Supplier evaluation is a term used in business and refers to the process of
evaluating and approving potential suppliers by quantitative assessment.
The purpose of supplier evaluation is to ensure a portfolio of best in class
suppliers is available for use. Supplier evaluation is also a process applied to
current suppliers in order to measure and monitor their performance for the
purposes of reducing costs, mitigating risk and driving continuous improvement.
Process Supplier evaluation is a continual
process within purchasing departments and forms part of the pre-qualification
step within the purchasing process, although in many organizations it
includes the participation and input of other departments and stakeholders. Most
experts or firms experienced in collecting supplier evaluation
information prefer doing so using five-step processes for determining
which to approve. Their processes often take the form of either a questionnaire
or interview, sometimes even a site visit, and includes appraisals of
various aspects of the supplier's business including capacity, financials,
quality assurance, organizational structure and processes and performance.
Based on the information obtained via the evaluation, a supplier is scored and
either approved or not approved as one from whom to procure materials or
services. In many organizations, there is an approved supplier list to which a
qualified supplier is then added. If rejected the supplier is generally not
made available to the assessing company's procurement team. Once
approved, a supplier may be reevaluated on a periodic, often annual, basis. The
ongoing process is defined as supplier performance management.
Benefits and Drawbacks There are various benefits associated
with an effective supplier evaluation process such as mitigation against poor
supplier performance or performance failures. The benefits typically include
sourcing from suppliers that provide high standards of product and service
levels whilst offering sufficient capacity and business stability.
Supplier evaluation can help customers and suppliers identify and remove hidden
cost drivers in the supply chain. The process of evaluating performance can
motivate suppliers to improve their performance.
Associated challenges with supplier evaluation include resource and cost
commitments in establishing and maintaining a robust and effective
system, challenges with specifying and gathering meaningful and relevant
information, data integrity, scorecards that do not get at the root causes of
supplier problems, and subjective or inconsistent scoring which may result in
inaccurate assessment. Another challenge is making sure that evaluation of
current suppliers goes beyond measurement to actual performance
improvement by providing feedback to suppliers on their performance and
working on continuous improvement opportunities. Thus, management
commitment to and support of a supplier evaluation process is essential.
Tools Some of the challenges associated with
supplier evaluation may be mitigated by the use of appropriate tools. For simple
projects a spreadsheet can be used. But as evaluations become more complex or
more frequent data management and data integrity issues become significant. Web
Electronic RFP / Tendering systems are often used for initial selection
projects. Some products provide functionality for combining both initial
selection and ongoing evaluation and benchmarking.
Wider, within established procurement teaching, the Carter 10C's model is an
internationally recognised approach. This model looks at aspects which should
be evaluated before contracting and as part of the ongoing supplier performance
appraisal. The C's are: - Capacity
- Competency - Consistency
- Control of process - Commitment to Quality
- Cash - Cost
- Culture - Clean
- Communication efficiencyto support collaboration and co-ordination in the
supply chain. References
^ Purchasing Performance: Measuring, Marketing, and Selling the Purchasing
... By Derek Roylance ^ Sherry R. Gordon. Supplier evaluation
and performance excellence: a guide to meaningful metrics and successful
results. J. Ross Publishing. p. 232. ISBN 978-1-932159-80-6.
^ Purchasing Principles and Management By Peter Baily
^ The Chartered Institute of Purchasing & Supply - Evaluate/Select Suppliers
^ Robert M. Monczka, Robert B. Handfield, Larry Giunipero. Purchasing
and Supply Chain Management. Cengage Learning. p. 810. ISBN
978-0-324-38134-4. ^ "An Investigation on the relationship
for supplier performance metrics and supply chain strategies". Singapore
Institute of Manufacturing Technology. Retrieved 2011-03-21.
^ Juhnyoung Lee. Data engineering issues in e-commerce and services. Springer. p.
290. ISBN 978-3-540-35440-6. ^ » Using effective supplier appraisal
techniques to improve the supply chain. - Strategy squared
^ Retail Product Management: Buying and Merchandising By Rosemary Varley
^ Best Practice Procurement: Public and Private Sector Perspectives By Andrew
Erridge, Ruth Fee, John McIllroy ^ "Seven Steps to Measure Supplier
Performance" by Sherry Gordon, Quality Progress, August 2005.
^ "Collaborate with Vendors to Maintain Reference Data"