. Commitment

Your supplier needs to provide evidence that they are committed to high quality standards. Where appropriate, look for quality initiatives within the organization, such as ISO 9001 or Six Sigma .

The supplier must also show they will be committed to you, as a customer, throughout the time that you expect to work together. (This is particularly important if you're planning a long-term relationship with them.)

Look for evidence of their ongoing commitment to fulfilling your requirements, whatever the needs of their other customers.

Ask how much control this supplier has over their policies, processes, procedures, and supply chain. How will they ensure that they deliver consistently and reliably, especially if they rely on scarce resources, and if these resources are controlled by another organization.

It is also vital to ask about their compliance with the General Data Protection Regulation (GDPR), which is essential for any organization that works in, or has partners in, the European Union (EU).

Your supplier should be in good financial health. Cash-positive firms are in a much better position to weather economic ups and downs.

So, does this supplier have plenty of cash at hand, or are they overextended financially? And what information can the supplier offer to demonstrate their ongoing financial strength?

Look at the cost of the product or service that this supplier provides. How does it compare with the other options that you're considering?

Most people consider cost to be a key factor when choosing a supplier. However, cost is in the middle of the 10 Cs list for a reason. Other factors, such as a commitment to quality and financial health, can potentially affect your business much more than cost alone, particularly if you plan to rely on the supplier long-term.

7. Consistency

How will this supplier ensure that they consistently provide high quality goods or services? Do they have a strong track record, or are they an industry newcomer with an innovative approach?

No one can be perfect all the time. However, the supplier should have processes or procedures in place to ensure consistency. Ask potential suppliers about their approach, and, if possible, get a demonstration and a test product.

The best business relationships are based on closely matching workplace values . This is why looking at the supplier's business culture is important. For example, what if your organization's most important value is quality, and your main supplier cares more about meeting deadlines? This mismatch could mean that they are willing to cut corners in a way that could be unacceptable to you.

Look out for suppliers that have received recognition within the industry for their cultural excellence, and use the Cultural Web to help identify the organization's values.

This refers to the supplier's commitment to sustainability , and their adherence to environmental laws and best practices. What are they doing to reduce their environmental footprint? Ask to see evidence of any green accolades or credentials they have earned.

Also, does this supplier treat their people – and the people around them – well? Do they have a reputation for Corporate Social Responsibility , and for doing business ethically ?

10. Communication

Find out how the supplier plans to keep in touch with you. Will their proposed communication approaches align with your preferred methods? And who will be your contact at this firm?

It's also important to find out how the supplier will handle communications in the event of a crisis. How quickly will they notify you if there's a supply disruption? How will that communication take place? And will you be able to reach senior people, if you need to?

Communication is particularly important if you're managing day-to-day functions that you outsource , or if you're dealing with freelancers or consultants who provide core services.

When you're researching suppliers, keep all of the information you generate in writing – particularly queries aimed directly at the supplier. This will mean that it's "on the record," so you can refer back to it later if there's a problem.

Ray Carter first developed his Seven Cs of Supplier Evaluation in 1995. He later added three more Cs.

You can use this model to evaluate the competency and viability of potential suppliers. This allows you to choose the firm that best meets your needs, and that aligns with your organization's values.

The 10 Cs are:

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5 key criteria for evaluating your suppliers

In any supplier evaluation , whether of a new or existing supplier, it’s important to measure the company’s production capacity, performance, risks, quality and environmental impact . However, evaluating these factors on their own will get you nowhere if you don’t have an organized approach to evaluation and a broader framework to make the evaluation information work for you.In this article, we’ll review some of the most crucial factors in conducting supplier evaluations, as well as how to ensure successful evaluations. First, however, we’ll look at why supplier evaluations are important , and how to set up a broader supplier evaluation system to ensure you can get the most out of your evaluation data.

• 1 Why conduct a supplier evaluation?
• 2 Setting up a supplier evaluation system
• 3.1 Production capacity
• 3.2 Quality
• 3.3 Performance
• 3.5 Environmental impact
• 4 How to ensure a successful supplier evaluation
• 5 Visit your supplier’s website
• 6 The benefits of supplier evaluations

Why conduct a supplier evaluation?

A strong supply chain is the backbone of a successful business . Whatever your industry, close working relationships with your suppliers will enable you to streamline production lead times, minimize operating costs and guarantee the quality of your products.Most companies regularly evaluate the performance of their suppliers in search of inefficiencies or growth opportunities to consolidate the supply chain and strengthen supplier relationships . By examining a supplier’s capabilities, technological resources, delivery strategies and general business practices, you can ensure that your partners share your priorities, and can then adjust their operations in the interests of your company’s competitiveness. By doing so, you can significantly reduce your own risks , improve visibility at every stage of operations, and create greater value for your products and services .

Setting up a supplier evaluation system

Evaluating supplier performance should be an integral part of your company’s procurement activities , not a procedure reserved for reviewing new suppliers . A robust supplier evaluation system will regularly assess suppliers, using categories and rankings within those categories to determine procurement strengths and weaknesses.Even for companies that are limited only in the number of suppliers they can use, evaluations help to distinguish which suppliers are to be preferred , as well as identifying areas of potential risk .

The ultimate aim of the system is to monitor the consistency of supplier performance in a way that is integrated with the purchasing process.Supplier performance should include key performance indicators (KPIs) and clear metrics focused on business priorities, including alert measures to show when a supplier is not meeting standards. Buyers should evaluate suppliers every time they call on them, with deadlines for sending feedback after a purchase. Feedback should also be reviewed regularly by the person or group responsible for ranking suppliers. It can be easier to implement software when buyers rate supplier performance , as the final scores can be used to easily rank companies.

These ratings and indicators don’t have to exist only internally, either. It’s important to agree them with your suppliers so that they are aware of expectations and can provide feedback on them. The inclusion of a system for recognizing and rewarding improvement can also help to clarify expectations of them, and motivate them to improve . Common mistakes in supplier evaluation systems include inconsistent use of KPIs and agreed metrics , failure to give suppliers regular feedback on their performance, ignoring supplier feedback in discussions and setting metrics, and the use of confusing metrics and KPIs.

What should be assessed in a supplier evaluation?

Supplier evaluation is largely data-driven. It must therefore be a carefully structured process, focused on quantifiable performance indicators such as delivery times, production costs and stock levels . A standardized set of supplier evaluation criteria provides a necessary frame of reference with which you can assess a supplier’s capabilities and compare them to those of its competitors.However, before evaluating a current or potential supplier, the company needs to set clear expectations for the relationship between them. From the outset, you need to state your objectives clearly , so that the supplier fully understands the obligations involved, and can adjust its operations accordingly if necessary.While the evaluation of a supplier can be based on a number of factors, there are several elements that every company needs to take into account, whatever the industry concerned. Some of these factors include

Production capacity

All supplier evaluations must address the supplier’s capabilities and limitations . A supplier who can’t adapt production to your production cycles won’t do well.

Although it can be difficult to quantify product quality , it should always be a central element in supplier evaluation . ISO 9001 certification remains the industry standard in this area, indicating that the supplier excels in management responsibility, resource management, product realization and measurement, analysis and improvement.

Performance

Your company should ask as many questions as necessary to determine whether a supplier can perform your typical functions . Previous experience with similar companies, relevant recent projects and possible advances on current products or processes are all valid topics for discussion.

Every company invariably faces certain risks, but suppliers should strive to minimize them throughout the supply chain. Examining performance measures such as overall delays, average response time and corrective actions can help you develop a reliable quantitative assessment of the risks posed by a particular supplier .

Environmental impact

Sustainable development is an essential element of a company’s success, for both financial and ethical reasons. The assessment should cover the supplier’s waste management strategies, waste minimization practices and materials procurement procedures , as well as its energy efficiency efforts and protocols for handling hazardous materials .

How to ensure a successful supplier evaluation

While many companies can easily identify the criteria required for supplier evaluation , it can be difficult to follow the practices necessary to ensure its success . The following guidelines can help your company stay focused throughout your evaluation .Establish a timetable . By clearly defining the necessary tasks and setting deadlines for them, you ensure that everyone understands their responsibilities and will strive to complete them correctly and promptly. Provide your suppliers with a concise but detailed questionnaire at the start of the process. The questionnaire should ask for both factual and subjective answers , should solicit only the necessary information, and should not contain questions that the respondent cannot answer .

Visit your supplier’s website

A personal visit to your supplier’s site can confirm the data obtained from the questionnaire, while offering insight into intangible aspects of the supplier’s business, such as workplace culture. It’s also an opportunity to examine the supplier’s quality control strategies, the current state of equipment and the technical skills of the workforce. Make sure the right staff members are involved in the assessment. If you need to evaluate the performance of a Tier 1 supplier , for example, the CFO should probably be involved, as well as purchasing department managers. Be courteous to your supplier . A strong working relationship with your supplier can only improve productivity . Don’t hesitate to congratulate the best-performing suppliers and give them a warning and advice so that they can try to solve the problem before you end your partnership.

The benefits of supplier evaluations

Supplier evaluation criteria are a valuable tool for your company . By carrying them out regularly, your company can better understand its operations, proactively identify opportunities for growth , reduce risk, streamline lead times , eliminate unnecessary expenditure and improve the performance of your suppliers . These competitive advantages cannot be overstated, and while supplier evaluation must, of course, be comprehensive, it need not be difficult . By following the right protocols within a broader framework, it can be a straightforward process for companies and suppliers alike, enabling both to better understand each other’s strengths and weaknesses , and encouraging them to work together to build a stronger, more prosperous partnership .

Want to learn more about our procurement management software Weproc? Contact us or request your free 15-minutes demo below!

Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.

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Increase Efficiency With a Routine Supplier Evaluation

As a business owner, you likely evaluate your employees’ performance from time to time. But, your employees aren’t the only ones you should be assessing. If you have suppliers you go to for inventory and materials, you need to evaluate their performance, too. To learn more about supplier evaluation and how to evaluate a supplier, read on.

Supplier evaluation process 101

Suppliers and vendors can make or break your company’s success. With good suppliers and vendors, you can streamline business operations, lower risks, and eliminate unnecessary expenses. Not to mention, conducting regular evaluations can help you spot problems and create a more prosperous partnership.

While evaluating your suppliers, consider the following:

• Performance
• Production capacity

So, what all should a supplier assessment include? Before you can start evaluating suppliers, you need to have a game plan. To get started learning how to evaluate suppliers, follow these six steps.

1. Determine performance indicators

To evaluate your suppliers’ performance, you need to determine what you’re going to be rating them on. The metrics you use can vary depending on your type of business and the suppliers you have.

Here are a few examples of performance indicators for vendors:

• On-time performance percentage
• Delivery track record
• Price competitiveness
• Defect rate
• Purchase order and invoice accuracy
• Vendor availability

Again, your performance indicators may vary depending on your business and the supplier. Narrow down what indicators your business will look at when it evaluates suppliers.

2. Craft an evaluation ranking

If your business has a lot of suppliers, it may be easier to evaluate them if you break them down by classification.

For example, you may want to classify suppliers into various categories, such as Level 1, Level 2, and Level 3. The categories allow you to evaluate suppliers using different surveys or methods.

Typically, companies use this step to classify suppliers based on how critical they are to the business.

3. Choose your method for evaluating suppliers

There are a number of supplier evaluation methods to choose from. You may want to use:

• Evaluation forms
• System metrics

Regardless of which method you choose, it’s always good to get feedback from your team. With forms and surveys, you can have employees answer questions about suppliers and vendors and receive honest feedback.

In conjunction with employee feedback, you may also want to gather metrics (e.g., number of products you had to return) to back up claims, especially if the supplier needs to make improvements.

You may want to meet as a team to discuss supplier performance. Or, you may designate a person or small group to go over the feedback and metrics.

4. Look for red flags

There’s nothing worse than dealing with a supplier who performs poorly and doesn’t meet expectations. When going through your evaluations, be on the lookout for supplier red flags. Red flags can include:

• Poor quality products
• Bad business-supplier relationships
• Overpriced products or services
• Poor communication

If you notice some red flags, don’t jump the gun and dissolve the partnership right away. Instead, offer constructive feedback. Discuss your concerns with suppliers who are giving you warning signs. Talk through your problems and use your data to back up your feedback. Consider giving them a warning first before jumping to more drastic actions (e.g., firing your supplier).

5. Get rid of weak links, if necessary

Sometimes, an issue (especially a repetitive one) with a supplier may be the final straw. And in some cases, it may be best to cut ties with an unreliable and underperforming supplier.

If you have discussed performance problems with a supplier and they have not improved, it may be time to end your business relationship with them.

If you have decided to let go of a supplier or vendor, let them know as soon as possible. Communicate with your supplier why you want to cut ties and let them know you would like to end the business relationship.

