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Supplier Evaluation - How to see if your supplier is the best for you

By AMREP | Posted on September 09, 2022

Updated on December 12, 2023

This Image Depicts Supplier Evaluation

Your suppliers are essential to your business as they provide the products you need to sell. But how do you know that you are getting the best deal and that the products and materials you buy are of the quality and workmanship you expect?

This blog will look at the different ways you can evaluate your supplier performance, including some of the metrics you can use and the evaluation checklist you can use to measure progress.

What Is Supplier Evaluation

Supplier evaluation is the process of assessing the supplier’s products or services. It can include a review of the supplier’s product outputs and its capability to meet technical, cost, performance, and quality requirements.

Supplier evaluation can help you with determining if the supplier is suitable for you. When you do a supplier evaluation, you’re ensuring that the quality of products and services delivered by a supplier is acceptable. It can also help to identify problems early and ensure that they are corrected. Supplier evaluation can help to improve the quality of products and services and to reduce costs. Supplier performance evaluation can be done in-house or through third-party supplier management services.

Importance Of Supplier Evaluation

Before an organization signs on the dotted line for any product or service, the company should ensure the supplier is a reliable partner. Most purchasers don't consider the suppliers' ability to deliver on their promises enough. This is risky. If a supplier delivers poor quality or there's a design defect, the purchaser will be stuck with a liability.

Supplier evaluation is integral to the purchasing process, as it helps in supplier development and relationship management. The objective of supplier quality management is to achieve business objectives by ensuring that suitable suppliers are in the right place at the right price.

It is important to note that you should also not fall for everything a supplier tells you. It has been observed that many suppliers are not very honest or transparent when it comes to telling you the features and functions of their products.

Many of them tell you how you will be able to attract and persuade more customers, but they usually hide the actual facts; hence, it is your responsibility to check out everything and then decide if it works.

Suppliers' evaluation is an intangible but valuable process that companies must undergo to achieve the best results in their business. It should be part of the purchasing decision-making process, and it's beneficial in reducing supply risk.

8 Factors To Consider In Supplier Evaluation

This Image Depicts Factors To Consider In Supplier Evaluation

When evaluating and selecting a supplier, it is important to consider the following factors:

  1. The supplier's ability to meet your specific needs.
  2. The supplier's past performance.
  3. The supplier's ability to comply with your company's quality standards.
  4. The supplier's financial stability.
  5. The supplier's ability to provide a reliable supply of products and services.
  6. The supplier's ability to provide a good customer service experience.
  7. The supplier's ability to provide a competitive price.
  8. The supplier's ability to meet your delivery schedule.

How To Evaluate Supplier Performance - Practical Steps

Evaluating your supplier's performance is not always a simple task. You might think it's easy but you may be missing some elements. Here are some practical steps that you can use to evaluate your supplier's performance.

1. Establishing Performance Metrics

  • On-time delivery

    Check the performance of your suppliers by assessing their On-Time Delivery Rate (OTDR). Verify whether they regularly adhere to the agreed-upon delivery dates to minimize supply chain disruptions.

  • Quality Metrics

    To evaluate the quality of a product, use the defect rate, first pass yield (FPY), and return rate. Higher FPY values and lower defect rates are signs of better supplier performance.

  • Cost Efficiency

    Utilize measures like Cost Variance and Total Cost of Ownership (TCO) to assess the cost-effectiveness of your suppliers. Find affordable partners without affecting quality.

2. Communication And Responsiveness

  • Timely Communication

    Verify suppliers' communication reliability and frequency. Analyze how quickly they answer questions and give updates on order status. Smoother operations are guaranteed by effective communication.

  • Issue Resolution

    Analyze how efficiently suppliers settle conflicts. Low issue resolution times and high customer satisfaction ratings are signs of effective problem-solving skills.

3. Supplier Auditing

  • Quality Standard Compliance

    To make sure vendors follow industry-specific quality requirements, conduct quality audits. Check to verify if the corrective measures for non-compliance have been implemented.

  • Ethical and Regulatory Compliance

    Verify the ethical and legal compliance of your vendors. Examine their compliance with legal and regulatory obligations and environmental, social, and governance (ESG) standards.

4. Risk Management And Continuity

  • Risk Assessment

    Analyze how effectively providers identify and reduce supply chain risks. Determine their vulnerabilities and evaluate their risk-management techniques.

  • Business Continuity Planning

    Evaluate a supplier's ability to continue operating during a disruption. Verify the existence and viability of proper business continuity strategies.

