The complete idea of Supplier Evaluation

The main idea of supplier evaluation is to categorize suppliers in your organisation in order de support and develop purchasing strategies. Purchasing must always lead the initiative, even though the result from evaluation must reflect a more global vision, in order to give the feedback to a supplier about its relation with the customer.

In the current approach to suppliers from the companies, makes no sense anymore to evaluate suppliers separately every different department, there must be one global classification in the company for all suppliers. But for that purpose this classification must include criteria from other departments, a simple scorecard.

There is only one way to evaluate your suppliers and is your own. But there are are some standards, and basics.

1.- The basic QA-LOG-PU classification.
Most of the companies elaborate a equitable weighing of quality, logistics and purchasing evaluation. In general purchasing has its own ways of supplier classifications but it is interesting to take one of the key indicators as a reference (i.e. % savings).

In terms of quality there are different options: PPM, IRM, 8D answering time, incident classifications, etc.. The most used and common is PPM evaluation. In my opinion PPM only does not give a proper overview of the situation with the suppliers, and it needs to be combined with the impact of the issues (i.e. customer, repetitive, etc..)

Here I want to remark a point that it is important during all this article, the importance of accuracy in the data used for evaluation. Criteria must be defined for all items in your Evaluation process (i.e. a PPM, which parts are to be counted as PPM) and this criteria must be standardized worldwide around the company. You need to compare apples with apples, companies want to have a quick worldwide overview of the suppliers but also in a reasonable comparison among regions, factories, commodities, etc..

In terms of Logistics the idea is to have available data of performance from the suppliers in terms of deliveries on time, incidents, special freight, etc.. (ask your logistic department, involve them in the creation of the supplier evaluation). Supplier Evaluation is strategic in a company, all departments must understand is an opportunity for them to stand out and give their feedback.

If you do not have implemented Supplier Evaluation, the first thing to do, evaluate which data is available in your systems and how to compile it in the best way. PPM, Logistic incidents, etc.. are easy to get calculations if you train properly your people to score data in the system.

Another remark the important thing is that people take it seriously and do not make it just because “it is a typical question from ISO TS external Audit”, Management must support it. It is important not only about evaluation but how are you going to apply the data, what are you going to do with negative performance suppliers, the escalation system (recommendations later in the article).

Another remark is to choose the right indicator for the company. One typical mistake about using Purchasing savings (since they are easy to transfer from the system) when some commodities are linked to public market prices and purchasing increases on specific years are expected to be “normal”. Be ready to openly discuss with your commodity management in purchasing and get the best solution in your organisation. Also related to purchasing, evaluation should downgrade suppliers rejecting to sign contractual obligations and other important purchasing criteria.

2.- The new trends in Supplier evaluation.
The more and more companies evaluate more globally suppliers, not only about performance but also about proactivity, engineering, technology etc..

One important department to be evaluated in big companies is Engineering department relation, how often your suppliers react to engineering changes?, How easy to develop a product with them is? How prepared is a company in engineering? how proactive is the company in terms of feasibility studies ? There are many open points in engineering. If you can, make sure you add this in your basket.

Some toolings or commodity products are, as per global market, developed in certain low cost countries, and your customer might demand you to go there to develop toolings/products. Obviously you need to go hand in hand with your suppliers. Ask yourself in these cases the same question, does my supplier selection / nomination process detect these cases? can a supplier missing best class technology or tool development capacity be nominated for new components? how do I detect this?

Another important point is Innovation. Some suppliers do well perform since they are concentrated in process improvement internally but they miss the train of innovation or the trend of products. Imagine your company is focused on specific technology in R&D, sooner or later this technology will end up in your purchasing RFQs. Ask yourself how can you evaluate technology in your evaluation.

financial is more and more important (specially in Europe after the financial crisis), you need to make sure that you detect suppliers with financial risk putting an indicator in supplier evaluation. Here to mention that big companies monitor separately financial critical suppliers, but ask yourself if necessary to have them as C suppliers, the answer normally is Yes.

Another important part nowadays is Compliance department, ethical issues. Not all companies have long developed this department, but environment, ethics, transparency and sustainability is more and more important. Same applies to warranty and legal departments.

Finally as much important nowadays about technology and performance is motivation. How many times you find yourself with perfect suppliers not interested in developing you as a customer due to the Volume you give them, due to the fact they are bigger than you as a company, whatever. The fact is that you end up loosing a lot of time in discussion for simple quality issues or logistic discrepancies. Ask yourself contrary how you celebrate in evaluation those suppliers answering RFQs quickly, supporting tooling modifications for free in short time, helping you when you need specific things. Motivation and proactivity must be weighed in Supplier Evaluation. On the contrary, Supplier evaluation can help you to explain your expectations to negative suppliers with bad performance, when the key account Manager calls you to know why they are B instead of A supplier.

3.- How to implement Supplier evaluation in your company?.

AS mentioned before, the target of supplier evaluation is to have a proper A/B/C on Suppliers. The first thing to do is to name a department leading evaluation (best is purchasing and inside purchasing strategy and methods). Then with your management, think about which departments to involve in creating the indicators and the weighing in the evaluation. Afterwards sit down with each department to take an indicator. In parallel you need support from IT department to develop a tool. So you need to consider your IT limitations or modification requirements in your ERP system before you accept an indicator with a department.

When it is clear you will develop a tool and a procedure. This is difficult since you will need to interact constantly with other departments (best would be to have key users in all affected departments an unique contact person). Make trials before going live and standarise as much as possible (I am summarizing here since it is not the intention of the article to go into detail but this phase is very difficult and critical for success).

At a very early stage in the definition phase, it must be clear with the Management the Escalation system and who will lead it and what kind of activities (specific meetings, action plans, visits, audits, etc…) will be done after escalation and in the worst case how we can put them on hold in our company (specific procedure might be needed). A good supplier evaluation without an escalation system simply will not work.

It is important also in the application of the supplier evaluation, how to affect other important procedures in the company. For example, can we add supplier score in evaluation to a limit is supplier nomination for new projects? we want to work in the end with the best class suppliers.
And also a final remark, make sure you do not complicate yourself too much in terms of software because if it fails in application, it is a missed opportunity in the company. Better always to start with a small calculation, excel, or simple system with a deep good procedure behind and good escalation (which can be always improved), than nothing.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s