6. Conduct routine evaluations

Of course, your supplier evaluations shouldn’t occur just once in a blue moon. You should conduct assessments on a regular basis to ensure your business is getting good quality products, minimizing operating costs, and streamlining production timelines.

Conduct routine evaluations regularly, like once a month, quarter, or year. Make sure to inform your team and suppliers about your business’s evaluation schedule so they can prepare.

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How to Effectively Evaluate Your Product Suppliers

In the competitive landscape of business, evaluating your product suppliers is crucial for maintaining a strong supply chain and ensuring the success of your company. The evaluation process allows you to assess suppliers based on various factors such as quality, cost, delivery, service, communication, and innovation.

By regularly evaluating your suppliers, you can identify areas for improvement, minimize risks, streamline operations, and ultimately enhance the overall performance of your business. In this comprehensive guide, we will delve into the key steps involved in evaluating suppliers effectively, providing you with a framework to develop criteria and processes that yield actionable insights.

The Importance of Evaluating Suppliers

Setting up a vendor evaluation system, key factors to assess in supplier evaluation, best practices for a successful supplier evaluation, the value of smart supplier evaluations, final words.

A robust supplier evaluation process is essential for building a successful and sustainable business. It enables you to establish close working relationships with your suppliers , optimize production timelines, reduce operating costs, and ensure the quality of your products. Regular evaluations help identify inefficiencies, uncover growth opportunities, and reinforce relationships with suppliers. These evaluations are based on both quantitative metrics and qualitative observations, providing a holistic assessment of supplier performance.

To ensure a comprehensive evaluation, it is important to establish a vendor evaluation system that can be applied consistently to all suppliers. This system should go beyond vetting new vendors and also include regular evaluations of existing suppliers. By consistently evaluating suppliers using predefined categories and rankings, you can identify both strong and weak areas within your supply chain.

Even if your company has a limited number of suppliers, evaluations can help prioritize suppliers and identify potential risk areas. The ultimate goal of the system is to track vendor performance consistently and incorporate the evaluation data into the purchasing process.

Defining Key Performance Indicators (KPIs)

An effective vendor evaluation system should include clear KPIs and metrics aligned with your company’s priorities. These metrics should provide a comprehensive view of supplier performance and highlight any red flags indicating a failure to meet standards. Procurers should rate suppliers each time they are used, and feedback should be submitted within specified deadlines. Adopting a numerical evaluation system simplifies the ranking of companies based on their performance scores. It is crucial to agree on the evaluation criteria and metrics with your vendors to ensure alignment and enable them to provide feedback and suggestions for improvement.

Common Mistakes in Vendor Evaluation Systems

While implementing a vendor evaluation system, it is important to avoid common mistakes that can undermine the effectiveness of the process. Some common pitfalls include inconsistent use of agreed-upon KPIs and metrics, failure to provide regular feedback to suppliers on their performance, disregarding supplier feedback in discussions and decision-making, and using confusing or ambiguous metrics and KPIs. By addressing these challenges, you can ensure that your vendor evaluation system remains robust and yields actionable insights.

When evaluating suppliers, it is important to consider various factors to gain a comprehensive understanding of their capabilities and suitability for your business. While the specific evaluation criteria may vary across industries, there are several key factors that every company should assess:

Production Capacity

A thorough assessment of a supplier’s production capacity is crucial to determine their ability to meet your production cycles and scale production as needed. A supplier that cannot keep up with your demand or lacks the necessary resources may hinder your operations and lead to delays or inefficiencies.

Assessing the quality of a supplier’s products is essential to ensure that they meet your standards and expectations. ISO BS/EN ISO 9001:2000 certification is widely recognized as an industry standard for quality management. It assures that the supplier excels in areas such as management responsibility, resource management, product realization, measurement, analysis, and improvement.

Performance

Evaluating a supplier’s performance involves assessing their track record and experience in handling similar projects or clients. Previous experiences, references from other clients, and advancements in product development or process improvement are all valuable indicators of a supplier’s ability to meet your requirements.

Every business faces various risks, and suppliers should actively work to minimize these risks throughout the supply chain. Evaluating performance metrics such as overall delays, average response time, and corrective actions can help you assess the level of risk posed by a particular supplier and make informed decisions to mitigate those risks.

Environmental Impact

Sustainability is increasingly important for businesses, both from a financial and ethical standpoint. Evaluating a supplier’s environmental impact involves assessing their waste management strategies, efforts to reduce waste, material procurement procedures, energy efficiency initiatives, and protocols for handling harmful materials. By partnering with suppliers committed to sustainability, you can align your business with environmental goals and enhance your brand reputation.

While it is crucial to identify the criteria for evaluating suppliers, it is equally important to follow best practices to ensure the success of the evaluation process. By adhering to the following guidelines, you can maintain focus and obtain accurate and meaningful insights:

Outline a Schedule

Establish a clear schedule that outlines the tasks and deadlines for the evaluation process. This ensures that everyone involved understands their responsibilities and can complete the evaluation accurately and on time.

Prepare a Detailed Questionnaire

Provide your suppliers with a concise yet comprehensive questionnaire at the beginning of the evaluation process. The questionnaire should include factual and subjective questions that solicit necessary information. Avoid including questions that suppliers may not be able to answer. This questionnaire will serve as a valuable tool for collecting data and gaining insights into supplier capabilities.

Conduct On-Site Visits

Where feasible, schedule on-site visits to your suppliers’ facilities. This will enable you to validate the information gathered from the questionnaire and gain additional insights into the supplier’s operations. During the visit, review the supplier’s quality control strategies, assess the condition of their equipment, and evaluate the technical competence of their workforce. On-site visits also provide an opportunity to build stronger relationships with suppliers.

Involve the Right Stakeholders

Ensure that key stakeholders, such as the chief financial or revenue officer and senior members of the procurement department, participate in the evaluation process. Their expertise and insights will contribute to a comprehensive assessment of supplier performance.

Foster Positive Relationships

Maintaining strong relationships with your suppliers is essential for productive collaboration. Acknowledge and congratulate suppliers who consistently perform well, and provide constructive feedback and guidance to suppliers who may be falling short. Building a supportive and collaborative relationship will encourage suppliers to improve their performance and contribute to the success of your business.

Regular supplier evaluations are a valuable tool for businesses, providing insights that can drive operational improvements, minimize risks, streamline production timelines, reduce costs, and enhance supplier performance. By adopting a systematic approach to supplier evaluation and consistently applying predefined criteria and metrics, businesses can better understand their strengths and weaknesses, identify growth opportunities, and build stronger relationships with their suppliers. Comprehensive supplier evaluations empower businesses to make informed decisions, drive efficiency, and ensure the long-term success of their supply chain.

In conclusion, evaluating suppliers effectively is crucial for building a successful and sustainable business. By setting up a vendor evaluation system, defining key performance indicators, assessing critical factors, and following best practices, businesses can gather actionable insights and make informed decisions to optimize their supply chain. Regular supplier evaluations pave the way for enhanced collaboration, improved performance, and a competitive edge in the marketplace. Embrace the power of supplier evaluations to drive your business towards success.

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Maintaining good supplier performance is critical to the success of your business. A poorly performing supplier can impact your bottom line, and may even put your company at risk. That’s why it’s important to perform regular evaluations of your suppliers. In this blog post, we will provide you with a quick Supplier Performance  Evaluation Checklist  to help you evaluate supplier performance.

What is a Supplier Evaluation?

A supplier evaluation  is a process in which you measure and monitor the performance of your suppliers. This can be done on a regular basis, such as quarterly or annually. The evaluation should include a review of the supplier’s financial stability, quality of products or services, delivery times, and customer service. It’s important to have a clear understanding of your needs and expectations before conducting an evaluation. This will help you to identify any areas where the supplier may be falling short.

Why is Supplier Evaluation  Important?

Supplier evaluations are important because they help you to ensure that your suppliers are meeting your standards and requirements. They also allow you to identify any potential problems that could impact your business. By conducting regular evaluations, you can make sure that your suppliers are performing at their best, and take action to correct any problems.

Organizations with a global footprint, find managing a supplier base and corresponding sets of varying business rules quite tricky. It is critical to have a robust supplier evaluation  criteria or plan  for internal and external accountability and justification for a continuing relationship.

Depending on the context, a concrete supplier evaluation plan can help you in scenarios like:

• Planning to go for a repeat purchase
• Choosing the best supplier among a pool of ‘good’ suppliers within a category
• Weeding out poorly performing suppliers and replacing them with better ones
• Initiating a regular cost-benefit analysis practice

Measuring and evaluating supplier performance is paramount to a reduction in costs, increased process efficiency, and business performance. They help prevent product issues and post-payment defects and drive improvements in the supply chain.

Read Our Whitepaper- Supplier Risk And Performance Management: Best Practices For KPI Creation

Benefits of Conducting a Supplier Evaluation  

There are many benefits to conducting a supplier evaluation. Some of the most important benefits include:

• Ensuring that your suppliers are meeting your standards and requirements.
• Identifying any potential problems that could impact your business.
• Taking action to improve supplier performance.

Conducting a regular evaluation can help you to identify any problems early on and take corrective action before they impact your bottom line. Supplier evaluations are an important part of supply chain management, and can help you to ensure that your business is getting the best possible products and services.

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Supplier evaluation  criteria

Depending on the context, concrete supplier evaluation criteria  can help you in scenarios like:

Measuring and evaluating supplier performance is vital for a reduction in costs, increased process efficiency, and business performance. They help prevent product issues and post-payment defects and drive improvements in the supply chain.

Your Handy Supplier Performance  Evaluation Checklist

Step 1: establishing performance indicators.

First of all, one should create an actionable supplier evaluation to finalize broad and detailed parameters. Without this, the steps that follow are meaningless or in a worse scenario, could reflect wrong insights counter-productive to your business. Here are some must-include parameters in your Supplier KPI checklist:

1. Price: Because negotiations make or mar deals with suppliers, it is a point to observe. With economies of scale, your organization can certainly create a win-win situation with vendors who willing to lower their prices. Because of this, you can capitalize on large or recurring deals with them. Keep a close look on how much a company sticks to its estimates – if additional charges, unanticipated taxes or surprise costs are a regular, you should be raising a red flag against the supplier in question.

2. Cost: Another aspect is cost (monetary and non-monetary) borne by your organization when dealing with suppliers. While the major component is the price of the procured goods or services, others include peripheral costs associated with delivery, movement, packaging, and disposal.

3. Quantity: A comparison between quantities ordered versus received is also a consideration. Sometimes, suppliers send an ASN (Advanced Shipment Notice) confirming and explaining anomalies in the delivery.

4. Quality: Inspection checks help detect any visible product defects, rejections, and returns, etc.

5. Service: Some indicators of service excellence include response times for resolving issues, and constant client satisfaction engagement.

6. Delivery: Timelines for the order process and pre-delivery waiting period directly related to your satisfaction with the supplier.

7. Payment terms: Agile payment methods and terms offer payment flexibility to sourcing organizations, much more preferable than a rigid payment process.

8. Certifications: Industry and domain-specific certifications don’t just check off another box. They ensure a level of trust and threshold of minimum quality expectation from the concerned supplier.

9. Value additions: Value additions may seem like rare delights from most suppliers. For some, value addition is built-in. These may deal with a resolution to issues and conflicts, response times, reactions to order revisions, etc.

10. Innovation: A supplier that innovates in various aspects of their offerings trumps others who don’t believe in the long run.

11. Financial health: Healthy finance equips suppliers to serve better, innovate better, and be more adjusting to longer payment cycles.

12. Compliance: Some forms to check are tax compliance, regulatory compliance, and contract compliance. There are also other regional and more specific domain-related requirements.

Learn More: Supplier Management Software

Step 2: Classifying Suppliers

To start comparing suppliers, start with classifying them into buckets of similar categories. One way to do this is by geography, and another way is by product types.

Step 3: Centralizing and Integrating Data

20% of suppliers usually result in 80% of business needs. However, your organization might have hundreds or thousands of suppliers across various functions. Bring all of them on one centralized portal. Consequently, a supplier evaluation tool like iPerform  works very well for this.

Step 4: Developing a Solid Evaluation Approach

Above all, to develop a solid evaluation approach, start with selecting a period, and then move on to the method of evaluation. Few examples include:

• Supplier scorecards
• Contract management

Step 5: Collaborating with Suppliers for Review Feedback

Not all assessments need to be quantitative. Instead, constant supplier-buyer collaboration can, at times bring out the bottlenecks much more visibly. While it is essential to conduct regular meetings, it’s also essential to pay attention to the opposite team. Due to feedback conversations, many roadblocks are eliminated.

