Supplier Selection & Evaluation
Most businesses have suppliers that provide them with products and/or services, however not every supplier performs at the same level or even at the desired level. If there aren’t good supplier selection and supplier evaluation systems in place, companies can end up working with suppliers whose performance has negative consequences for their bottom line.
Companies worry about keeping costs down and given today’s competitive environment, that is more than understandable. But instead of considering for example, only the purchase price of an item, a more comprehensive measure is to use the “Total Cost of Ownership”. Otherwise a company can end up with a supplier that is: constantly increasing their pricing, or late on their shipments, or sends out-of-spec products that have to be reworked or rejected, or even worse - all of the above. The amount of time and money an organization has to spend in identifying these kinds of problems and then rectifying them is a waste.
An organization that is in control of their supply chain will have Key Performance Indicators (KPIs) in place to evaluate the performance of their suppliers. But even before that, an organization that is in control has gone through a standardized selection process, where they have identified suppliers according to:
Ability to meet quality criteria
Third party references and certifications
Pilot/ short runs
Going through a standardized selection process in the beginning, minimizes the chances of having to deal with big issues later on. This doesn’t mean that once a supplier is selected the work is completed. As mentioned above, it is important to have KPI based evaluation systems that track each supplier’s performance. Selection of KPIs is flexible and can change from one organization to another. The more common KPIs are:
Lead time variation
Variation between order qty. and received qty.
Non-conformance-reports (NCRs) and severity
Completeness of order documentation (e.g. Certificate of Analysis/Conformance)
When possible, it’s preferable to have a module built-in to the ERP system, where with a simple criteria selection (e.g. supplier and time frame), a report can be generated on a regular basis for all suppliers. Once these reports have been created, it’s important to take action according to the results.
Based on the results, suppliers can be rated and specific actions can be taken based on their categories. For example, a supplier that has scored high in the ranking should be recognized for their performance, (e.g. awards, certificates, increased business etc.), whereas a supplier that has scored poorly should have corrective actions identified and communicated to them. It’s important to let your suppliers know that you are willing to work with them in order to improve those areas that require it. It should not be about passing the buck - but about building relationships that will create win-win scenarios for both organizations.
This is one of the ways Supply Chain Management helps you leverage your supply chain to create a competitive edge for your organization! These things take time and effort, but the effort always pays off in the long-run, because of the tangible benefits of having standardized systems in place.
Where are you in your Supply Chain Management?