SUPPLIER EVALUATION

MEASURING SUPPLIER PERFORMANCE

Collection and analysis of performance data are the basis for determining how good a job the
supplier is doing. This information also allows for intelligent decisions about sources for rebuys
and useful feedback to current suppliers about areas of improvement. Normally, the performance
of the supplier is assessed regularly to reveal cycle time reductions, opportunities for process
improvements, cost reduction, and quality and service improvements. Regular performance
assessment is a catalyst for continuous improvement.
Key performance indicators
Direct measures quantify supplier performance at the time work is completed. Examples are on-
time delivery, number of rejects, increase in sales after a marketing campaign, and cycle time to
develop a specific product/service/technology in a development stage. Automation of real-time
metrics such as quality, quantity, price, and on-time delivery measures and careful selection of
more time-consuming data collection activities help to reduce the time spent measuring results.
The supplier scorecard may include a summary statement of the supplier’s cost, quality, and
timeliness performance and a compilation of satisfaction surveys, real-time metrics, variance of
invoice amounts to estimates or contract negotiated rates, and other contract related terms

EVALUATION METHODS
The supplier evaluation process can be informal or highly structured and formalized depending on
the nature of the acquisition
1. Informal and Semiformal Evaluation and Rating
Informal evaluation includes assessments of the supplier by internal users and others anywhere in
the buying organization where supplier contact takes place. Similarly, information gleaned from
conversations at professional meetings, conferences and from the media can be useful in checking
out and comparing. Although most small organizations carry out their evaluation process
informally, as the buyer-supplier network grows in complexity, the need to have a more formal
system for evaluating current sources increases
One simple semiformal supplier evaluation tool is the regular, annual discussion between top
executives in the buying organization and those of the supplier called Executive Roundtable
Discussions. These roundtable discussions can help cement relationships between the two
organizations at a high level and when repeated over time can provide invaluable information for
both sides
2. Formal Supplier Evaluation and Rating
Most formal approaches attempt to track actual performance over time. Advances in supply
process software allow for easier tracking on a real-time basis and greater performance visibility
  Quality performance: it is normal to track a supplier’s quality performance closely and in
sufficient detail to pinpoint corrective action
 Delivery performance: fairly easily tracked if good records exist of deliver promises and
actual receipts and few modifications have been made on an informal basis
 Price performance: easily tracked as discrepancies between agreed-to prices and those
actually invoiced by suppliers should normally be brought to supply’s attention anyway.
Price ratings of suppliers are often a comparison type: actual versus target, actual versus
lowest received from other suppliers suppling the same requirement
 Service performance: it is normal to have a relatively simple rating scheme for service
such as outstanding, acceptable and poor along with explanations regarding specific
incidents to explain these ratings
 Innovation performance: more difficult. Measures of innovation at an organizational
level might include the percentage of sales attributable to new products or services, the
number of new patents or new products successfully introduced, etc.

3. Weighted Point Evaluation systems

• Identify factors or criteria for evaluation
The relevant factors or decision criteria should be determined in the context of the purchase
and the sourcing strategy for that item. Clearly, most organizations track major suppliers more
closely than those sources deemed to have less impact on organizational performance.
• Determine the importance of each factor
• Establish a system to rate each supplier on each factor
The selection of the factors, weights and forms of measurement will require considerable
thought to ensure congruence between the organization’s priorities for this product class and
the rating scheme’s ability to identify superior suppliers correctly

SUPPLIER RANKING
• Unacceptable – Fail to meet operational and strategic needs
• Acceptable – meet current operational needs
• Preferred – Meet all operational and some strategic needs. Both parties work together for
improvement and for reducing non-value added activities.
• Exceptional – Anticipate the operational & strategic needs of the buyers and surpass
expectation.
SUPPLIER RELATIONS
The trend to fewer suppliers, longer-term contracts, continuing improvement in quality, delivery,
price and service requires much closer coordination and communication between various people
in both the buying and selling organizations. Therefore, improving buyer-seller relationships is a
key concern. Supply management is no longer engaged in the exchange of money for goods and
services but also in the management of the buyer-seller relationship

1. Supplier Goodwill
Supplier goodwill is created when companies take attempt to develop and maintain relationship
with supplier as marketers try main a good relationship with the customers.
Companies have started to measure supplier goodwill through third party.
Supplier satisfaction survey finds that the best purchasers are those who know about the supplier’s
business

2. Purchaser-supplier satisfaction matrix

One of the major assessments a purchaser must make is whether the current relationship with a
supplier is a satisfactory one or not. This relationship is highly complex and different people
inside the purchasing organization may have different perceptions of it
A number of supply management and marketing means may be used to shift positions on the
satisfaction chart. The use of some of these will adversely affect the perceptions of the other party,
and these might be called “crunch” tools or negative measures. Others are likely to be viewed in
less severe terms and might be considered “stroking” methods or positive approaches
Crunch tools for the purchaser?
• Complete severance of purchases
• Refusal to pay bills
• Use or threaten legal action
Crunch tools for the supplier?
• Refusal of shipment as promised
• Unilateral price increase
• Insistence of unreasonable
Stroking tools for the purchaser?
• Granting substantial volumes of business
• Sharing internal information
• Willingness to change behaviour
• Rapid response to requests from suppliers
Stroking tools of the supplier?
• Willingness to make rapid adjustments on request
• Invitation to discuss problems and opportunities
• Information about pending price changes, lead times, etc.
“Stroking” techniques are more likely to be used in the A region, further strengthening the
stability of the relationship, whereas the use of crunch tools may well accomplish short-term
objectives but may impair future chances of a desirable stable relationship

3. Supplier Relationship Management

The whole art of supplier relationship management from a supply perspective is to bring both
sides into an effective working relationship. This will require substantial coordination work inside
the purchaser’s organization to ensure that the people most vitally concerned with a particular
supplier’s performance are fully involved in the planning and execution.
Without internal cooperation and congruent strategic internal approach to the improvement of
supplier relations, supplier relationship management is impossible