Step 6: Creating an Actionable Plan

Finally, it is time to create a feasible and actionable plan with ways of action for individual supplier relationships. Also, it is necessary to ensure action against your findings to ensure closing the loop on your evaluation efforts. Supplier performance, when done the right manner through the optimum combination of people, processes, and technology, work wonders.  Furthermore, it helps identify performance gaps and devise strategies to plug them.

Therefore, for a more detailed account of this checklist, and further commentary on emerging technologies for supplier evaluation.

Download   Our Whitepaper-  ‘ A Quick and Effective Guide To Evaluating Supplier Performance ’

Supplier Evaluation  Approaches and Methods

Once you have decided to conduct a supplier evaluation criteria, it is important to choose the right approach and method. There are many different ways to evaluate supplier performance. Some companies choose to use a Supplier Scorecard, which rates suppliers on a scale of 0-100. Other companies may prefer to use a more qualitative approach, such as conducting interviews with customers or employees.

The most important thing is that you select an approach that best meets the needs of your company. You should also consider the resources available to you when making your decision. If you don’t have the time or manpower to conduct in-depth interviews, then a Supplier Scorecard may be the best option for you.

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  Supplier Evaluation  Tips

Here are some tips to help you conduct a successful supplier evaluation:

1. Set clear objectives: Before you begin, it is important to set clear objectives for the evaluation. What do you hope to achieve?

2. Identify your criteria: Once you have set your objectives, you need to identify the criteria that will be used to evaluate suppliers. This can include quality, delivery times, customer service, etc.

3. Collect data: You will need to collect data from various sources in order to assess supplier performance. This can include financial statements, customer surveys, employee interviews, etc.

4. Analyze data: Once you have collected all of the necessary data, it’s time to analyze it. This will help you to identify any areas where the supplier may be falling short.

5. Take action: Based on your findings, you may need to take action to improve supplier performance. This could include renegotiating contracts, changing suppliers, or implementing new procedures. By following these tips, you can be sure that your supplier evaluation is conducted effectively and efficiently.

Download Our Whitepaper and Explore in-depth about- Supplier Performance Evaluation for Better Results

Supplier performance  evaluation template

To assist you in evaluating supplier assessment, download our Supplier Performance Evaluation Checklist . This supplier performance evaluation template provides a comprehensive list of parameters and criteria like pricing, quality, delivery, customer service, and capabilities to consider when assessing supplier performance.

It also provides a quantitative way to rate supplier performance across critical factors. The findings can be used to inform future business and supplier management decisions.

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How to Ensure a Successful Supplier Evaluation  

There are a few key steps that you can take to ensure that your supplier evaluation is conducted effectively and efficiently. Some of the most important steps include:

• Define your objectives and requirements.
• Identify the Suppliers you will evaluate.
• Collect data and information on Suppliers.
• Analyze Supplier performance.
• Take action based on findings.

By following these tips, you can be sure that your supplier evaluation is conducted effectively and efficiently. Supplier evaluations are an important part of supply chain management, and can help you to ensure that your business is getting the best possible products and services. By taking the time to conduct a regular evaluation, you can identify any problems early on and take corrective action before they impact your bottom line.

Request your demo today  and learn more about iPerform within the Zycus Supplier Management solution and get started with better performance management in no time!

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A Guide for Supplier Evaluation

Supplier Evaluation is a crucial process that assesses the capabilities and risks associated with a supplier, either prospective or existing. The main aim of supplier evaluation is to assist procurement or business teams in making informed decisions on their trade partners and ensure the desired quality of output, align suppliers with business expectations, and minimize any third-party risks that could pose financial, legal, reputational, or regulatory consequences.

The Importance of Supplier Evaluation in Procurement

Having a strong supplier evaluation process is vital for businesses to drive supply chain resiliency and protect the organization from potential risks. The purpose of supplier evaluation is to ensure that the suppliers a business works with have the necessary capabilities to deliver the right products or services on time, as well as maintain sound financial and compliance health. According to research, 87% of surveyed enterprises experience one or more disruptions in their supply chain every year due to issues with suppliers.

87% of surveyed enterprises have resulted in one or more disruptions occurring on an annual basis in their supply chain due to health and compliance issues with their suppliers. 

Supplier evaluation is an integral part of a successful supply chain management program and helps businesses mitigate potential risks and improve supply chain resiliency  

Steps to Conduct a Comprehensive Supplier Evaluation

There are four dimensions on which a typical organization may rate their suppliers in their supplier evaluation program. The specific parameters that a business would consider under each may vary from business to business, but the overall dimensions generally remain the same.

The first four dimensions are expectations from functional teams who would be the end users of the supplier’s solutions, and the fifth dimension is that of third-party and sustainability risks which are usually business-level expectations of the quality of supplier that the firm would want to engage with. 

An effective supplier evaluation program would generate a simple scorecard by rating suppliers on these five parameters. The ratings can also be done every six months on strategic suppliers and annually across the supply chain. The parameters of a supplier evaluation program are as follows:

• Quality of output Does the quality of the product or service offered by the supplier meet your expectations? The specific metrics that define quality vary from business to business. Detailing the same and assigning a score is the first step toward evaluation.
• Commercials and Commercial Terms. Is the engagement commercially viable for the business? Once you evaluate multiple suppliers on the quality metric, it is required to understand which supplier would be the most effective given the quality.
• Production Capacity As your business grows, your expectation from the customer on the volume of goods and services may scale. It would be an unfortunate situation if there is an influx of customers at your door but a key supplier in the backend is unable to keep up with the demand and deliver on time. Understanding the supplier’s ability to scale his operations is an essential component of supplier evaluation.
• Quality of Support Nothing can be more frustrating than a key supplier not providing the necessary support to address issues that may arise during the engagement. Suppliers’ business priorities may change over time and you would be one of the many customers that the supplier is catering to. Incorporating an assessment of the level of support that a supplier would be willing to provide is a vital part of supplier evaluation processes today. Support-related assessments involve checking if the supplier has a well-defined support process, identifying the level of support the business might require going forward, and setting the sight expectation with the supplier.
• Financial, legal, reputational, and compliance risks Is the supplier financially stressed, is he a belligerent party, and are there economic offenses registered against the supplier or its promoters? Is the supplier a chronic defaulter of tax filings, labor payments, and other essential compliances? How robust are the supplier’s IT systems? Would the supplier expose you to bribery and corruption risks? There is a long list of risks that suppliers expose a business to. The cost of doing business with compromised entities today is steep. Regulators do not hold back when penalizing businesses for transacting with non-compliant entities. Thankfully, the process of generating a TPRM rating is fully automated using AI-driven platforms like SignalX .
• Sustainability Ratings 98% of ESG vulnerabilities that an enterprise faces originate from its supply chain. We have seen businesses surprised on finding suppliers that have been convicted previously of mismanaging hazardous waste and employ practices of harming the environment. 

Tools for supplier evaluation

Though it may appear daunting, a supplier evaluation program can be quite simple to execute if planned well. AI-based automation solutions like SignalX.ai takes care of the third-party risk assessment part in its entirety. What is left is collecting information on quality, capacity, commercials, and support. Depending on the type of supplier, this can be done through a field visit to the supplier’s premises, sampling of supplier services, or via collection and verification of certifications and other associated documents from the supplier. Essentially, implementing the following two activities would suffice the execution of an effective supplier evaluation process.

• Sampling, Site Visit, and Audits Sample the supplier’s solution/product and check if it meets your quality checklist. Visit the supplier site, inspect the quality of output, working premises, etc.
• Digital Due Diligence Platform Discreet Checks – Any robust digital due diligence platform can query thousands of sources for financial, legal, compliance, and reputational signals on the supplier and generate a rating. Tools like SignalX.ai’s Vendor Due Diligence automation solutions are inexpensive and produce a report on any target in under 48 hours. Non-discrete collections of Certifications and Disclosures – Leverage a digital platform to collect disclosures and certifications from the supplier. Upload your checklist on a tool like SignalX or create a custom checklist and automate the data collection process and synthesis. This could be on Anti-Bribery and Corruption, Supplier Policies, Certifications such as ISO 27001, ISO 9001, etc, Sustainability Disclosures, and more.

Why evaluating suppliers is critical?

Ever since Henry Ford commercialized the assembly line, and ever since globalization swept across supply chains and transformed systems from being vertically integrated to being interconnected with third parties, efficiency has been at the forefront of business expectations from supply chains.

Today supply chains are the backbone of any enterprise, making it incredibly important to thoroughly evaluate and onboard high-quality suppliers and partners that align with the business’s values and expectations. The supplier Evaluation program allows you to filter and onboard suppliers who can help you maximize business growth with minimal risks.

The following are some of the benefits of implementing a supplier evaluation program.

• Improve end-customer satisfaction and topline Ultimately, a healthy supply chain with partners that are committed to the growth of the business and are well aligned always results in superior quality products being shipped to end customers and a superior customer experience. Unhealthy or compromised suppliers end up causing disruptions and thereby affecting the end customers and bottom line. Supplier evaluation puts quality and compliance at the center of purchasing decisions. In the long run, well-run supplier evaluation programs drive end-customer satisfaction due to sustained maintenance of quality and experience.
• Improve supplier – business alignment Regular supplier evaluation also communicates to suppliers the KPIs that the business is holding them accountable for and also opens a channel for the partners to seek feedback and identify areas of improvement.
• Improve supplier performance Supplier evaluation programs provide valuable information to functional teams and the business to identify areas of improvement, and trends that indicate falling or improving levels of performance, and open a conversation with suppliers about how we might improve such conditions.A well-managed supplier evaluation process also ensures that monies are being put to the best use and there is no redundancy and wastage.
• Improve supply chain resiliency Ongoing supplier evaluation is a necessary activity to identify suppliers with whom relationships may be deteriorating due to poor quality outputs, change in business priorities at the supplier end, or developing third-party risks. These are opportunities for Procurement and Supply Chain teams to plan for identifying alternatives pre-emptively so that no disruptions occur.

What is the purpose of supplier evaluation?

The purpose of supplier evaluation is to assess the capabilities and risks associated with a prospective or existing supplier, in order to make informed decisions on trade partners, ensure desired quality of output, align suppliers with business expectations, and ensure that the supplier is not exposing the business to third-party risks.

What are the dimensions that a business typically considers in their supplier evaluation program?

The dimensions generally considered in a supplier evaluation program include: quality of output, commercials and commercial terms, production capacity, quality of support, and third-party risk assessment rating (TPRM). The specific parameters that a business considers under each dimension may vary depending on the business’s specific needs and expectations.

How often should a supplier evaluation program be conducted?

The frequency of supplier evaluation can vary depending on the business’s needs and the specific suppliers being evaluated. A business may choose to conduct ratings on strategic suppliers every six months, and across the entire supply chain annually. It is also important for businesses to be proactive in monitoring and re-evaluating supplier performance on an ongoing basis, in order to ensure that their supply chain remains robust and resilient.

How can an effective supplier evaluation program help a business protect itself from risks?

An effective supplier evaluation program helps a business understand and mitigate the risks associated with its suppliers. This includes evaluating suppliers for financial and compliance health, assessing their ability to deliver products/services of the desired quality, and ensuring that they are able to scale their operations in response to changing business needs. By proactively identifying and addressing potential risks in the supplier selection and management process, a business can drive supply chain resiliency and protect itself from unexpected disruptions or other negative impacts.

How can SignalX help in Supplier Evaluation?

SignalX is a digital due diligence platform that helps enterprises with discreet (public data) and non-discrete risk assessments on suppliers. SignalX uses a mix of publicly available data such as media records, litigations, corporate records, etc, and disclosures collected via the platform from suppliers to generate a risk portrait on any given supplier which can then be incorporated into any supplier evaluation process.

SignalX’s AI-based automation makes it possible to generate a fully automated third-party risk assessment ratings report in under 48 hours on the given target. The platform also enables enterprises to keep a pulse on their key suppliers and identify developing risks that may be material to the credibility and health of the business. We’re trusted by 200+ enterprises to power their supplier evaluation process.

Request a call to try SignalX today.

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Top 10 Supplier Evaluation Templates with Samples and Examples

Without proper self-evaluation, failure is inevitable.

                                                                                                    -John Wooden

Organizations conduct supplier evaluations to analyze potential suppliers and assess ties with existing ones. It is a process that not only evaluates the efficiency and effectiveness of vendor actions but also identifies opportunities for cost savings, risk management, and continuous improvement. Supplier evaluation is one of the most critical activities for organizations to remain competitive in a world where markets change faster than in the blink of an eye.

An organization's success relies heavily on how well its supply chain is streamlined. Therefore, it is vital to keep tabs on the supplier evaluation process to ensure  a timely delivery to the manufacturers and customers. 

