To succeed in today&#;s competitive market, you need top-notch, affordably priced, and reliably sourced raw materials and services to produce the goods and services your business offers.
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Perhaps unsurprisingly, the first step to securing these goods and services lies in proper supplier selection and evaluation.
You know you need good suppliers&#;but they don&#;t just appear in your supply chain like magic.
In order to form strong, strategic, and proactive relationships with reliable suppliers, it&#;s crucial to follow best practices and invest the time necessary to transform potential suppliers into trusted partners.
In the distant past, supply chain optimization was often limited to a single factor: price.
But thanks to increasingly sophisticated digital data management tools and the growing prevalence of digital transformation, the view of suppliers as mere vendors is giving way to a more nuanced one that regards them as potentially powerful partners in shared success.
Today, vendors share data, integrate systems, and work closely with procurement specialists to help identify opportunities for product development and innovation, take advantage of cost-cutting measures, and engage in shared initiatives to expand market share or improve competitive advantage for both partners.
With proper supplier relationship management, your procurement team can put every potential supplier through a detailed and transparent evaluation process to determine
Not every vendor will become a key supplier or partner in creating a new product, of course.
Nor will you forge a lasting, long-term relationship with every vendor in your supply chain.
But with help from data-driven supply chain management and process optimization tools, deciding which suppliers meet your exacting standards for product quality, lead time, and relevance to your own core competencies is much easier to accomplish.
Making supplier relationship management the primary thrust of your overall supply chain management&#;and using the right tools to do so&#;makes it possible to use both qualitative and quantitative metrics to:
In addition, establishing supplier evaluation criteria provides direct benefit to your business by strengthening your negotiation position.
A supplier who has high marks in most areas but struggles in another may be amenable to better terms or pricing in order to secure your business.
You can then leverage those savings to create a contingency plan in your supply chain to address the supplier&#;s weakness (and eliminate any excessive risk created) and still come out with a net gain in profits, competitive advantage, etc.
Reliable suppliers ship the right items at the agreed terms for quality, price, and on-time delivery. They also have contingency plans in place to protect their own business continuity, reputation, and compliance; they&#;re ready to get the job done, not pass the buck or excess risk on to you.
Building a reliable, flexible, and resilient supply chain requires an effective supplier selection process. Most selection methods rely on ranking each potential candidate using a scorecard.
When developing and implementing your supply chain optimization strategy, you&#;ll likely use two different supplier evaluation and selection processes: one for existing vendors, and one for new suppliers.
The former is generally used to secure positive changes in supplier relationships (better terms and service, discounts, a shift to a partnership role) or to &#;trim the fat&#; and eliminate or rehabilitate suppliers who have proven themselves unreliable, too costly, or simply a bad fit for your company&#;s ethics and culture.
Both of these processes require you to have clear and documented standards for supplier performance and compliance.
They both follow the same simple three-step process:
When choosing new suppliers, collect and record each potential candidate&#;s score for your chosen criteria on their scorecard. The process is the same when reviewing existing suppliers, but includes additional evaluation criteria based on suppliers&#; record with your company.
So, while a company building its supply chain will likely rely on reputation and referrals, a company streamlining its existing supply chain will have its own data for supplier compliance and performance to add to the mix when scoring candidates for retention, revision, or removal.
Once you&#;ve identified your best candidates, it&#;s time to score them using your chosen criteria. During this time, you can create a short list of favorites and then move them along in the process through negotiations.
The process for optimizing existing supply chains is, again, very similar. However, instead of a list of candidates to be added to the system, you may generate multiple lists of candidates you wish to elevate to a partnership role, negotiate with to secure better pricing or terms, or replace with other, more favorable options.
During the final supplier selection, you engage the winner(s) in contract negotiations to become a vendor in your supply chain. If you&#;re evaluating your existing supply chain, this period will instead be used to modify, enhance, or terminate your relationships as circumstances and your needs dictate.
