Supplier evaluation

Supplier evaluation is a term used in business and refers to the process of evaluating and approving potential suppliers by factual and measurable assessment. The purpose of supplier evaluation is to ensure a portfolio of best in class suppliers is available for use. [ Purchasing Performance: Measuring, Marketing, and Selling the Purchasing ... By Derek Roylance] Supplier evaluation is also a process applied to current suppliers in order to measure and monitor their performance for the purposes of reducing costs, mitigating risk and driving continuous improvement ["Supplier Evaluation and Performance Excellence, A Guide To Meaningful Metrics and Successful Results" by Sherry R. Gordon. J. Ross Publishing, 2008.] .

Process

Supplier evaluation is a continual process within purchasing departments [ Purchasing Principles and Management By Peter Baily] and forms part of the pre-qualification step within the purchasing process [ [http://www.cips.org/professionalpractice/purchasingsupplymanagementmodel/acquisitionpre-contract/evaluateselectsuppliers/ The Chartered Institute of Purchasing & Supply - Evaluate/Select Suppliers ] ] , although in many organizations it includes the participation and input of other departments and stakeholders.. It often takes the form of either a questionnaire or interview, sometimes even a site visit, and includes appraisals of various aspects of the supplier's business including capacity, financials, quality assurance, organizational structure and processes and performance. [ [http://www.strategysquared.com/logistics/using-effective-supplier-appraisal-techniques-to-improve-the-supply-chain/ » Using effective supplier appraisal techniques to improve the supply chain. - Strategy squared ] ] . Based on the information obtained via the evaluation, a supplier is scored and either approved or not approved as one from whom to procure materials or services. In many organizations, there is an approved supplier list (ASL) to which a qualified supplier is then added. If rejected the supplier is generally not made available to the assessing company's procurement team. Once approved, a supplier may be reevaluated on a periodic, often annual, basis. [ Retail Product Management: Buying and Merchandising By Rosemary Varley] . The ongoing process is defined as supplier performance management.

Benefits and Drawbacks

There are various benefits associated with an effective supplier evaluation process such as mitigation against poor supplier performance or performance failures. The benefits typically include sourcing from suppliers that provide high standards of product and service levels whilst offering sufficient capacity and business stability. Supplier evaluation can help customers and suppliers identify and remove hidden cost drivers in the supply chain. The process of evaluating performance can motivate suppliers to improve their performance.

Associated challenges with supplier evaluation include resource and cost commitments in establishing and maintaining a robust and effective system, challenges with specifying and gathering meaningful and relevant information, data integrity, scorecards that do not get at the root causes of supplier problems, and subjective or inconsistent scoring which may result in inaccurate assessment [ Best Practice Procurement: Public and Private Sector Perspectives By Andrew Erridge, Ruth Fee, John McIllroy] . ["Seven Steps to Measure Supplier Performance" by Sherry Gordon, "Quality Progress", August 2005.] . Another challenge is making sure that evaluation of current suppliers goes beyond measurement to actual performance improvement by providing feedback to suppliers on their performance and working on continuous improvement opportunities. Thus, management commitment to and support of a supplier evaluation process is essential.

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