You can move on and outline a comprehensive checklist with SlideTeam's Supplier Evaluation Templates to track the suppliers and their work . These templates use tangible and intangible elements such as materials delivery, quality, pricing, financial situation, communication, and technology to evaluate which provider can provide the best trade-off of all criteria selected.

Without further ado, let us proceed to the following section to conduct an elaborated yet easy to understand evaluation process. 

Template 1: Supplier Evaluation PowerPoint Presentation 

Download this exclusively-designed PPT to review and evaluate suppliers based on numerous qualitative characteristics before approving them. This PowerPoint Presentation can be instrumental in decreasing corporate risk, enhancing supplier performance, and lowering expenses.

Download Now!

Template 2: Supplier Evaluation PowerPoint PPT Template

If you need a professional Template with an excellent Supplier Evaluation model, then this Template is perfect. This PowerPoint Presentation will assist you in understanding the need for supplier selection, essential sourcing needs, viable supply sources, and determining the supplier evaluation and selection technique. Download it now to gain well-researched B2B marketer advice for practical evaluation.

Template 3: Supplier Evaluation Process for Issue Identification

Filter the best suppliers that meet your business standards with this actionable PowerPoint Template. You can use this PowerPoint Slide to create a supplier evaluation process and rank them as per your evaluation. Identify potential problems, performance gaps, and solutions to close them that may impact your business.

Template 4: Supplier Evaluation Matrix for Tracking Vendor Management

Use this Template to assess the impact of your supplier strategies. This Template will assist you in evaluating suppliers based on identical criteria and weights, allowing you to compare their performance with efficiency. With its clear and well-defined framework, make more informed selections about which providers to engage with.

Template 5: Supplier Evaluation Balance Sheet Marketing Strategies

This Template comprises sections, such as Supplier Assessment, Balance Sheet, Marketing Strategy, and Business Opportunities. It can assist you in identifying providers who regularly deliver high-quality products. Collaborating with such providers may ensure that your products meet or surpass customer expectations. This can then be used as a marketing tactic to distinguish your items from competitors and establish a quality reputation.

Template 6: Supply Chain Funnel with Supplier Evaluation Template

This is a content-ready PowerPoint Template to help you create a step by step guide to simplify the supply chain of your business. It showcases different sections such as, supplier development, classification, evaluation, etc. to meet the right candidate to manage varied supply chain activities.

Template 7: Supplier Evaluation Matrix Supplier Relationship Management

Download this Template to increase product quality, delivery time, and supply chain efficiency. It not only assists you in identifying areas for improvement and cost savings, but it can also help firms discover possible risks linked with specific suppliers, such as quality difficulties or financial instability.

Template 8: Initial Supplier Evaluation Audit Report

An initial supplier evaluation audit report is critical for assessing supplier performance. Use this Template to create a baseline for future evaluations. Businesses can use this PowerPoint to make better decisions about their suppliers and build more significant connections with them.

Template 9: Initial Supplier Evaluation Audit Report Each Template

Auditing a supplier on your own can be challenging. Therefore, SlideTeam has designed this Template to help you produce a more effective audit. With this Template, you can assess your supplier's Compliance with specific quality standards and client needs on behalf of the buyer. Without further ado, download it now.

Template 10: Supplier Evaluation Checklist for Audit Report Template

You must have the appropriate Supplier KPI checklist to execute a successful supplier evaluation. This Template includes price, cost, quality, service, quality, delivery, compliance, and many more variables that best meet your company's demands and will assist you in successfully evaluating vendors.

Make your research easy and thorough with SlideTeam’s pre-designed PPT Templates. Make a list of the best suppliers available and take your supply chain activities to the next level. Download these Templates now and kickstart your evaluation process with ease. 

FAQs on Supplier Evaluation Templates

What is the supplier evaluation process.

Supplier evaluation refers to the process of examining and approving potential suppliers. This is accomplished through quantitative and qualitative assessments. Supplier evaluation aims to ensure the availability of a portfolio of best-in-class providers. These strategies are also used to analyze and monitor the performance of present providers. The review seeks to cut procurement costs, eliminate supplier risks, and drive continual improvement.

What are the five critical characteristics of a supplier evaluation survey?

Some of the critical elements are:

• Manufacturing Capacity: Supplier evaluations should thoroughly assess the provider's capabilities and limits. A supplier unable to expand production in response to your production cycles will fail any assessment.
• Quality: While defining a product's quality can be difficult, it should always be a vital component of a supplier evaluation.
• Performance: To establish whether a provider can do your regular functions, your organization should ask as many questions as necessary. 
• Past experiences with similar companies, recent related projects, and potential product or process advancements are suitable discussion topics.
• Risk: Every business has risks, but its suppliers should actively endeavor to reduce them across the supply chain.
• Environmental Impact: For financial and ethical reasons, sustainability is crucial to a successful organization. An evaluation should include the following:
• A supplier's waste management plans.
• Energy efficiency efforts.
• Any practices used when handling hazardous products.

Why is supplier evaluation critical?

Every procurement organization strives to make the best use of limited resources. This necessitates researching suppliers to secure the finest contracts regarding quality, pricing, flexibility, and dependability.

The supplier evaluation process may be complex, but the rewards of locating low-risk sources of high-quality goods and services and mutually beneficial, long-term business relationships outweigh the effort required. By adequately vetting suppliers, you can reduce the regulatory, contractual, and security risks of dealing with systems outside your organization. Assessing supplier performance assists firms in setting a standard, which leads to more significant results.

How do you write a supplier evaluation?

Follow these steps to write a supplier evaluation:

• Establish the evaluation criteria: It can include several parameters like Quality, delivery, price, communication, response, and flexibility.
• Data collection and analysis: Data can be gathered from various sources, including supplier performance reports, customer feedback, and internal records. Following that, you must assess the supplier's performance against the predefined criteria.
• Summarize the results: In conclusion, you must write about the supplier's overall performance, emphasizing the most notable strengths and weaknesses.
• Give feedback: The next step is to provide feedback to the supplier on their performance.
• Provider evaluation: Using an appropriate scale, you can rate suppliers based on their overall performance.
• Make suggestions: Recommend any modifications to the supplier relationship based on the review.
• Provide your conclusion: Here, you will express your final opinions. In the conclusion part, make sure to utilize concise and precise wording.

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Is your supplier as good as you think learn how to assess their services.

Lumiform / Guides / Is your supplier as good as you think? Learn how to assess their services

The relationship between companies and their suppliers is an essential factor affecting the quality of a final product or service . Finding a first-class supplier can often be a long and difficult process, but it’s not impossible. Through the proper selection of parameters, such as capacity, prices, reputation and more criteria, everyone can find their “ideal partner” with whom to reach the climax of good manufacturing.

On the other hand, the first crush of love can soon end… and have serious consequences. Supplier failure and miscommunication can create big problems for a company . Be it production blockages, sales cancellations or even having to use an emergency communication plan due to poor manufacturing.

We can see constant cases of this nowadays , such as the recent problem at Jersey Dairy, who had to reduce sales of fresh milk cartons after their supplier was unable to make two deliveries, reports the BBC . Shortages of one type of carton meant that some supermarket shelves were empty in early July. Now they are relying on the help of a new supplier to help them meet their targets.

No business wants to live through the drama, insecurities and stress these situations involve. It is therefore important to always anticipate any hypothetical problems. The following topics will be discussed below in order to help you find your perfect match straight away:

1. How to evaluate suppliers

2. General evaluation criteria

3. What if the evaluation is negative?

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• Use this internal audit software and app to schedule inspections

Evaluation and evolution of suppliers

In order to avoid failures and to reach the fullness of the production chain, the most efficient companies evaluate their suppliers with audits . These can be used to decide whether to initiate, maintain or terminate a contractual relationship with a supplier, or whether to change it. The aim is to determine whether corrective or preventive actions are required in order to avoid affecting the customer.

The evaluation of suppliers through this method allows you to set the selection criteria and to determine their level of importance . It also makes it possible to compare offers , prices and to establish a list of potential suppliers. Or add proposals from suppliers for changes in the relationship, and address the level of involvement .

Nowadays, it is very common to see companies becoming more environmentally friendly and trying to maximise green impact as much as possible. Whether it’s to improve awareness (or to protect themselves from public opinion), we see constant changes in their raw materials in search of the most sustainable option. H&M, for example, based its latest collection on the use of water-saving materials during production.

Similarly, Barclays Corporate Banking division published a report in February which found that between January 2021 and January 2022, a fifth (21%) of the UK’s largest retailers cancelled contracts with suppliers for failing to meet environmental, social and governance (ESG) standards.

All this is the result of an exercise in observation and action. With audits, data collection and analysis methods are improved , therefore, the efficiency and effectiveness of future decisions are also improved. This tool will allow you will allow you to examine the following points.

General evaluation criteria

In addition to the above examples, there are other general evaluation criteria that can be adapted to any type of company:

The first of these is the general profile , a concept that is divided into the matrix of prestige, history, reputation and track record of the supplier. These criteria can say a lot about the future experience that awaits you.

Another criterion to take into account is the quality/price ratio of the service and product offered. There is no point in having low quality goods if you really want to offer consistency to the consumer, nor is it any good if they arrive unreliably. Therefore, delivery times, return policies, communication processes, dispute resolution, among other things, are a necessity.

Is the capacity of your supplier adequate for your requirements? The infrastructure and the technical and operational capacity to be able to deliver on time and on budget is very important. In order not to create serious incidents or disruptions in the supply chain, for example.

Finally comes flexibility , an indispensable factor in terms of adaptation or last-minute requests. After all, we must always be aware of spontaneous changes, and thus see the possibility of reaction and effectiveness of a resolution. Therefore it is important to ask yourself how flexible your supplier can be, should the need arise.

But… What if the evaluation is negative?

In both business and personal relationships, communication is the key that will open many doors . Whether it is to fix problems, find solutions together or… Confirm the need for a break-up. Above all, don’t be discouraged, you can always find someone better!

However, before breaking the bad news, consider whether or not your provider is really dispensable . In many cases, the change involves a lot of time and money and, in the worst case, you may be the only one with such a service or product.

Let’s not forget similar cases such as the famous gas supplier in European countries. This is also something that could have been avoided with a good risk analysis and a better understanding of alternatives should the unexpected happen.

In any case, the important thing is to be aware of what your situation is and to assess in a technical way how your organisation operates. Starting with the quality of the first stage, the search for the perfect supplier, you can gradually improve every aspect of your company until it becomes an example to follow.

As the Chinese philosopher Lao Tse said, “ a journey of a thousand miles begins with the first step” . Dare to take that first step!

Bruno Paneiva

Bruno, who received his journalism degree in Madrid (UCM), is specialized in objective information after working for international news agencies. He is also dedicated to photography, literary writing and communication consulting among many interests. In addition, these include his passion for the “industrial world” and production philosophies, portrayed in his articles in Lumiform.

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The Ultimate Supplier Performance Evaluation Checklist

• July 26, 2022

By The oboloo Team

Steps To Evaluate Suppliers

The success of your business depends on the  performance of your suppliers . A poorly performing supplier can negatively affect your bottom line and even put your company at risk. That’s why it’s important to evaluate your suppliers regularly. We will provide you with a quick checklist to help you evaluate supplier performance in this blog post. 

How Does Supplier Evaluation Work?

You evaluate your  suppliers’ performance   by measuring and monitoring their performance. You can perform this on a regular basis, such as quarterly or annually. Suppliers should be evaluated based on their  financial stability , product quality, delivery time, and  customer service . Before conducting an evaluation , it’s essential to clearly understand your requirements and expectations. Identifying any areas of weakness will help you evaluate the supplier . 

What are the Benefits of Supplier Evaluation?

By  evaluating suppliers , you can ensure that they meet your standards and requirements. Additionally, you can identify any potential problems that could negatively impact your company. Performing regular evaluations can help you ensure your suppliers are performing at their best, and correct any problems if they arise. 

Managing a global supplier base and varying business rules can be challenging for companies with a global footprint. Developing a comprehensive supplier evaluation plan is crucial for internal and external accountability and justification.

It can be useful in a variety of situations to develop a concrete supplier evaluation plan, such as

• Considering repeat purchases
• Selecting the ‘best’ supplier out of a pool of ‘good’ suppliers available
• Identifying a poorly performing suppliers and replacing them with better ones
• Putting in place a regular cost-benefit analysis practice

In order to reduce costs, increase efficiency, and improve business performance, supplier performance must be measured and evaluated. As a result, they prevent product defects and supply chain issues.

Checklist For Supplier Performance Evaluation

Step 1: determining performance indicators.

