Supplier Performance Evaluation – A Quick Checklist
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 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.
Supplier Performance Evaluation Checklist
Step 1: Establishing Performance Indicators
First of all, one should create an actionable supplier evaluation plan 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:
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.
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.
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.
Inspection checks help detect any visible product defects, rejections, and returns, etc.
Some indicators of service excellence include response times for resolving issues, and constant client satisfaction engagement.
Timelines for the order process and pre-delivery waiting period directly related to your satisfaction with the supplier.
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 expectation from the concerned supplier.
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.
A supplier that innovates in various aspects of their offerings trumps others who don’t believe in the long run.
Healthy finance equips suppliers to serve better, innovate better, and be more adjusting to longer payment cycles.
Some forms to check are tax compliance, regulatory compliance, and contract compliance. There are also other regional and more specific domain-related requirements.
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
- Six sigma
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 ‘A Quick and Effective Guide To Evaluating Supplier Performance.’