It&#;s worth noting that, whichever approach you&#;re taking, having a centralized, cloud-based data management solution such as Planergy at the heart of your procurement function makes it much easier to evaluate and select suppliers.
With advanced process automation, analytics, and artificial intelligence, as well as complete and fully transparent integration with your existing software environment, you can collect, organize, and analyze the information you need to make smart and strategic sourcing decisions with confidence.
Every company&#;s approach to supply chain optimization and supplier relationship management will have its own unique elements.
Different industries have different priorities and competitive paradigms, as well as material needs.
That said, the vendors regarded as &#;good suppliers&#; share a common set of traits you can look for when evaluating both your existing suppliers and any new ones you may be considering adding to the fold.
Price used to be king of the vendor castle, but even the heftiest savings matter little if you can&#;t get the raw materials and services you need, when you need them, or ensure the quality and total cost of your own products are up to snuff. Reliable suppliers ship the right items at the agreed terms for quality, price, and on-time delivery. They also have contingency plans in place to protect their own business continuity, reputation, and compliance; they&#;re ready to get the job done, not pass the buck or excess risk to you.
New suppliers deserve their shot, of course, and there&#;s room in most supply chains for non-critical goods and services to be filled by newcomers. But your key suppliers should be well-established, with a strong track record, a solid reputation, and ready referrals to accompany their pricing and terms.
It&#;s a global economy, to be sure, and companies can often secure substantial savings by outsourcing raw materials, goods, and even services from remote suppliers. However, the more miles between your business and its suppliers, the greater the risk for supply chain disruptions, delays, and unforeseen expenses. And if you need something critical on the double, you might find yourself paying a hefty premium to get it from distant suppliers&#;if you can get it at all.
You&#;re competing in a world driven by data and digital transformation, where time, accuracy, and insight are of the essence. If you find yourself waiting for your vendors to play catch up, you might find you&#;re the one who&#;s been left standing at the roadside of progress. Attractive suppliers have:
While cost savings and lowest possible price formerly dominated most supply chain and supplier relationship management models, that&#;s no longer the case. Instead, companies are increasingly oriented toward centering procurement as a value center for their organizations, prioritizing both cost avoidance and cost savings to do so. That said, price remains an important concern, and a useful area for negotiation. Just remember that it&#;s the total cost of every purchase&#;along with potential savings and overall value created by positive relationships, overall supplier quality, and strategic decision making&#;and not just price that determines the return you&#;re getting on your investment.
As you establish the most important criteria you&#;ll be using during supplier selection and evaluation, it may prove useful to revisit Dr. Ray Carter&#;s 10 Cs of Supplier Evaluation.
Created in and published in the Journal of Purchasing and Supply Management by Dr. Ray Carter, the director of DPSS Consultants, these supplier selection criteria provide additional areas of consideration, including:
How well does the supplier meet its obligations and the expectations of its customers? What is its reputation with other businesses like yours?
Can the supplier meet your company&#;s requirements for quality, lead time, and price? What sort of materials management system do they have in place? Do they have the resources required to take corrective action when business disruptions strike?
How does the supplier demonstrate its commitment to quality, performance, value, and overall excellence? Does it meet critical certifications and standards for its industry? Does the supplier have a reputation for going &#;above and beyond&#; to meet customer needs?
What internal controls does the company use in their own policies, processes, and supply chain? How do they manage risk and quality assurance while ensuring they can meet customer expectations regardless of circumstances or exterior dependencies? Does the supplier comply with important regulations such as the International Standards for Organization&#;s ISO, the General Data Protection Regulation (GDPR) in the EU, or the Sarbanes-Oxley Act in the United States?
What kind of cash flow profile does the supplier have? Do they have sufficient working capital to meet their needs and obligations while still holding enough in reserve for innovation, growth, and unexpected expenses? What evidence can they present to show a history of consistent financial health?
How does the supplier&#;s pricing, and the total cost of doing business with them, compare to their competitors?