It is first important to develop a comprehensive and detailed  evaluation plan for suppliers . Without this, the following steps are meaningless, or in worse scenarios, could reveal false insights that are counterproductive to your business. The following parameters should be included in your Supplier KPI checklist:

A negotiation  can make or break a supplier’s deal, so it’s important to pay attention to it. By  leveraging economies of scale , your organization can certainly negotiate lower prices from vendors. As a result, you can take advantage of large or recurring deals with them. Look closely at a company’s commitment to its estimations . If unexpected charges, tax increases, or surprise costs are a regular occurrence, you should be raising red flags.

Costs incurred by your organization (monetary and non-monetary) when dealing with suppliers are another consideration . The major component of the cost is the price of the goods or services procured, but other  peripheral expenses  include shipping, packaging, and disposal costs.

Considering the order quantity versus the receipt quantity is also important. Suppliers sometimes send an  ASN (Advanced Shipment Notice)  explaining anomalies with the delivery.

A product inspection helps to detect any defects, rejections, or returns, etc.

Client satisfaction engagement is one of the key indicators of service excellence.

You will be able to determine your satisfaction with the supplier based on the time frames for the order process and the pre-delivery waiting period.

• Payment terms

A flexible payment process offers sourcing organizations much more flexibility than rigid payment terms.

• Certifications/Accreditations

Getting industry and domain-specific  certifications  means more than just checking off a box. Suppliers are required to meet a minimum level of quality expectation and a level of trust.

Those  suppliers who put innovation  at the center of their offerings are more likely to succeed in the long run than those who are not interested in it.

• Financial health

Finances that are healthy enable suppliers to provide better service, innovate better, and be more accommodating to longer payment cycles. Also allow the supplier to actually exist to deliver the good or services without putting your supply chain at risk. 

It is important to check tax compliance, regulatory compliance, and contract compliance . Aside from these general domains, there are also some that are more specific to certain regions 

Step 2: Classifying Suppliers

Comparing suppliers begins with  classifying them into categories  similar to each other. There are two ways to do this: by type of product and geography.

Step 3: Integrating and centralizing data

Business needs are usually met by  20% of suppliers . If your company has hundreds or thousands of suppliers across many different functions, this can be a challenge. Organise them all in one centralized portal, such as oboloo. 

Step 4: Developing an evaluation strategy

Choosing a period of time to evaluate suppliers is the key to developing a solid evaluation approach, followed by determining the method. Here are a few examples:

• Supplier scorecards
• Contract management

Step 5: Working with suppliers to review/feedback

There is no need for all assessments to be quantitative. Rather, constant collaboration between suppliers and buyers can, at times, highlight bottlenecks more clearly. While it’s essential to conduct regular meetings, it’s also crucial to be attentive to the supplier.  Feedback conversations  eliminate many roadblocks.

Step 6: Developing an action plan

It is now time to develop an actionable plan for each supplier relationship . Also, you should ensure that your findings are acted upon to ensure closure on the evaluation process . In the right combination of people, processes, and technology, supplier performance can work wonders.  Additionally, it identifies performance gaps and devises strategies to plug them.

An Overview of Supplier Evaluation Methods and Approaches

In order to conduct a successful supplier evaluation, you must choose the right approach and method. Supplier performance can be evaluated in a variety of ways. Some companies rate suppliers on a scale of 0-100 using a Supplier Scorecard . Alternatively, some companies may conduct qualitative interviews with customers or employees. 

You should choose the approach that best suits your company’s needs . It is also important to consider the resources at your disposal when making a decision. An in-depth interview may not be feasible for you if you lack time or manpower. 

Tips for Evaluating Suppliers

To help you evaluate suppliers successfully, here are some tips: 

– Setting clear objectives is essential before beginning the evaluation. What are your goals? 

– Establish a set of criteria for evaluating suppliers once you have defined your objectives. Quality, delivery times , customer service, and so forth are all examples of this. 

– To evaluate supplier performance, you will need to collect data from a variety of sources . It could be a financial statement , a customer survey, an employee interview, etc. 

–  Data analysis : After you’ve collected all the data you need, it’s time to analyze it. As a result, you will be able to identify any areas where the supplier may be lacking. 

– Your findings may indicate that you must take action to improve supplier performance. Contracts may need to be renegotiated, suppliers may need to be changed, or procedures may need to be amended. 

Benefits Of Supplier Evaluations

A supplier evaluation can be beneficial in many ways. The following are some of the most important benefits:

– Making sure your suppliers meet your standards and requirements. 

– Identifying potential problems that could affect your business. 

– Improving the performance of suppliers . 

–  can identify problems early on and correct them before they negatively impact your bottom line by conducting a regular evaluation. Managing your supply chain involves evaluating suppliers and ensuring you’re getting the best products and services possible.  

How Do You Evaluate Suppliers?

You can ensure the effectiveness and efficiency of your supplier evaluation by following a few key steps. Here are some important steps to follow: 

 Set goals and requirements for the project. 

– Decide which Suppliers you will evaluate . 

– Collect data and information about suppliers . 

– Perform an analysis of Supplier performance. 

– As a result of findings, take action. 

 These tips will help you conduct an efficient and effective supplier evaluation. Supply chain management involves evaluating suppliers to ensure your company is obtaining the best possible products and services. Conducting regular evaluations can help you identify any problems early on and take corrective action before they negatively impact your business.  

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4 Finding, Evaluating and Selecting Suppliers

Learning Objectives

• Discuss the various sources of market intelligence.
• Recognize the use of market intelligence in identifying potential suppliers.
• Understand key supplier evaluation practices.
• Explain the need for identifying and evaluating global suppliers.
• Understand the key aspects of procurement contract execution.
• Implement the various forms of procurement enablers.
• Analyze the key forms of documentation used in procurement.
• Evaluate key aspects of managing the procurement process and managing the internal processes involved in procuring goods and services.

What do you know about the finding, evaluating, and selecting suppliers?

Flip the cards and match the description to its corresponding image.

Supplier Identification and Evaluation

Supplier identification and evaluation is the process of searching for potential suppliers who will be able to deliver products, materials, or services required by companies. The outcome of this process is to compile a list of potential suppliers. Procurement then takes the lead to evaluate each prospective supplier against specific criteria like cost, quality, consistency, and other performance metrics.

Inclusion and Exclusion for Suppliers

Approved suppliers for a product or service may already exist, which could be the case for repetitive purchases. For items that do not currently have approved suppliers or situations in which organizations want to re-evaluate the existing supply base, evaluations involve identifying possible new suppliers that might be able to satisfy the user requirements.

It is important at this stage to include, where appropriate, possible suppliers that have not previously been used. Identifying possible suppliers, especially in the global business and supply environment, can be a challenge and often requires extensive research.

Importance of the Supplier Identification and Evaluation Process

Among the most important responsibilities of the procurement function are supplier identification, evaluation, and eventual selection. Having fewer suppliers with long-term contracts exposes the form to the risks and costs of making incorrect decisions that can have long-lasting consequences. As suppliers often command a significant proportion of firms’ total spending, the logic behind creating a world-class identification and evaluation process becomes increasingly important. Suppliers also can impact a broad range of end-customer requirements in terms of quality, reliability, and availability of products.

Not all supplier identification and selection decisions warrant the comparable effort. This means the amount of time and effort involved in searching for and evaluating suppliers that provide generic, low-cost items such as motor oil or bandages would be different from the time and effort involved in searching for and evaluating suppliers that provide high-cost, specially engineered items like motor car engines or surgical equipment.

Market Intelligence for Identifying Suppliers

A major request made of supply management tends to be where to find suitable suppliers. The issue of obtaining credible market intelligence confronts supply managers in their efforts to find, qualify, and approve appropriate sources of supply. However, the answer to this seemingly simple request for information (RFI) has many aspects.

The Process of Obtaining Supply Market Intelligence

First, supply departments must identify which potential suppliers exist for a particular commodity and where they are located. Next, they must determine which suppliers are capable of providing the required goods and at what total cost. Organizations must then narrow the supplier pool through a structured evaluation process to arrive at a smaller set of supplier candidates. Lastly, a rigorous evaluation must occur to evaluate suppliers’ past performance and capabilities.

These factors, however, become more challenging when suppliers are located in distant areas. Gathering supply market intelligence (SMI) requires supply managers to obtain and analyze the available intelligence, which is generally more complex and more difficult when suppliers are located in distant areas requiring extensive, and often costly, travel. According to Trent and Roberts (2009), supply market intelligence exists in many forms and places, so no single source of this intelligence is available.

Elements of Supply Market Intelligence

Supply market intelligence is the result of obtaining and analyzing information relevant to companies’ current and potential supply markets with the objective of supporting effective decision-making. According to Dominick (2008), supply market intelligence includes six important elements:

• Commodity profile information : This information identifies the type and nature of products or services, manufacturing or service delivery processes, and quality requirements or standards.
• Cost structure : This element consists of the costs associated with capital investment, raw materials, manufacturing, quality, storage, transportation, duties, export control, inventory carrying, taxes, insurance, port of entry, supplier development, energy, overhead, and profit.
• Supply base information : This portion includes current and potential suppliers, supplier characteristics, and country location.
• Market information : This information identifies supply and demand price drivers, capacity utilization, and other factors that determine price and availability for the commodities in question, along with the market size and predicted growth rate.
• Competitive analysis information : This analysis is for buyers’ and suppliers’ relative size and buying power, substitute products and services (i.e., products and services that can be readily substituted for those currently sourced and are comparable at lower prices), other customers using the same sources of supply, and other factors influence buying leverage.
• Quality : Evaluation of suppliers’ past performance regarding product failure rates and overall quality leading to customer satisfaction. Further evaluation would reveal the extent of quality programs to prevent defects (such as Total Quality Management or lean) and how defects are corrected.

Uses, Categories, and Levels of Market Intelligence

Supply managers obtain and use intelligence to identify suppliers who can provide the necessary products and services that will enable the procuring company to enhance its competitive standing. The intelligence gathered under these categories allows supply managers to make informed decisions about the various supply issues. When collected on a regular basis, this information also allows supply managers to keep abreast of developments, such as shifts and changes in demand and supply markets, the introduction of new products and technologies, the entrance of new competitors, and changes to manufacturing processes. Insights gained from this intelligence help supply departments adjust their sourcing strategies in a timely manner. Market intelligence can be gathered at the following levels:

• Macro environmental leve l: Information from this level includes market dynamics, world trade, demographics, political climate, economics, environment, and technology.
• Country level : This information is often a subset of the macro-environmental level, with additional topics that include cultural issues, levels of crime, logistics infrastructure including the natural geography and size of the country, the safety of intellectual property (IP), political climate and stability, national holidays, working hours, and time zone differences.
• Industry and commodity level : Industry and commodity market intelligence related to the types, sizes, and relative strengths of industries that exist and the worldwide users and suppliers of commodities.
• Supplier level : Supplier information comprises the next level of supplier market intelligence and relates to the number of potential suppliers that exist, the products and services they provide, their locations, relative sizes, and capabilities.

Supplier Evaluation

After potential suppliers have been identified, it is necessary to evaluate suppliers. An important step is to pre-screen possible sources of supply to identify the suppliers who meet a minimum set of criteria. Pre-screening reduces the number of potential suppliers to those who can satisfy users’ demands. In some instances, and for some goods or services, pre-screening can be a relatively simple task. In other instances that involve complex items (e.g., jet engines and medical testing equipment), more time and effort are required.

With the potential pool of suppliers reduced to those who can meet users’ requirements, the next step is to determine which suppliers can best meet those requirements. This could be accomplished through competitive bidding if the procurement items are fairly simple or standard (e.g., stationery items, such as pens and paper or consumable maintenance items, such as grease, nuts, and bolts) and if there is a sufficient number of potential vendors. If these conditions do not exist, a more elaborate evaluation, such as engineering tests, may be necessary, and a site visit to the supplier’s facility could be warranted.

Supplier Evaluation Objectives

A key objective in the supplier evaluation process is to identify the suppliers who can become a source of competitive advantage for the procuring company. Another objective should be to reduce risk and maximize value. Risk includes the potential risk of a supplier failure, such as the risk of suppliers not being able to deliver products or services at a consistent level of quality, quantity, and cost over time. With regard to maximizing value, the evaluation process should be able to determine suppliers that are willing to, and capable of, working with the buying company to co-design engineered items, collaborate to reduce total costs, and work together on ongoing quality improvement projects.

The time involved in evaluating suppliers should be related to the importance of items purchased. For example, the effort involved in evaluating suppliers should be different for jet engines than it is for commercial stationery. For the most important goods and services with high engineering complexity or significant cost, organizations should employ cross-functional teams to evaluate suppliers’ financial conditions, capacities, global capabilities, logistical networks, cost structures, supply management practices, process capabilities, technology innovations, quality, and design and engineering capabilities. The time and cost of making supplier visits can be high, but the cost of making a poor selection decision can be devastating.

