Supplier Performance Evaluation

A Partnership Approach To Quality

An Analysis Of Supplier Evaluation
By Becoming More Competent In Supplier Evaluation, Firms Can Expect A Number Of Financial And Non Financial Benefits Each Particular Quality Sought In A Supplier Provides A Different Type Of Benefit

Benefits ± Technical Capabilities
Selecting Suppliers That Are Technology Leaders Rather Than Followers 
Translates Into Ability For Buying Firm To Be A Technology Leader  Both Sides Are More Likely To Continually Improve Products & Equipment

Benefits ± Quality & Reliability Suppliers Who Provide Products That Meet Requirements On The First Delivery And Every Delivery  Save Time And Money On Inspections  Eliminate Costs Associates With Discrepant Materials .

Delivery Exceptional Delivery Eliminates Waste  Inventory Costs  Storage Expenses  Costs Of Transferring Materials  Reduces Downed Production Costs  Saves Unnecessary Transportation Costs .Benefits .

Benefits .Flexibility Suppliers Offering Flexibility Provide  Seize Opportunities Or Avert Crises Due To Last Minute Changes  Survive Unavoidable Changes .

Benefits ± Fair Price Suppliers Offering Fair Price  Provide Buyers Cost Reduction  Provide Themselves A Fair Profit .

Fair Price .Considerations Suppliers Earning Lower Profit Margins Than Competitors  Likely To Cut Corners  Exit The Business .

Benefits ± Cost Control Change To More Cost-Effective Designs Reduce Packaging Costs Economic Lot Quantities .

Benefits .Familiarity Selecting Responsive Suppliers Results In Benefits When Issues Arise  Supplier Knows Buyers Business Well Enough To Resolve Issues Properly  Buyer Knows Who To Call When Time Is Of Extreme Importance .

Benefits ± Financial Stability Selecting Firms With Financial And Business Stability Increases Likelihood Than The Partnership Will Survive Through Tough Times Firms That Are Financially Stable Are Likely To Offer Long Term Relationships. Quality Products And Development Services .

Costs A massive Commitment Is Required By Both Buyers And Sellers To Achieve A Truly Valuable Relationship Suppliers¶ Engineering Team And Buyers Product Engineers Must Be Integrated Into The Decision making Process .

Costs Firms Can Become Captive To Their Strategic Supply Partners Due To Excessive Switching Costs Firms Run The Risk Of Partners Leaking Information Gained From A Long Term Buyer-Supplier Relationship .

The First Steps Determine Attributes To Be Considered Focus On What Is Most Important Some Attributes Are Easy To Measure Some Are Not Consider Total Costs .

The Metrics Quality Level Service Level Correct Quantity On-Time Delivery Price/Cost of Product .

More Metrics Willingness To Share Sensitive Info Presence Of Certification Or Other Documentation Flexibility To Respond To Unexpected Demand Changes .

Systems Quick Response Time In Case Of Emergency. Problem Or Special Request .& More Metrics Communication Skills.

& Even More Metrics Willingness To Change Their Products And Services To Meet Your Changing Needs Willingness To Participate In Your Firm¶s New Product Development And Value Analysis .

Supplier Evaluation Common Approaches .

Most Common Approaches Categorical System Weighted Point Average System Cost-Based System .

Categorical System Chose Attributes Most Important To The Particular Situation Assign Preferred (+). Neutral (0)Or Unsatisfactory (-) For Each Selected Attribute To Each Supplier .

One Neutral (0) & One Unsatisfactory (-) Equals One Positive (+) Comparison Of Total Scores Reveals Highest Rated Supplier .Categorical System Total Ratings For Each Supplier Example: Two Preferred (++).

Categorical System Easiest Approach To Implement Suffers From Subjectivity Lacks Detailed Insight Into Supplier¶s True Performance Because All Attributes are Weighted Equally .

Categorical System Team Members Assign Ratings Involves Perceptions Rather Than Qualitative Data .