Does the supplier have a strong track record for product quality and service? What procedures are in place to ensure this consistency? Are they willing to provide samples and/or demonstrations?
How well does the supplier&#;s corporate culture mesh with yours? Do they share your company&#;s workplace values?
Does the supplier match your standards for sustainability and environmental responsibility? Do they have a reputation as a &#;green&#; company? Are they committed to, and have a reputation for, ethical business practices?
Is the company open, transparent, and committed to both communication and collaboration? What plans does it have in place for communication during crises? Do their methodologies and technologies align with yours?
Your success in today&#;s market depends not only on what you buy, but from whom you buy it.
Take the time to evaluate suppliers carefully, and select those who bring not only cost savings, but lasting value and the potential for growth, product innovation, and stronger competitive advantage.
With a proactive and data-driven approach, you&#;ll be able to keep your number of suppliers under control, build useful long-term relationships with key suppliers, and minimize risk to your reputation, operations, and financial stability while ensuring you always have access to the materials, goods, and services you need.
Maintaining good supplier performance is critical to the success of your business. A poorly performing supplier can impact your bottom line, and may even put your company at risk. That&#;s why it&#;s important to perform regular evaluations of your suppliers. In this blog post, we will provide you with a quick Supplier Performance Evaluation Checklist to help you evaluate supplier performance.
Key Takeaways:
A supplier evaluation is a process in which you measure and monitor the performance of your suppliers. This can be done on a regular basis, such as quarterly or annually. The evaluation should include a review of the supplier&#;s financial stability, quality of products or services, delivery times, and customer service. It&#;s important to have a clear understanding of your needs and expectations before conducting an evaluation. This will help you to identify any areas where the supplier may be falling short.
Supplier evaluations are important because they help you to ensure that your suppliers are meeting your standards and requirements. They also allow you to identify any potential problems that could impact your business. By conducting regular evaluations, you can make sure that your suppliers are performing at their best, and take action to correct any problems.
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 criteria or plan for internal and external accountability and justification for a continuing relationship.
Download the Whitepaper: A Quick and Effective Guide to Supplier Performance Evaluation Criteria
Depending on the context, a concrete supplier evaluation plan can help you in scenarios like:
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.
Read Our Whitepaper- Supplier Risk And Performance Management: Best Practices For KPI Creation
There are many benefits to conducting a supplier evaluation. Some of the most important benefits include:
LONG ZHUO supply professional and honest service.
Conducting a regular evaluation can help you to identify any problems early on and take corrective action before they impact your bottom line. Supplier evaluations are an important part of supply chain management, and can help you to ensure that your business is getting the best possible products and services.
Press release &#; Get the key to enhance the Sourcing and Supplier relationships
Depending on the context, concrete supplier evaluation criteria can help you in scenarios like:
Measuring and evaluating supplier performance is vital for 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.
First of all, one should create an actionable supplier evaluation 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:
1. Price: 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.
2. Cost: 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.
3. Quantity: 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.
4. Quality: Inspection checks help detect any visible product defects, rejections, and returns, etc.
5. Service: Some indicators of service excellence include response times for resolving issues, and constant client satisfaction engagement.
6. Delivery: Timelines for the order process and pre-delivery waiting period directly related to your satisfaction with the supplier.
7. Payment terms: Agile payment methods and terms offer payment flexibility to sourcing organizations, much more preferable than a rigid payment process.
8. Certifications: 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.
9. Value additions: 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.
10. Innovation: A supplier that innovates in various aspects of their offerings trumps others who don&#;t believe in the long run.
11. Financial health: Healthy finance equips suppliers to serve better, innovate better, and be more adjusting to longer payment cycles.
12. Compliance: Some forms to check are tax compliance, regulatory compliance, and contract compliance. There are also other regional and more specific domain-related requirements.
Learn More: Supplier Management Software
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.
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.
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:
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.