Supplier Evaluation Criteria

According to Monczka et al. (2005), the following broad criteria are examples of what supply managers should consider during the evaluation process. This list is not exhaustive, but does include some of the more common criteria used in organizations:

• Location : This criterion lists where suppliers are located in relation to the purchasing firm and the relative advantages and disadvantages of the location, including distance, supply chain infrastructure, and geographic stability.
• Employee capabilities : This criterion provides a commitment to quality and continuous improvement, the overall skills and abilities of the workforce, turnover, history of strikes and labour disputes, and general morale.
• Cultural and language differences : This consists of the type of culture in place and any challenges to communicating clearly among parties due to language differences.
• Cost structure : This includes suppliers’ total costs, including production costs, administrative costs, material costs, supply chain costs, and marketing costs.
• Infrastructure and assets : This criterion is the age and quality of buildings and equipment and the support infrastructure for maintaining buildings and equipment.
• Citations and awards : This encompasses reviewing the citations and awards a supplier has received from other customers and local, state, and federal agencies.
• Working conditions : This is the amount of attention paid to general working conditions, health and safety practices, first aid capabilities, and the use of child labour.
• Process and technological capability : This includes current and future capabilities in design, methods, equipment, processes, and investments in research and development.
• Management capability : This broad category includes management qualifications and experience, long-range planning practices, commitment to quality management, customer focus, the history of labour-management relations, investment to sustain growth, employee training and development programs, and strategic sourcing programs.
• Environmental regulation compliance : This criterion includes demonstrated commitment to the protection of the environment and the level and severity of infractions that have occurred, as well as companies’ capabilities in, and history of, toxic waste management, use of environmentally friendly materials, and use of returnable and recyclable packaging and shipping containers.
• Financial stability : This entails the financial history of companies, the levels of capital available for investment in companies, credit history, level of debt, and current stability.
• IT capability : This consists of the types of IT in place, the ability to link and communicate electronically with the technology used at buying organizations or other supply chain partners, and a demonstrated willingness to invest in new technologies.
• Suppliers’ own supplier network : This includes the nature and extent of the network and the potential risk exposure to target suppliers from their own multilevel supplier networks.
• Employee turnover : This includes assessing the stability of the workforce by evaluating the tenure of employees and new hires versus terminations and identifying critical skills like welding.
• Quality capabilities : This consists of the quality assurance systems and procedures in place, workers’ involvement in quality assurance, quality records, and the ability to sustain quality consistency for current demand and anticipated increases in demand.
• Evaluation of customer base : This entails assessing the degree to which the supplier is dependent on other customers for business; being dependent on only one customer may not enable a supplier to focus on new requirements.

Each of these criteria should also include a set of detailed questions designed to evaluate suppliers’ capabilities with a predetermined scale such as a weighted scorecard shown below,  which is then used to rate suppliers’ capabilities against each of the previously explained criteria. A summary supplier evaluation matrix or scorecard is a weighted scoring framework that may be used to compare the merits of different potential suppliers. Specific criteria are listed and weighted according to their perceived relative merits. Companies are then evaluated on each of the criteria, and weighted scores are tallied across all criteria to determine the best potential supplier.

Current Supplier Evaluation

Sometimes, companies evaluate their current suppliers when they need to source products or services, especially new products or services. These companies will typically identify which of their current suppliers may be capable of providing these products or services and look for other potential suppliers where necessary. Investigating new suppliers can provide a basis of comparison for costs, quality, delivery capabilities, and other supply essentials. Current suppliers’ capabilities will then be evaluated against prospective suppliers’ capabilities to determine how well they fit with particular companies’ needs. For existing suppliers, sourcing professionals have a wealth of information about historical performance that can be used in the evaluation process. This information is helpful, but good performances on contracts in the past do not guarantee good performances on future contracts and different products or services.

Global Supply Management

The search for new sources of competitive advantage is a relentless challenge that organizations face, and it is crucial that supply groups showcase annual progress. Organizations must show constant improvements, particularly cost reductions, which result in a search for low-cost sources of supply that have become a central part of most supply strategies. This has resulted in procurement groups in many companies seeking overseas sources of supply to achieve lower costs.

Sourcing Globally

Most companies are under constant pressure to contain and reduce their costs, which largely explains the motivation behind global sourcing; the primary reason that companies source from around the world is to obtain lower prices. For example, as a cost-cutting measure, Dell moved its European manufacturing plant from Ireland to Poland (Fottrell & Scheck, 2009). This was no small undertaking and affected almost 2,000 employees; however, the move was part of a $3 billion company-wide cost reduction initiative. Other reasons that companies use global suppliers include gaining access to new sources of technology, obtaining a higher quality, or introducing competitive organizations to the domestic supply base.

Global purchasing can result in cost savings, but the global supply process also requires supply managers to address a wider range of issues of cost, time, and complexity. At least a quarter of the unit cost savings from global purchasing disappears, on average, when estimating the total cost of purchase ownership. This is due to hidden costs associated with lengthened supply chains, including increased lead times, increased inventory and increased risks.

Finding Global Suppliers and Supply Classification

Many supply managers use a classification scheme to segment suppliers by their geographic capabilities. This designation helps when searching databases for potential suppliers. In fact, internal supply groups can benefit from this classification in their examination of potential suppliers, whether they are involved with global supply management or not. This approach helps strategy development teams understand the location of suppliers and supplier capabilities more accurately. The classification scheme is as follows:

• Local supplier : A local supplier serves only a limited number of sites or buying locations (often only one) within a country. The database should include information about the country and the sites within that country that the supplier is capable of serving.
• Domestic supplier : A domestic supplier can serve any location within a country. The database must note the country or countries that the supplier can competitively serve.
• Regional supplier : A regional supplier competitively serves many countries within a single region. Examples of regions include North America, Latin America, Asia-Pacific, and Europe. A few suppliers may also serve only a portion of a region.
• Multi-regional supplier : A multi-regional supplier can competitively serve two or more regions.
• Global supplier : A global supplier can competitively serve most, if not all, countries around the world.

Purchasing Approval

After suppliers have been selected, evaluated, and approved, procurement departments may choose to utilize those suppliers to provide products and services. This can occur in several ways, depending on the system in place in procurement: awarding a specific purchase order (PO) or a blanket PO, material purchase release, or contract. Developing and awarding POs is an important step because almost all POs include standard legal conditions to which the orders are subject, including the following:

• Item description
• Material specifications, including any references to SOWs and engineering drawings
• Quantity requirements
• Quality requirements
• Delivery due date and method of shipment
• Ship-to address
• Order due date
• Name and address of purchasing firm
• Payment terms

Purchasing will typically issue a PO for each required item. Depending on the nature of the item and the relative price of the item, negotiations may or may not be required before awarding the PO.

Weighted Scorecard

A weighted scorecard is a tool often used by procurement to perform an objective evaluation of multiple supplier responses for the same item. It also serves as a permanent record to justify a contractual commitment in the form of a purchase order to the highest scoring supplier. Procurement routinely uses a weighted scorecard process to document key criteria, such as industry experience or financial strength for an item to be purchased and assigns a proportionate value for each criterion.

For example, a company wants to procure an item that will be used in its manufacturing process to assemble an end product. The criteria that are important for this item might be price, delivery, and quality. Percentage values are then assigned for each of the three criteria and several supplier responses are evaluated and compared by populating the weighted scorecard, which defines the comparative value of the criteria.

In developing the weighted scorecard for this example, the criteria (what is important to the company) are defined and listed in the far left column, followed by the weight for each of the criteria. As suppliers’ responses are received, they are scored by entering data into the appropriate columns. These scores are then mathematically calculated into points for each supplier; the points are totaled to determine the award.  Supplier B scored the higher value compared to supplier A. The purchase order would be awarded to supplier B. 

Weighted Scorecard Comparing Supplier A vs B

Note . From Snage. [ Image Description ]

Blanket Purchase Orders (BPOs)

Blanket purchase orders (BPOs) are typically used when the same materials or services are ordered on a regular basis, whether on a consistent, periodic schedule like cleaning services or on an as-needed basis when quantities fall below desired levels, such as when materials for a manufacturing process run low. When using this type of purchasing arrangement, buyers and suppliers work together to evaluate the anticipated demand for specific items required for a defined period of time and agree on the terms of the agreement. Buyers also reserve the right to cancel BPOs in the case of poor supplier performance or changes in demand.

The BPO is established as a master agreement; buyers subsequently use material release documents at periodic intervals, as necessary and based on usage, to order items covered by the BPO. This material release typically specifies the required part number, quantity required, unit and quantity price, required receipt date, ship-to address, and method of shipment.

Award Purchase Orders

In this step, POs are awarded and released to the supplier, and deliveries are subsequently received by the ordering organization. Many organizations transmit orders electronically through electronic data interchange (EDI); orders can also be transmitted over the Internet. After the award, procurement is also responsible for monitoring the status of open POs, expediting orders, and providing ongoing administration for other tasks.

Goods Receipt

The goods receiving process involves several processes and documents, including a material packing slip , bill of lading, and discrepancy report , each of which is explained further below.

• Material Packing Slip : This includes weights, dimensions and the quantity of units used in the transportation. The goods receiving process involves several processes and documents, including a material packing slip, bill of lading, and discrepancy report, each of which is explained further.
• Bill of Lading : Transportation carriers issue a bill of lading, which records the number of goods delivered to a location on a specific date. The bill of lading details the number of boxes or containers delivered; other details about the shipment appear on packing slips and are the suppliers’ responsibility for recording on this slip. The bill of lading also ensures that carriers are protected against wrongful allegations that they have damaged, lost, or otherwise tampered with the goods they have delivered.
• Discrepancy Report: Receiving discrepancy reports are used to record any differences between goods received and goods ordered; discrepancies are recorded by the receiving clerk during the receiving process. Procurement groups use the discrepancy report to follow up and resolve any issues with suppliers.

Evaluate Supplier Post-Purchase Performance

When products and services have been delivered, supplier performance must be evaluated to determine if they have actually met the requirements of the procuring organization. Firms should determine whether suppliers have performed according to requirements by using a system for measuring performance. When supplier performance does not satisfy the requirements of the procuring organization, the discrepancies must be identified and recorded, and corrective actions must be undertaken by working with the supplier. The precise nature of feedback to suppliers varies among companies, but feedback must occur at a prescribed frequency. This enables procuring organizations to work with suppliers to identify defect trends, implement corrective actions to fix those defects and take preventive actions to eliminate recurrences. Some examples of feedback are:

• Weekly performance metric reports
• Quarterly, mid-level review meetings for supply chain managers between buyers and suppliers
• Annual, executive-level meetings about SCM between buyers and suppliers

Procurement Enablers

A variety of tools and techniques are available to procurement professionals; they can be used to enable and support the sourcing process. This section outlines these tools and techniques, and provides examples of best practices, including the following:

• E-procurement and electronic purchasing
• Procurement cards
• Long-term purchasing agreements
• Electronic catalogues

E-Procurement and Electronic Purchasing

E-procurement is an Internet process used to make the procurement of goods and services easier, faster, and less expensive for businesses. The overall goal is to streamline the purchasing process so that businesses can focus more management time on earning revenue and serving customers. According to EPIQ (2014), e-procurement does not work for all items purchased by firms. For instance, items of strategic importance to firms, such as custom-designed engines for a package transportation vehicle, are typically not purchased using e-procurement. However, many noncritical items like stationery are well-suited to be purchased using these types of systems.

Procurement Cards

Procurement cards are essentially credit cards provided for internal users to purchase low-cost items without having to go through procurement’s administrative process. Procurement cards work well for low-cost items that are required on an as-needed basis; they are especially helpful when approved suppliers for low-cost items do not exist and where suppliers are not approved by other purchasing systems.

Authorized procurement cardholders make the buying decisions, up to the value allowed on the procurement card and within the prescribed budget of the department that is making the purchase. The monetary value of items purchased and covered by procurement cards is typically low and might consist of brochures for a trade show or conference. In these cases, the cost of involving procurement groups in a supplier search, evaluation, and approval process would typically outweigh the cost of items purchased (Monczka et al., 2005).

Long-Term Purchasing Agreements

Firms enter into long-term agreements with suppliers they plan to work with over an extended period of time. Long-term agreements involve base contracts that are generally in place for a year or more. These types of agreements are similar to a BPO process but are established to cover the purchase of higher-value items over a long period of time, such as special packaging supplies, machine maintenance parts, and high-value raw materials. Long-term purchase agreements can reduce transaction costs by eliminating the need for time-consuming renewals of purchases.

In addition, when buyers and suppliers agree on contract terms, material-releasing responsibility can shift to users in many cases. This means that end-users arrange directly with suppliers for products required to be delivered without involving procurement at all. Ideally, material releasing is accomplished electronically instead of manually, which saves time and money (Monczka et al., 2005).