Weighted Point Method Select Relevant Attributes Assign Each Attribute A Weight Based On Importance Team Reaches Consensus To Minimize Subjectivity .

Weighted Point Method Weight For Each Attribute Multiplied By The Performance Score That Is Assigned To It Total Weighted Scores To Determine Final Supplier Rating .

Weighted Point Method Often Used Highly Reliable Combines Qualitative and Quantitative Data .

Weighted Point Method Change Weights Or Performance Categories Depending On Strategic Priorities Of The Firm Sometimes Difficult In Practice .

Cost Based System Quantify Additional Costs Associated With Poor Supplier Performance Calculate Cost Of Doing Business By The Supplier Performance Index (SPI) .

Cost Based System Calculated For Each Item Or Commodity Provided By A Supplier Base Value = 1 .

The Better The Supplier .Cost Based System SPI = (Purchase Price + Nonperformance Cost) / Purchase Price The Closer SPI Is To 1.

Cost Based System Benefits:  Ability To Source Based On Total Cost Consideration  Methodology To Increase Supplier Accountability And Control  Equitable & Consistent Evaluation Tool .

Cost Based System Benefits:  Definition Of Supplier Performance Expectation  Communication Of Firm¶s Buying Priorities To Suppliers  The Ability To Perform Sourcing Risk Assessment .

Cost Based System Benefits:  Enhances Internal Communication For Reporting Sourcing Information  Ability To Provide Positive Supplier Reinforcement  Basis For Supplier Award System .

Cost Based System Least Subjective Quantifies Total Cost Of Doing Business By Considering Nonperformance Costs .

Cost Based System Difficulties:  Complexity  Requires Well Developed Cost Accounting System  Difficult To Identify Costs Of Supplier Nonperformance .

Other Methods Of Evaluation Statistical Analysis Total Cost Of Ownership .

Total Cost Of Ownership (TCO) Similar To Cost Ratio System More Comprehensive Considers Costs Associated With Quality. Delivery And Service .

Rework Reject Costs  Failure Costs  Administrative Costs .TCO Method Considers Costs Of Non Value Added Activities  Service Costs  Receiving Costs  Inspection.

TCO Method Proactive Comprehensive Examines Issues Outside Of Supplier¶s Cost Structure .

TCO Method

Complex To Implement & Maintain Consumes A Great Deal Of Time

TCO Method
Frequency Of Assessment: 
Monthly  Quarterly  Annually (Most Common)

TCO Method
Frequent Supplier Meetings Facilitate 
Prevention Of Inefficient Practices  Continuous Improvement

Beneficial Only If Both Sides 
Cooperate  Provide Necessary Inputs

Supplier Evaluation Getting Started .

When Is An Evaluation Appropriate? Type of Product Expected Price Quantity Complexity Potential Impact on End Products .

Initial Supplier Meeting Product¶s Application Availability Pricing Technical Issues .

Gather Preliminary Data Completed Supplier Survey Copy of Quality Manual or a Written Description of Quality System Company Financial Data .

Preliminary Evaluation Organizational History and Background Critical Material or Labor Issues Technical Support Issues .

Preliminary Evaluation Computer Systems Capabilities Warehouse and Inventory Capabilities Transportation and Delivery Issues .

Supplier Facility Tour Employees¶ Knowledge and Understanding of the Supplier¶s Quality Policy Extent and Adequacy of Operating Controls to Ensure Consistent Quality .

Supplier Facility Tour Production Methods and Efficiencies Extent of Reserve Production Capacity Location and Extent of Production Bottlenecks .

Supplier Facility Tour Plant Equipment¶s Age. Cleanliness and Suitability for the Products Considered The Facility¶s Overall Housekeeping Working Conditions and Turnover .

Supplier Facility Tour Use of Safety Equipment Harmonious Working Relationships Between Operating Personnel and Management .

Supplier Facility Tour Manufacturing Assembly Final Inspection Inventory Control Packaging .

Supplier Facility Tour  In-Process Inspection  Tooling  Production Control  Shop Floor Control .