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 Our Whitepaper- &#;A Quick and Effective Guide To Evaluating Supplier Performance&#;
Once you have decided to conduct a supplier evaluation criteria, it is important to choose the right approach and method. There are many different ways to evaluate supplier performance. Some companies choose to use a Supplier Scorecard, which rates suppliers on a scale of 0-100. Other companies may prefer to use a more qualitative approach, such as conducting interviews with customers or employees.
The most important thing is that you select an approach that best meets the needs of your company. You should also consider the resources available to you when making your decision. If you don&#;t have the time or manpower to conduct in-depth interviews, then a Supplier Scorecard may be the best option for you.
White paper- Walking the Extra Mile: Procurement Greets Finance
Here are some tips to help you conduct a successful supplier evaluation:
1. Set clear objectives: Before you begin, it is important to set clear objectives for the evaluation. What do you hope to achieve?
2. Identify your criteria: Once you have set your objectives, you need to identify the criteria that will be used to evaluate suppliers. This can include quality, delivery times, customer service, etc.
3. Collect data: You will need to collect data from various sources in order to assess supplier performance. This can include financial statements, customer surveys, employee interviews, etc.
4. Analyze data: Once you have collected all of the necessary data, it&#;s time to analyze it. This will help you to identify any areas where the supplier may be falling short.
5. Take action: Based on your findings, you may need to take action to improve supplier performance. This could include renegotiating contracts, changing suppliers, or implementing new procedures. By following these tips, you can be sure that your supplier evaluation is conducted effectively and efficiently.
Download Our Whitepaper and Explore in-depth about- Supplier Performance Evaluation for Better Results
To assist you in evaluating supplier assessment, download our Supplier Performance Evaluation Checklist. This supplier performance evaluation template provides a comprehensive list of parameters and criteria like pricing, quality, delivery, customer service, and capabilities to consider when assessing supplier performance.
It also provides a quantitative way to rate supplier performance across critical factors. The findings can be used to inform future business and supplier management decisions.
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There are a few key steps that you can take to ensure that your supplier evaluation is conducted effectively and efficiently. Some of the most important steps include:
How Zycus Solutions Enhance Supplier Management: Real-World Examples
Supplier performance evaluation becomes far more effective with the right technology. Zycus offers a comprehensive suite of supplier management tools that streamline the evaluation process and optimize performance management. Here is a real-world example that illustrates the value of Zycus solutions:
Leading Communication Services Provider
A major communication services provider faced inefficiencies and compliance challenges due to legacy systems. By adopting Zycus&#;s Source-to-Contract (S2C) solution, which included request management, contract management, and supplier performance evaluation, the company reduced its request cycle time by 70% and saw a 28% improvement in supplier performance scores. This not only enhanced procurement efficiency but also improved compliance across the board.
By following these tips, you can be sure that your supplier evaluation is conducted effectively and efficiently. Supplier evaluations are an important part of supply chain management, and can help you to ensure that your business is getting the best possible products and services. By taking the time to conduct a regular evaluation, you can identify any problems early on and take corrective action before they impact your bottom line.
Request your demo today and learn more about iPerform within the Zycus Supplier Management solution and get started with better performance management in no time!
FAQs
1. What is the primary objective of supplier performance evaluation?
The primary objective is to ensure that suppliers consistently meet or exceed the quality and performance standards set by your organization.
2. Which key metrics should be tracked when evaluating a supplier&#;s performance?
Key metrics include delivery times, quality of goods, communication efficiency, cost management, and compliance with contractual agreements.
3. How often should supplier performance evaluations be conducted?
Supplier performance evaluations should be conducted regularly, such as quarterly or annually, depending on the criticality and complexity of the supplier relationship.
4. Why is it important to include a feedback mechanism in supplier evaluations?
Including a feedback mechanism helps in identifying areas for improvement, fostering better supplier relationships, and ensuring continuous quality improvement.
5. What role does risk management play in supplier performance evaluations?
Risk management is crucial for identifying potential disruptions and ensuring that contingency plans are in place to mitigate any negative impact on the supply chain.
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