Electronic Data Interchange (EDI)

EDI involves a computer-to-computer exchange of information. It can be used to support transactions between buyers and sellers, allowing for greater efficiencies and streamlined communication. This, in turn, can lead to less time and money dedicated to the procurement process.

Electronic Catalogs

Electronic catalogues provide a user-friendly way of accessing information about a supplier’s products and services. The chief benefit of using electronic catalogues is their low-cost search capability; if users order directly from these catalogues, cycle times and ordering costs can also be reduced. Pricing is often included as part of the catalogue and is referred to as a published price list. Procuring organizations with higher buying volumes may be offered a percentage discount on the rates from the published price list.

Automation of Bidding

At many firms, entire bid processes have been automated. Bid packages and specifications are made available online from which bidders submit their bids and proposals, and the bid openings and awards are communicated electronically. Cycle-time reductions and other cost savings can be significant if the automated process is efficient.

In online auction situations, potential sources are also prequalified and invited to take part in the online bidding. The auction, or event, is set for a specific date and time period, much like the deadline and bid opening deadlines of offline processes. An auction’s success depends, in large part, on the quality of bid specifications and the ability of procurement professionals and processes to prequalify suppliers. In an online environment, bidders can see the actual bid amounts but not who is involved in the bidding.

Procurement Documents

Procurement departments utilize and maintain certain documents for purchases. The types of documentation kept will depend on the organizational requirements and will differ for each organization. A number of procurement documents are used to obtain information and proposals from prospective suppliers. These include the following:

• Request for Information (RFI) : An RFI is a document that companies send to potential suppliers requesting key information, including products or services provided, length of time in business, and markets served.
• Request for Proposal (RFP) : A request for Proposal (RFP) is a document that companies send to approved suppliers requesting them to submit a proposal that outlines how they would complete the scope of work along with pricing, quality, and delivery data.
• Request for Quote (RFQ) : An RFQ is a document that companies send to approved suppliers requesting price quotations for products or services.

The terminology may vary among industries, and in some organizations, the preparation and use of the previously mentioned documents is a specialized field assigned to certain individuals. Procurement groups typically use standard documents to obtain the necessary information from prospective suppliers.

Commonly Used Procurement Documents

According to Muckstadt, Murray, Rappold, and Collins (2003), a number of documents are commonly used in procurement. These include the following:

• Requisition : A requisition is a request outlining requirements for products or services that normally takes the form of a hard-copy or electronic document created by the demand planning organization; after approval, it is forwarded to the specific procurement organization.
• Sourcing information/justification : These are documents that are used to record the reasons for the procurement method and the types of suppliers used; for example, if the purchase is made from a sole-source supplier, the document explains why no other sources are available.
• Statement of Work (SOW) : An SOW is a formal document that details the work activities and tasks suppliers must carry out, the products or services to be delivered, and a planned timeline for completion. The SOW normally includes highly detailed requirements, prices, terms, and conditions.
• Contract : An agreement between two or more parties with the terms and conditions of the work to be carried out, the products or services to be provided, timing, fees, and deliverables. Contracts can be verbal or written but are usually written documents that involve an offer and the acceptance of an offer.
• Requirement definitions : Requirement definitions are formal, clear definitions of the products or services required and include product specifications, performance requirements, quality specifications, and SOWs.
• Bill of materials (BOM) : A BOM is a document that accompanies engineering drawings, in which parts, materials, labour, etc., are listed. A BOM itemizes what is required to manufacture an item; it enables suppliers to price accurately the work on which they are bidding.
• Shortlist : A shortlist is a list of candidates, normally potential suppliers, who have been selected for further review or for final consideration before actually approving a supplier and awarding a contract.
• Progress reports : These are accounts of the advances made in fulfilling the contract or proofs of delivery of goods and services at required times, in required quantities, and at acceptable levels of quality.
• Correspondence with a contractor : This comprises all interactions about the work to be carried out or the work being carried out along with the products and services being provided.
• Proof of payment : The proof of payment indicates that payments have been made to suppliers by buyers’ accounts payable departments.
• Offers received (technical and financial) : The offers received (technical and financial) document comprise the various offers received from potential suppliers to a request for tender—a formal, structured invitation to suppliers to bid on supplying products or services—and contain the necessary information about suppliers’ technical and financial capabilities and other strengths relevant to the work required by buyers.
• Evaluation report : The evaluation report is developed based on a review of the information provided by suppliers in response to RFIs, RFQs, or RFPs; it comprises an assessment of potential suppliers’ capabilities about the work required or products and services to be provided. This report is also referred to as a weighted scorecard.
• Proof of receipt of goods : The proof of receipt of goods document is signed by buyers to indicate that they have received the required goods. One copy of this document is normally kept by buyers, while another copy is returned to suppliers.
• Receipt and inspection reports : The receipt and inspection reports are about inspections carried out on goods delivered to buyers and about the quality of the goods received; they detail any issues about quality, quantity, and inconsistency.
• Supplier evaluation reports : These reports are normally developed on a scheduled basis; they indicate how well suppliers are performing in their contractual, and other, obligations.
• Amendments to solicitation documents : Amendments to solicitation documents list any changes, deletions, or additions to the RFI, RFQ, or RFP, and any other clarifications and correspondence with suppliers.
• Amendments to contracts : The amendments to the contracts document includes any agreed modification to contracts.

Key Takeaways

Discovering potential suppliers is the process of searching for suppliers who will be able to deliver the products, materials, or services required by a company. The outcome of this process is the list of potential suppliers, after which procurement evaluates each prospective supplier against specific criteria like cost, quality, consistency, and other performance metrics. Obtaining suitable market intelligence is an issue that confronts procurement managers daily in their efforts to find, qualify, and use appropriate sources of supply. Additionally, supply departments must identify which potential suppliers exist for a particular commodity and where they are located.

Supply market intelligence is the outcome of the process of obtaining and analyzing information relevant to a company’s current and potential supply markets with the objective of supporting effective decision-making. Supply market intelligence includes five elements: commodity profile information, cost  structure, supply base information, market information, and competitive analysis. Supply market intelligence also has varied uses. Supply managers obtain and use intelligence to identify suppliers that can provide the necessary products and services at consistent levels of cost, quality, and quantity. The evaluation of potential suppliers attempts to answer two main questions: Is this supplier capable of supplying the purchaser’s requirements satisfactorily over both the short and long terms? Is this supplier motivated to supply these requirements in the way that the purchaser expects over the short and long terms?

The main objective of the evaluation process is to reduce purchase risk and maximize overall value, and the time that goes into evaluating suppliers should be a function of the importance of items purchased. Suppliers are generally rated across multiple categories using weighting evaluation criteria, according to the relative importance of each criterion. Most firms engage in global sourcing at some level, and the primary reason to source on a worldwide basis is to obtain lower prices. Many firms source globally and have realized savings as a result. Supply managers from leading companies have developed a classification scheme to segment suppliers by their geographic capabilities.

Tactical aspects of the procurement process to enable the placement and approval of POs with suppliers, the information needed for a comprehensive purchase requirement, the necessary forms and documents, and the necessary elements in the post-award process that must be managed. Additionally, alternate forms of procurement were reviewed, including procurement cards for non-procurement personnel, electronic catalogues for requisitions, and EDI and bidding automation, both of which used to streamline procurement processes.

Review Questions

Dominick, C. (2008). Buyers ask: What is market intelligence? Next Level Purchasing Association. http://www.nextlevelpurchasing.com/articles/what-is-marketintelligence.html

EPIQ. (2014). Electronic procurement . https://www.epiqtech.com/E-Procurement-Systems.htm    

Fottrell, Q., & Scheck, J. (2009, January 8). Dell moving Irish operations to Poland. The Wall Street Journal. http://www.wsj.com/articles/SB123141025524864021

geralt. (n.d.). Business establishing a business [Computer graphic]. Pixabay. https://pixabay.com/illustrations/business-establishing-a-business-3639463/

Monczka, D., Trent, R., & Handfield, R. (2005). Purchasing and supply chain management (3rd ed.). New York, NY: McGraw-Hill.

Muckstadt , J. A., Murray, D. H., Rappold, J. A., & Collins, D. E. (2003). The five principles of supply chain management: An innovative approach to managing uncertainty. https://www.semanticscholar.org/paper/The-Five-Principles-of-Supply-Chain-Management-An-Muckstadt-Murray/c407061b21531ff22515a14cd52b65e232b3b33b.    

Trent, R. J., & Roberts, L. R. (2009). Managing global supply and risk: Best practices, concepts, and strategies. Plantation, FL: J. Ross.

Creative Commons Attribution

This chapter contains material adapted from Supply Management and Procurement Certification Track . LINCS in Supply Chain Management Consortium. March 2017. Version: v2.26. www.LINCSeducation.org .

Image Descriptions:

Figure 3.1 : This figure is a weighted scorecard, and it is a tool often used by procurement to perform an objective evaluation of multiple supplier responses for the same item. It also serves as a permanent record to justify a contractual commitment in the form of a purchase order to the highest scoring supplier. On the right side of this figure, there are four criteria that each supplier gets weighted for integrity, industry expertise, experience and qualification and financial and managerial strength. Supplier A scored a total of 1.90 and Supplier B scored a total of 2.75. Supplier A scored a higher weight than Supplier B in financial and managerial strength whereas Supplier B scored a higher weight than Supplier A in both industry expertise and experience and qualification leading Supplier B to be chosen. [ Back to Image ]

Procurement in the Supply Chain World Copyright © 2022 by Angela Reid-Regier and Bryan Snage is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Supplier Evaluation: your choice criteria and how to execute it

Almost all industries have suppliers that include distributors, manufacturers, importers, and service providers. Because there are frequently multiple options available, conducting supplier evaluations assists businesses in selecting the solution that best suits their operational requirements. You can evaluate if this strategy of supplier picking is appropriate for enhancing your employer's supplier connections by learning about the procedure. 

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In the following article, we explain the term " supplier evaluation ", list a few of its advantages, and go over how to go about doing it when choosing suppliers.

What is meant by supplier evaluation

The procedure that businesses employ to select suppliers and vendors for their goods or materials is known as supplier evaluation . A business may assess specific factors during this process to identify which vendor will assist it in reaching its objectives. To evaluate a supplier , you might consider the following factors:

• Price offered : For the same products, suppliers provide a range of prices. You can notice changes in market demand or availability by routinely monitoring prices.
• Product quality : This qualitatively assesses how long-lasting or efficient a supplier's offering is. Before buying, you might ask for samples to assess the amount.
• Service provided : Prior to dealing with a provider, think about assessing the level of service they offer. Friendliness, responsiveness, and general comprehension of the needs of the organization may be considered as service criteria.
• Social responsibility : Businesses may favor vendors whose goals and values coincide with their own. Social responsibility can also refer to a supplier's involvement in the community and charitable giving.
• Convenience : For businesses that require supplies frequently, convenience is essential. You could assess how simple it is to place an order, how soon you receive supplies, and how accommodating a supplier is to the demands of your company.
• Flexibility : Flexibility demonstrates a supplier's capacity to scale up and down delivery in response to customer demands. If productivity varies over the year or if there are multiple sites that need supplies, this can be a crucial factor.
• Risk : Since many companies depend on their suppliers to produce the goods for their own clients, being aware of the risk might help you choose the proper source. You could evaluate the possibility of price rises or supply constraints.

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The several types of a supplier evaluation

Making business decisions might benefit from using a variety of techniques for evaluating vendors . Here are a few techniques you could employ to do a supplier evaluation :

• Scorecards : For every evaluation criterion, scorecards with a scoring system may be created. This gives you quantifiable information about each seller to evaluate vendors .
• Questionnaires : Questionnaires may offer more detailed information, such as the quality and efficiency of the communication. You could ask suppliers questions to get an explanation of some of their procedures.
• Discussions : Informal exchanges let management and teams that are familiar with the products talk about their possibilities. Discussions can assist everyone in determining the most crucial criteria when choosing a supplier because each team member may have different goals, such as cost or convenience.
• Supplier visits : Some companies arrange to meet a vendor in person to understand more about the latter's operations. This lets you get to know essential staff members and record information about the vendor's environment. 

Steps of supplier evaluation

To evaluate a vendor , you can follow these steps :

Set your metrics

Establish your KPIs based on the most crucial factors for the company before selecting vendors . The amount of on-time deliveries, the average cost, or the number of product defects reported are a few metrics you might monitor. These performance measures can all be used to compare various suppliers. You can also take into account additional data, such as whether suppliers possess accessible feedback channels and past client ratings, to have a better understanding of how responsive they could be to adjusting business objectives.

Identify potential suppliers

After gathering metrics, you can make a list of the multiple suppliers that your company might require. These could be companies that deliver goods, produce goods, offer office supplies, or provide raw materials. You can determine which supplier could be the most crucial to the success of the company by classifying each according to priority. You can determine the extent to which you might assess each based on this classification.