Supplier Facility Tour  Surplus & Scrap Staging  MRB Bonded Storage  Research & Development .

Supplier Facility Tour  Order Entry  Documentation Control  Training & Development  Information Services .

Supplier Facility Tour  Purchasing  Shipping & Receiving  Receiving Inspection  Stores .

Approval Process Steps  Place Initial Order  Pass First Article Inspection  Contingent Approval  3 Production Orders With No Issues  Added to Approved Supplier List .

After Approval  All Deliveries Subject to Receiving Inspection  Discrepant Material Reports (DMRs)  Corrective Action Requests (CARs) .

Annual Performance Evaluation Sourcing Review Team  Purchasing  Procurement Quality Assurance  Engineering  Manufacturing .

Rating System Objective: Based on Data & Documentation (Max=100 points)  Conformance: 50 Points  Delivery: 25 Points  Service: 25 Points .

Conformance: Start With 50 Points Points Are Deducted As Follows  DMR / Use-As-Is: -2 Points  DMR / Return to Supplier: -3 Points  Second DMR for Same NonConformity: -4 Points .

No Written CAR Response: -3 Points Continuation of Same Non-Conformity After CAR Response: -10 Points .Conformance: Point Deductions Corrective Action: CAR Causes No Initial Deduction of Points.

Delivery: Start With 25 Points All Deliveries Support Build Plan: No Point Deductions Each Incident Which Impacts Build Plan: -5 Points .

Service: 0 to 25 Points Responsive to Changes in Demand and Schedule Communication / Keeps Agent Informed Technical Support / Samples Continuous Improvement .

Subjective Consensus Points Up to 20% (5 Points) Can Be Added or Subtracted Based on a Consensus Agreement of the Evaluation Team That Such an Adjustment Is Appropriate .

Case Study SolarWorld (SWIA) 70-100 Points: Approved Less Than 70 Points     Disapproved CAR Issued Re-Review After 3 Months If No Improvement: No New Orders .

How Measurements Are Used Ratings Data Valuable Only If Both Sides Use It To Improve Their Partnership  Track Performance Of Supplier  Identify Supplier Improvement Opportunities  Develop Supplier  Benchmark Suppliers Against Best Practices .

Supplier Performance Ratings Using Scores In Bid Evaluations .

Case Study: Graphite Rebid Graphite Rebid In 1999 & 2005 Used Weighted Bid Evaluation As Secondary Screening Technique .

Bid Evaluation Strategy Bid Tabulation Prepared (Actual Bid Prices)  Actual Bids: Low and 2nd Low Bids Highlighted for Each Item  Any Supplier with <3 Marked Items Eliminated Remaining Bidders Evaluated Based on Weighted Bid Pricing .

Bid Evaluation Strategy Weighted Bid Evaluation to Determine Final Qualified Bidders Best Bid Determined  Low Cost Per Run  Best Bid Based on Material Grade  Quality & Technical Considerations May Override Commercial .

Why Use Weighted Bids? Supplier Performance Issues Cost Money  Lost Production Causes Significant Financial Impact  Purchasing Replacement Parts Increases Costs  Domino Effect Causes Losses in Camarillo Plant  Impacts on Customer Deliveries Cost Reputation. Lost Market Share .

11 x $100 = $111  Supplier B: Score = 70 Points _1_ = Factor .43 x Actual Bid = Weighted Bid x $95 = $135 .70 = 1.Weighted Bid Evaluation Bid Weighting Factor = Reciprocal of Supplier Performance Score  Supplier A: Score = 90 Points _1_= Factor x Actual Bid = Weighted Bid .90 1.

Performance Expectations All Graphite Suppliers Treated Similarly During PO Term All Graphite Suppliers Performance Reviews Held on Same Day to Ensure Equal Treatment/Scoring .Are the Weighting Factors Fair? All Graphite Suppliers Have Same T&C.

What Did We Accomplish? Cost Reduction for Purchased Parts Consistent On-Time Deliveries Significantly Reduced Machine Downtime Improved Hotzone Performance .

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