Supplier Performance Evaluation – A Quick Checklist
When it comes to organizations with a global footprint, managing a supplier base and corresponding sets of varying business rules becomes quite an ordeal. It is critical to have a concrete supplier evaluation plan in place to have internal and external accountability, and justification for continuing supplier relationships in the future.
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 because it leads to potential reduction in costs, increased process efficiency and business performance, prevention of product issues and post-payment defects, and driving improvements in the supply chain.
Supplier Performance Evaluation Checklist
Step 1: Establishing Performance Indicators
Finalizing broad and detailed parameters that need to be measured is the first step to creating an actionable supplier evaluation plan. 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:
Negotiations can make or mar deals with suppliers. With economies of scale, your organization can create a win-win situation with vendors who are willing to lower their prices and in turn capitalize on large or recurring deals from you. 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.
This means the total monetary and non-monetary cost 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.
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 quantity delivered.
Inspection checks should be undertaken for any tangible product defects, rejections and returns etc.
Modes of communication supported by the supplier, response times for resolving issues and being truly invested in constant client satisfaction are some indicators of service excellence.
Timelines for the order process and pre-delivery waiting period directly relate to your satisfaction with the supplier.
- Payment terms:
Agile payment methods and terms offer payment flexibility to sourcing organizations, much more preferable than a rigid payment process.
Industry and domain specific certifications don’t just check off another box – they ensure a level of trust and threshold of minimum quality expected from the supplier you are dealing with.
- Value additions:
Value additions may seem like rare delights from most suppliers but to some suppliers, they are built into their service delivery plans. These may deal with resolution to issues and conflicts, response times, reactions to order revisions etc.
A supplier that innovates in various aspects of their offerings trumps others who don’t in the long run.
- Financial health:
Suppliers with healthy finances are better equipped to serve better, innovate better and be more adjusting to longer payment cycles.
Compliant suppliers are generally likelier to have fairer dealing practices as well. Some forms of compliances to check are tax compliance, regulatory compliance, contract compliance among other regional and more specific domain-related requirements.
Step 2: Classifying Suppliers
In order to start comparing suppliers, start off with classifying them in to 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. They should all be centralized on one common portal first. A supplier evaluation tool like iPerform works very well for this.
Step 4: Developing a Solid Evaluation Approach
To develop a solid evaluation approach, start with selecting a time period and then move on to the method of evaluation. Few examples include:
- Supplier scorecards
- Contract management
- Six sigma
Step 5: Collaborating with Suppliers for Review/ Feedback
Not all evaluation needs to be quantitative. Constant supplier-buyer collaboration can at times bring out the bottlenecks much more visibly. It is essential to schedule regular meetings proactively and be attentive to the opposite team. You will find that many problems are eliminated by sheer conversations during feedbacks sessions.
Step 6: Creating an Actionable Plan
The last step is creating a feasible and actionable plan with ways of action for certain supplier relationships. It is necessary to ensure action against your findings to ensure closing the loop on your evaluation efforts. Supplier performance evaluation, when handled in the right manner through the optimum combination of people, processes and technology, can work wonders for an organization by helping it identify performance gaps and devise strategies to plug them.
For a more detailed account of this checklist and further commentary on emerging technologies for supplier evaluation, please read this White Paper titled ‘A Quick and Effective Guide To Evaluating Supplier Performance.’