Set a process for evaluation

Establishing a precise evaluation procedure might assist you in choosing a provider and keeping track of their performance. Think about who on the team can provide feedback on how to assess every factor. Sales representatives, supply chain staff members, and those of the quality assurance department who can assess the caliber and integrity of each vendor are a few examples. 

Once you've assembled an evaluation team, choose the best strategy for e valuating suppliers . Before reporting findings to the supplier, think about setting up frequent meetings with internal teams to assess the vendor and go over their findings with leadership.

Contact and communicate with the suppliers

You may also set up quarterly or monthly meetings with suppliers to assess their performance , much like you would with your staff. To guarantee you satisfy business needs, partnering with vendors might motivate them to offer better service and products. You could discuss with the vendors what requirements they have met and what they could do better to win the company's business in the future.

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Advantages of supplier evaluation

Performing a vendor evaluation has the following major advantages:

 Understand business requirements

You can assess your company's needs by evaluating possible suppliers . Considering the materials your product requires, how frequently you must place orders, and whether production changes over the year are all examples of this. You can determine the most crucial requirements for the success of the organization by comprehending and assessing the company's needs.

Interpretation of performance indicators

You can create key performance indicators ( KPIs ) to evaluate your suppliers by looking over a variety of supplier characteristics. These KPIs can assist you in determining how closely a supplier's performance complies with your requirements and expectations. Sharing KPIs can assist in holding vendors responsible for situations where their work needs to be improved.

Improve relationships with suppliers

Through clear communication of the company's requirements, vendor evaluations serve as helpful tools for enhancing relationships with suppliers. Initial assessments provide you the opportunity to discover more about a firm, its representatives, and crucial information such as availability and cost. You can set up regular meetings to talk about performance and create open lines of communication thanks to regular evaluations.

Identify the potential risks

Every supplier has a unique set of risks to businesses, and knowing these risks can help you prepare for emergencies. For instance, if a supplier offers varying prices, the business may end up spending more than intended on purchases. You could assign risks to every supplier as part of the evaluation process . With this knowledge, you can decide which risks might have a bigger impact on the company or how likely it is that a problem would arise. Prior to making a purchase, you can identify these risks and create a mitigation strategy to lessen their impact on your company's operations and revenues.

Promote better performance

Companies frequently share their vendor assessments with their suppliers. Every vendor gains an understanding of how they may develop in order to win your company's business for future requirements. For instance, you can observe that a particular provider has the greatest rates and quality, however, you need more ordering flexibility and ease over the year. The provider may then look into ways to enhance your experience and boost delivery capabilities in order to satisfy the demands of your company.

Sourcing DocShipper tip : The purpose of supplier evaluation is to ensure that a company is working with suppliers who can provide high-quality products or services, on-time delivery, competitive pricing, and a strong partnership. If you feel overwhelmed by these procedures, you can count on our experts to conduct sourcing and suppliers quotation on your behalf. Feel free to contact our experts for further information.

In conclusion, supplier evaluation is a critical process for any organization that relies on external suppliers to provide goods or services. By assessing suppliers based on defined criteria, collecting data, and taking action based on the results, companies can ensure that they are working with suppliers who meet their standards, minimize risks, and improve overall performance. Effective supplier evaluation can help companies maintain a competitive edge, reduce costs, and enhance their reputation with customers. It is therefore essential that companies prioritize supplier evaluation and regularly review and update their evaluation criteria to ensure that they are meeting their needs and objectives.

DocShipper Sourcing is dedicated to helping people and businesses with their sourcing processes. Don’t hesitate to contact our experts for further information.

FAQ | Supplier Evaluation: your choice criteria and how to execute it

Why is supplier evaluation important.

Supplier evaluation is important because it helps organizations ensure that they are working with reliable and high-performing suppliers who meet their standards and requirements. It also helps minimize risks and improve overall performance.

What are the benefits of supplier evaluation?

The benefits of supplier evaluation include reducing costs, improving product quality, enhancing the organization's reputation with customers, minimizing risks, and maintaining a competitive edge.

What are the potential risks of not conducting supplier evaluation?

The potential risks of not conducting supplier evaluation include working with unreliable suppliers, product quality issues, delivery delays, increased costs, reputational damage, and legal and regulatory non-compliance.

What are some tools or software available to assist with supplier evaluation?

There are various software and tools available to assist with supplier evaluation, such as Supplier Relationship Management (SRM) software, Supplier Scorecards, and Vendor Risk Management (VRM) software. These tools can help automate the evaluation process and provide actionable insights.

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How to write a business plan for a supplier

A business plan is an important and comprehensive document that is useful throughout the business life cycle. 

The document contains both strategic and financial details about the business and can be used for numerous purposes, such as securing investments or providing details to suppliers. 

Creating a business plan for suppliers can be difficult without knowing what information to include in the document which is why we created this practical guide. 

In this guide, we’ll focus on what a business plan for a supplier is and what it’s not. Reading this guide will help you understand why some suppliers require a business plan and help you figure out what tools you can use to create a business plan for a supplier.

So, let’s get started.

In this guide:

• What is a business plan?

Why do suppliers often ask for a business plan?

How does a business plan for a supplier differ from a traditional business plan (i.e., for a bank or investor), what does the financial forecast of a business plan for a supplier look like, what does the written part of a business plan for a supplier look like, what tool should i use to write a business plan for a supplier, what is a business plan .

A business plan is a document that defines a company's objectives and how it plans to achieve them. It can be used to secure funding, find a business partner, or provide business details to suppliers. 

It can be divided into two sections: a financial forecast and a written presentation. 

The financial forecast, which includes a Profit and Loss (P&L) statement, balance sheet, and cash flow statement, contains valuable information used to determine the current and expected profitability and financial position. 

Whereas the written section, which includes an executive summary, strategic details, competitor analysis, and more, conveys the context required to assess the relevance and credibility of the forecast. 

Need a convincing business plan?

The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.

Supplier relations are highly important to the success of a business. Companies evaluate their suppliers based on the quality of materials they provide. Similarly, suppliers also evaluate their potential clients based on different factors.

Counterparty risk is the biggest concern suppliers have. The main risk suppliers face is not getting paid in time, and this is, therefore, where most of the counterparty risk lies, and why some suppliers will ask for a financial forecast to be included in your business plan.

Other important factors such as reputation (are you doing business ethically and sustainably? Is there a risk of being associated with you in terms of image?) also come into play when assessing counterparty risk.

A supplier will also want to assess their revenue potential with your business. This will help them determine whether you will be a small-time client or a major customer, and which terms of business they should offer as a result. 

Assessing these details will help suppliers determine various factors about your business relationship with them, including:

• Price charged for the material.
• Amount of material they are willing to provide. 
• Payment terms. 

Now that we know why suppliers ask for business plans, let’s have a look at the difference between the content of a traditional business plan and one written for a supplier.

The main difference between a traditional business plan, for a bank or investor, and one for a supplier is the level of risk.

You see, financiers take a significant level of risk when they agree to finance your business as it might take them years to get their money back. 

Though suppliers are also interested in the profitability and cash generation of your business because they want to know that you’ll be able to pay them in time, the “ask” is less risky as the time they have to wait to be paid is much shorter.

As a result, a business plan for a supplier doesn’t have to emphasize your funding requirements and will require less convincing and, therefore details in your plan, to get them on board. 

The aim here is to secure a long-term professional relationship. So this document should reflect the fact that your business is stable and is expected to grow so that suppliers can determine how much revenue they can hope to generate with you. 

Though you’re not asking the supplier for funding, the financial forecast remains a key part of a business plan for a supplier.

Suppliers use the information provided in the section to determine whether you can pay them on time and if your business is expected to grow. Both these factors are critical to the supplier as they help determine the potential revenue they can generate from you. 

The financial forecast section of a business plan for a supplier should include the following financial tables. 

The P&L statement  

The P&L statement of the financial forecasts provides the supplier with information about your business’s revenue, expenses, and costs. Your supplier can use this information to determine key financial metrics, which include: 

• Profitability - the expected profits your business can generate. 
• Growth rate - the rate at which your business is expected to grow.
• Cost structure - how expenses are structured within your business.

The balance sheet 

A balance sheet is basically another type of financial statement that contains details of your business’s assets and liabilities. It’s one of the most essential financial statements your supplier may use to measure the solvability of your business. 

When looking at your balance sheet, suppliers will most likely focus on liquidity. Liquidity is the ability of your business to repay its short term debt (such as accounts payable with the supplier). 

It is assessed by comparing the cash position of your business, and other liquid assets (such as money you’re expected to recover from what clients owe you), with the short term liabilities (trade payables, taxes due, financial debt due in the next 12 months, etc.).  

The cash flow forecast

The cash flow forecast shows how money comes in and goes out of the business. It is a critical part of the financial forecast section of a business plan for a supplier. It helps determine how capital is managed and allocated.

This information can help your supplier understand your business's operational and financing activities. Your supplier can use the information available in these statements to figure out when they are likely to be paid. This can help the supplier create:

• Payment terms that are more feasible.
• Delivery milestones that meet your business’s requirements.

Now that you know what the financial forecast section of a business plan for a supplier should include, let’s look at the written part of the document. 

When creating a business plan for a supplier, you shouldn’t overlook the written part of the document. It’s just as important, if not more. This section of the business plan is what will help your supplier understand the context behind your financials. 

It’ll help them learn more about your business, industry, and customers. This will allow the supplier to source and provide you with materials that match industry standards and are suitable for your customers with regard to quality. 

However, it’s important to remember that the business plan for a supplier doesn’t have to be as detailed as the document needed for a bank or an investor. 

The written section of a business plan for a supplier will include the following sections. 

Executive summary

The executive summary of a business plan for a supplier serves as an overview of the entire document. It lets readers know what they can expect. 

When writing this section, you should know that the aim here is to present your business in a clear, comprehensive, and concise manner. This will help capture the supplier’s attention and encourage them to read on. 

Company details

This section will contain details about your business. When writing this section, you should make sure that you provide information about your partners, team members, and how capital is distributed. 

When writing about your management team, it’s also important to mention their skills and qualifications. This will help the supplier better understand your business and its structure. 

Product and service details

This is the most important section of a business plan for a supplier. In this section, you will include details about the products or services you offer. 

It’s important to know that these details may include the features and functionalities. Providing these details will help your supplier source and deliver materials that improve the quality of your products or services. 

Market research

This section will contain the findings of your market research and analysis. It can include details about your competitors, technological innovation in the industry, and overall market attributes. 

The goal here is to show that there is a viable opportunity for your business. This information will help your supplier determine whether you will be a major customer for them. 

Strategic details

In this section, you will include information about three key aspects of your business: pricing, marketing, and risk management. 

Providing this information will help your supplier determine the profitability and positioning of the business. This will help the supplier meet your requirements and will help them determine the revenues they can generate from your business. 

Operational plan

In this section, you should include information about how your daily business operations are conducted. 

This might detail your production or service production and distribution plans. Your supplier can use this information to better understand business practices and tailor their delivery dates accordingly. 

Now that you know what a business plan for a supplier should include, let’s look at some tools you can use to create this document. 

Need inspiration for your business plan?

The Business Plan Shop has dozens of business plan templates that you can use to get a clear idea of what a complete business plan looks like.

The options for tools used to write a business plan for a supplier are limited, and some of them aren’t very effective. Let’s take a look.

Writing your business plan using Word or Excel

Using these tools to write your business plan is a very cheap approach. However, you need to know that it requires manual effort and is an outdated method. 

This approach is also error-prone if you’re not an expert in finance. You might also face difficulties when structuring and formatting your business plan. 

Using online software to create a business plan for a supplier 

This is by far the most effective approach to creating the document. Using online software to write a business plan for a supplier has numerous advantages, such as: 

• Having access to instructions and examples throughout the process. 
• Being able to use downloadable templates to create a business plan for a supplier. 
• Integrating financial forecasts into your business plan with just a few clicks. 
• Identifying errors in your existing financial forecast. 
• Converting your business plan for a supplier to one used for banks and investors.

Don’t wait. Start a free trial now and learn how we help you create a business plan for a supplier . 

Conclusion 

A business plan is an important document that contains strategic and financial details. A business plan for a supplier helps you communicate your current and expected requirements with ease. Suppliers can use this document to determine if you will be able to pay them and whether or not you will be a major customer for them. 

Using online software to create a business plan for a supplier is by far the best approach, as it helps you create the document with ease. 

Also on The Business Plan Shop

• How to do a market analysis for a business plan
• What is a business plan and how to create one?

Know someone who needs to create a business plan for a supplier. Share this guide with them!

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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Supplier Evaluation

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.

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