Five good reasons to carry out supplier evaluation

A supplier evaluation is a crucial step in the procurement process that can bring numerous benefits for your organization. Here we look at five compelling reasons why conducting one is essential, and how best to go about it.

Why conduct a supplier evaluation?

1. Quality Assurance
It lets you assess the quality of their products or services, to make sure they meet your organization’s standards and expectations. It also helps identify potential quality issues, reducing the risk of getting subpar products and minimizing the chances of defects in the final product.

2. Risk Mitigation
It helps identify and mitigate potential risks in your supply chain. Assessing suppliers’ financial stability, reputation and past performance reduces the risk of disruptions in the supply chain, such as delayed deliveries, shortages or even complete supplier failure.

3. Cost Reduction
By evaluating suppliers’ pricing structures and negotiating better terms, you can secure more favorable contracts and pricing. And by choosing reliable suppliers with a track record of on-time deliveries and quality products, you can minimize costs associated with returns, rework, and stockouts.

4. Compliance and Ethics
It ensures suppliers comply with your organization’s ethical and environmental standards, including regulatory requirements, fair labor and environmental policies and transparent business practices. Partnering with ethically responsible suppliers upholds your company’s reputation and values.

5. Continuous Improvement
It fosters a culture of continuous improvement. Giving them feedback and letting them know your expectations encourages suppliers to enhance their performance continually, and regular evaluations identify areas where suppliers can improve, leading to stronger partnerships and better overall supply chain efficiency.

In short, conducting supplier evaluations is a proactive, strategic approach that lets you monitor quality, manage risks, reduce costs, maintain ethical standards and promote continuous improvement throughout the supply chain. But what’s the best way to carry them out?

How to conduct a supplier evaluation

For an effective supplier performance evaluation, best practice is to take a focused approach. Here’s a concise three-step process:

1. Define Key Performance Indicators (KPIs) and evaluation criteria

• Identify Critical Metrics – decide which areas of supplier performance are crucial to your organization’s success, such as on-time delivery, product quality, responsiveness, communication, compliance and customer service.
• Set Clear Targets – establish specific, measurable, achievable, relevant and time-bound (SMART) targets for each KPI in line with your expectations.
• Define Evaluation Criteria – create a scoring or rating system for each KPI to assess supplier performance objectively. This could be a numerical scale or a color-coded system (e.g. green, yellow, red) to represent performance levels.

2. Gather performance data and feedback

• Collect Data – get relevant data and performance metrics from various sources, such as internal records, purchase orders, delivery receipts and customer feedback.
• Conduct Supplier Surveys – develop surveys to get feedback from people dealing with the supplier, such as procurement personnel, quality assurance teams and end-users. They can give you valuable insights on a supplier’s performance.
• Get Customer Feedback – contact internal customers who receive goods or services from the supplier for feedback on product quality, timeliness and overall satisfaction, for example.

3. Evaluate supplier performance and take action

• Analyze Performance Data – assess performance based on the defined KPIs and evaluation criteria, rating each KPI and overall supplier performance.

• Identify Areas for Improvement – identify specific areas where the supplier is excelling and where improvements are needed, focusing on critical issues that most affect your operations.

• Provide Feedback and Take Action – share the results with the supplier in a constructive manner, highlighting strengths and areas for improvement, and work with them to develop action plans to improve performance.

• Continuous Improvement – repeat the evaluation process at regular intervals to monitor progress and ongoing improvement, and use the results to inform supplier selection, contract renewals and business decisions.

These three simple steps will give you effective supplier performance evaluation to help maintain high quality, build stronger relationships and optimize your supply chain. And if you use the AMOS system, you’ll have all the support you need.

Supplier evaluation with AMOS

AMOS has been designed to work with many different vendors and optimize communications with your suppliers. The Performance Evaluation module is a great support to automate the evaluation process, tailor evaluations and review the information that’s most important to you, such as on-time deliveries, the quality of goods and services and reliability.

The information is stored in the database for further analysis to support the decision-making process, and can be automatically retrieved to calculate a QA grade for each supplier. The results will be stored in the Address register; and you can opt to have AMOS automatically update QA grades, with any poorly performing vendors blacklisted and automatically unavailable for selection on order forms.

In addition, the AMOS module can evaluate any business partner by address type, such as agents, forwarders, makers and so on.