5. Leveraging Technology

  • Supply Chain Software

    Verify the use of supply chain management tools by vendors. Examine their capacity to streamline procedures and offer real-time operational visibility.

  • Data Analytics

    Find out how well the provider can estimate demand, plan ahead, and improve performance using data analytics.

6. Constant Development

  • Collaborative problem-solving

    Encourage supplier cooperation in solving issues. To jointly address difficulties, establish methods for feedback and initiatives for ongoing improvement.

  • Performance Enhancement Programs

    Utilize programs like Lean Six Sigma, Kaizen, or total quality management (TQM) to monitor the supplier's dedication to continuous improvement.

7. Utilizing Supplier Scorecards

  • Creating Effective Scorecards

    Prepare detailed supplier scorecards that include the important performance indicators mentioned above. Scorecards offer a systematic way to evaluate suppliers.

  • Regular Scorecard Reviews

    Review supplier scorecards regularly and report outcomes. It motivates suppliers to keep raising their standards for their performance and promotes transparency.

Supplier Performance Evaluation Checklist

Suppliers' evaluation and selection process is integral to any organization's supply chain management system. Selecting the right supplier is essential because the wrong one can lead to decreased quality, increased costs, and lost time.

This Image Depicts Supplier Performance Evaluation Checklist
  1. Establish supplier performance indicators

    To evaluate the supplier's performance effectively, first establish indicators. Have a closer look at some of them:

    • Price
    • Cost
    • Quality
    • Quantity
    • Delivery Time
    • Payment terms
    • Services
    • Certifications
    • Value additions
  2. Suppliers classification
  3. Develop solid approach
  4. Collaborate with suppliers for feedback and reviews
  5. Make an actionable plan

Tips For Successful Supplier Evaluation

There are many strategies to evaluate supplier performance. Below are some of the critical strategies to evaluate supplier performance.

  1. Select the right suppliers

    Choosing suitable suppliers is critical in ensuring that your organization has better chances of working with better suppliers.

  2. Hold regular meetings

    Regular meetings with your suppliers will help you see how or if your supplier is improving.

  3. Use feedback forms

    Online feedback forms are a great way to get feedback from your suppliers.

  4. Keep contract specifications clear.

    Keeping contract specifications clear is an excellent way to successful evaluation of supplier's performance

What Is A Good Supplier Evaluation Risk Rating?

The Supplier Evaluation Risk (SER) Rating estimates the degree of risk associated with a specific supplier or company. Vendors use it to assess if a supplier is more or less likely to stop doing business or become inactive over the course of a year.

The SER rating consists of SER commentary (numerical codes that represent a company's profile, such as No payment experiences reported, Higher risk industry based on industry's inactivity rate, Evidence of open cases, liens, and judgments, Change in net worth, etc.), as well as SER scores. Scores range from 1 to 9, with 1 being the least risky scenario and 9 representing the worst-case scenario.

A good supplier evaluation risk rating is one that accurately reflects the level of risk associated with a particular supplier. The specific standards for assessing suppliers and determining risk ratings may change depending on the industry, the type of goods or services offered, and the organization's risk tolerance.

Benefits Of Supplier Performance Evaluation

There are many benefits to conducting supplier performance evaluations, including the following:

  • Improved supplier performance can improve customer satisfaction and overall business outcomes.
  • Supplier performance evaluations can help identify areas in which suppliers need to improve and can help identify areas where the company could provide support and resources.
  • Supplier performance evaluations can help identify areas in which the supplier may violate contract terms or policy.
  • Supplier performance evaluations can help identify areas where the supplier may be causing potential safety or security risks.
  • Supplier performance evaluations can help identify areas where the supplier may not meet the company's performance expectations.

Supplier performance is a very important part of any business. If your suppliers are not performing well, it can have a devastating effect on your business and bottom line. Therefore, you need to have a plan in place that will allow you to evaluate your suppliers and determine whether or not they are providing you with good service.

Evaluating suppliers and regular monitoring is a difficult task for procurement teams and buyers especially when they are running global sourcing programs with complex supply chains. In such situations, it is difficult to deeply evaluate each supplier as there are so many of them spread out across the world.

That’s when companies providing supplier management solutions, such as AMREP Supplier Management Services, can be very useful. Their experienced auditors can provide you with independent on-site evaluations of suppliers which can supplement your company’s supplier evaluation efforts. As these auditors have worked with many types of industries, products, and supplier types, their experience positions them well to offer balanced and well-considered supplier performance reviews.

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