6 Guidelines for Rating and Evaluating Suppliers and Vendors.

May 26, 2022 in Purchase and Production

6 MIN READ

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Suppliers and vendors are critical to the success of any firm. A formalized method for tracking and evaluating supplier and vendor performance is essential to your company's smooth operation and profitability.

When evaluating a supplier, whether, for a new or existing vendor, it is critical to assess the company's production capacity, performance, risk, quality, and environmental impact. Just assessing these factors will get you nowhere unless you take a systematic approach to the evaluation and use a bigger framework to make the assessment data work for you.

In this tutorial, we'll go over some of the most necessary elements to consider when doing supplier evaluations, as well as how to ensure assessments are successful. But first, we'll look at why supplier assessments are crucial and how to put up a wider vendor evaluation system to ensure you get the most out of your evaluation data.

What do we mean by Supplier Evaluation?

Supplier evaluation is a formal assessment used to measure and monitor your relationship with a supplier, or to pre-qualify a future supplier, at its most basic level. Buyers frequently ask for information to begin the process of determining whether or not a supplier is a good fit for their company. Because price competitiveness is not the sole criterion for supplier evaluation and selection, the criteria usually include technical, financial, commercial, and other needs.

Why Should You Conduct a Supplier Evaluation?

A successful firm relies on a well-functioning supply network. Close working ties with your suppliers, regardless of industry, will simplify production schedules, save operational costs, and ensure the quality of the goods.

Instead of focusing on pricing, consider service quality. A vendor may have the lowest pricing as well as the lowest quality of work. The idea is to figure out how much value a particular provider adds to your business. Your company should have a strategy in place for reviewing, choosing, and reevaluating the suppliers and vendors with whom it does business.

What is Supplier Evaluation

To strengthen the supply chain and maintain connections with suppliers, most organizations analyze their suppliers' performance regularly, looking for inefficiencies or opportunities for further growth. These evaluations of suppliers are comprehensive analyses based on reliable quantitative metrics and insightful qualitative insights.

Read more - Ultimate Guide for handling Purchase & Procurement processes in SMEs

You may verify that your partners share your priorities by assessing their capacities, technology resources, delivery tactics, and general business practices. They can then tailor their operations to your company's competitive advantage. You may substantially minimize your own risks, enhance visibility at every stage of operations, and create more value for your products and services as a result of this approach.

6 tips for assessing Supplier Performance.

Here are six tips and resources to help you rate your suppliers and vendors efficiently, evaluate their progress, and eventually enhance your business's productivity levels.

Supplier Performance

1. Set up Performance Metrics.

You must first identify what attributes a vendor must have, display, or maintain to continue conducting business with your organization. Create explicit performance standards for monitoring and analyzing your suppliers and vendors on a routine basis, such as monthly, quarterly, and annually. The size of the organization, the number of licenses, quality management systems, grievance history, and financial soundness are all factors to consider. Evaluate whether they have a written procedure for the service or product they offer.

What criteria you choose will be determined by your own procedures and needs. A business owner looking for a shipping company may be most concerned with the supplier's on-time delivery track record, the number of vehicles they possess, the number of accidents recorded by their drivers, and the certifications they hold.

Every business owner should assess whether the vendor has a quality management system in place. This is true for every firm, not just manufacturing. It essentially comes down to whether the supplier has a set of procedures in place that its employees are obliged to follow. Is there a procedure in place to handle complaints or problems? Are there any corrective or preventive measures in place?' If the vendor is ISO certified, such standards will be met.

2. Categorize Multiple Suppliers and Vendors.

It will be difficult to apply the same survey to all of your suppliers and vendors if you have a large number of them. We recommend categorizing suppliers into levels (1, 2, and 3) based on their criticality. Choose the best classification for you and evaluate suppliers in order of significance based on the impact they have on your product or service.

You can commit more time to measure the performance of your critical suppliers if you divide them into two categories, such as critical and non-critical or primary and secondary.

3. Create an Evaluation Procedure.

Evaluation forms, surveys, system metrics, and software applications are all standard methods for rating a supplier's performance.

You can design a survey in which you ask your own staff to respond to questions and rank suppliers and vendors.

You can look at how many corrective actions you had to give to a supplier or vendor, how many goods you had to trash or return because the supplier or vendor failed to meet requirements, or how many customer complaints you received as a result of a vendor's unsatisfactory part or service.

You may also keep track of suppliers and vendors by conducting audits regularly.

The bottom line is that measures or reports must be generated from the start of the transaction and throughout the supplier and vendor relationship. And TranZact can assist you by automating this procedure.

Read more - What is Supplier Relationship Management & Supplier Rating - 6 Methods for doing Vendor Rating.

4. Send Questionnaires to your Suppliers.

At the start of the process, send your vendors a brief but detailed questionnaire. The questionnaire should collect both factual and subjective responses, just necessary information, and no questions that the respondent cannot answer.

5. Visit your vendor's facilities.

A personal visit to your supplier can confirm the questionnaire data while also providing insights into intangible aspects of the supplier's operations, such as workplace culture. This also provides an opportunity to assess the supplier's quality control measures, the current status of equipment, and the technical competency of the personnel.

6. Determine When to Raise a Red Flag.

When monitoring a supplier's performance, you must decide when to compliment them and when to send a red flag. Express appreciation for a job well done; provide further business to a supplier due to exceptional performance. A terrible supplier will give you mediocre or substandard products and services, causing you to lose consumers.

You can fire a supplier for bad performance, but it is more strategic to keep your vendors rather than constantly replacing them. You provide the supplier or vendor an opportunity to correct the situation by issuing a warning. To collaborate with your suppliers, use statistics such as on-time delivery rate, return rate, and several supplier corrective actions. This procedure is not only about analyzing your suppliers but also about assisting them in improving their performance.

Way forward.

Supplier assessments are a crucial tool for your company. By doing them regularly, your company can obtain a better understanding of its operations, proactively identify chances for growth, minimize risks, simplify production schedules, eliminate wasteful expenses, and improve supplier performance. The competitive advantages cannot be understated.

Although it should be thorough, supplier evaluation does not have to be tough. And if you use tools like TranZact to automate your Supplier Evaluation and Rating process, you can do it swiftly and error-free. It can be a straightforward procedure for both firms and suppliers to follow the right protocols within a bigger framework, allowing both to better understand their strengths and weaknesses and encouraging both to work together to establish a stronger, more lucrative collaboration.


TraZact

TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.