In procurement, supplier evaluation is the formal assessment of suppliers to measure their performance against various criteria to determine if they conform to the organization’s needs. It’s a continuous assessment procedure that aims to create a low-risk portfolio and best-in-class of the available supplier for use.
Why Is Supplier Evaluation Important
In simple terms, Supplier Evaluation helps to assess whether or not a supplier is suitable for your business while also taking to account existing suppliers to measure their performances and open opportunities for risk mitigation, cost reduction, and continuous improvement for new suppliers, and it can set a threshold that can lead to higher-quality results. Since the procurement goal is to utilize limited resources most efficiently, the assessment is necessary to ensure the best contracts in terms of cost, quality, reliability, and flexibility.
Here Are Some Of The Benefits Of Supplier Evaluation
- Risk Mitigation
Careful examination of suppliers can lower the contract, regulatory, and security risk factors associated with working with systems outside your organization.
- Leveraged Supply Base
Evaluating supplier performance helps organizations set a standard, which, in turn, leads to greater results. It also lets companies plan their goals and actions per their suppliers’ performance levels and capabilities.
- Cost Reduction
Since supplier evaluation is a necessary process, it directly influences the cost and quality of purchased products; a slight gain in cost and quality due to supplier selection greatly benefits the organizations.
- Improved Business Outcomes
Engaging with top suppliers will enable you to provide higher-quality and competitively priced goods or services. Therefore, you will be able to serve your customers better, which will grow your loyalty and sales.
- Strengthened Supplier Relationship
Efficient supplier management encourages collaboration, communication, and loyalty, which lays the foundation of mutually beneficial working relationships that benefit everyone in the long run.
- Improve Supplier Performance
The goal of supplier assessment always aims to evaluate supplier performance and improvement. While simply measuring performance has a positive effect, supplier evaluation can be most effective when it leads to continuous improvement activities that demonstrably enhance supplier performance. Follow-up activities, such as supplier training and development and corrective actions to address supplier assessment reports, are the best ways to obtain positive and measurable results.
Essential Factors While Conducting Supplier Evaluation
Since every organization is different, it’s essential to ensure that the evaluation is as fair as possible whether it is a new or existing supplier; its also necessary to gauge the organization’s risk, performance, environmental impact, and production capacity, with an organized approach to the evaluation and a larger framework for assessment information to work for you.
Before evaluation, the organization must have clear expectations for the relationship between existing or new suppliers and clearly articulate goals for suppliers to understand the obligations involved for necessary operation adjustment. Suppliers’ evaluation is based on several factors and considerations the organization should address; here are some of the elements.
- Production Capacity
Supplier evaluations should thoroughly appraise the supplier’s abilities and limitations. Suppliers that cannot scale production in response to your production cycles will not fare well in any review.
Every organization invariably confronts some risks, but its suppliers should work to minimize them throughout the supply chain. Reviewing performance metrics such as average response time, overall delays, and corrective actions helps develop a reliable quantitative assessment of a particular supplier’s risks.
Organizations should ask as many questions as possible to determine whether a supplier can handle their typical functions. Previous experiences with similar companies, relevant recent projects, and potential advances in current products or processes should be points of concern for discussion.
While it can be challenging to quantify the quality of a product, this should always be the pivot of a supplier evaluation. ISO BS/EN ISO 9001:2000 certification remains the industry standard, which indicates that the supplier excels in management responsibility, product realization, resource management, analysis, and improvement.
- Environmental Impact
Sustainability is an essential element of a successful business for ethical and financial reasons. An evaluation procedure should cover a supplier’s waste reduction practices, management strategies, and material procurement procedures. It should also cover efforts to achieve energy efficiency and any protocols employed while handling harmful materials.
If you want to improve the overall efficiency of the organization’s supply chain, supplier evaluation is an essential practice that you should normalize in all of your procurement processes. For effectiveness, outsourcing Supplier Evaluation services are necessary as you’ll work with experts who gauge your organization’s production capacity, risk, and quality for a successful evaluation.