Principal Keyword: Supplier Evaluation Scoring, (SES)
As a business owner, you cannot afford to leave supplier management to chances for the reason ‘what is not measured’ ‘cannot evaluate in terms of the risks, profitability, etc. Towards this, you need to have a firm understanding of your suppliers’ capabilities of offering you the current products you are purchasing on a long-term basis and their abilities to modify such products according to your customized needs and develop newer ones. Towards this, you need to carry out supplier evaluation for which you have to put supplier evaluation tools in place. Supplier evaluation scoring, (SES) is a method that enables businesses to evaluate objectively choose the right suppliers against predetermined criteria, (e.g.) vendor scorecard.
This article would guide you through time-tested variables that must constitute part and parcel of your supplier evaluation.
Create an evaluation model
For the supplier evaluation scoring, (SES) to take a concrete shape, you need to start with this step. Once this is done, it would set the stage for the generation of reports on the onset of purchase throughout the course of purchasing relationship.
Evaluation forms, survey methodologies, systems metrics, use of appropriate software are some of the methods that would facilitate your rating of suppliers. You can augment the performance rating by carrying out audits from time to time.
Determine Key Performance Indicators, (KPI)
Each business has certain unique characteristics. You know better what they are for your business. Based on that, you have to create specific performance criteria to track your suppliers at regular intervals.
Some of the things that would help you to do this, regarding your suppliers are:
- the size of the company
- the certifications they have and institutions to which they accredit
- past performance not only with yours but peers as well (their public feedback history)
- financial stability
Undertake a classification of suppliers
It is but natural you are confronted with more than one supplier, and applying the criteria to each of them separately may be cumbersome and time-consuming. This can be overcome by separating them into tiers based on their criticality for your business. With this, you can group them into categories, as primary, secondary, etc. This would enable you to devote quality time to measure their performance.
Place it under the charge of key personnel
This important function allocates to someone whom you consider a key member of your business. Who qualifies expertise backed with experience to review and analyze the data, make recommendations, etc.
Depending upon the size of your organization. The person chosen can be on par with the Chief Financial Officer, (CFO) or a team under the leadership of the CFO. The team members would have to belong to the departments of purchasing, operations, engineering, IT, etc.
You have to treat the supplier as a key stakeholder who equally has an interest in the welfare of your business. Maintaining communication, transparency and regular interactions would all go towards strengthening the relationship.
Concurrent monitoring of your supplier’s performance has to be built in supplier evaluation scoring. Because that is the only way to measure performance against targets in a scientific manner. It will help you issue advisories from time to time and raise the red flag when you sense trouble. And not doing so would cause harm to your business interests, provide you are clear that it has arisen due to the supplier’s poor performance within their control. If it is warranted you should not hesitate to terminate the relationship. But that has to be on a firm footing for which you need to allow them to set right the mistakes. Despite this, if there is no improvement in the performance of your suppliers, you need to take the final step of letting them go. Otherwise, you may end up burning your fingers for no fault of yours.
It can sum up that supplier evaluation scoring (SES) should incorporate physically verifiable parameters. Such as competency, capacity, commitment, control in terms of cost, consistency in terms of time, etc. Which would help in the running of businesses professionally and objectively. And would result in healthy operations to bring in a win-win situation for the players involved in the conduct of business operations.
From a practical utility point of view, the takeaway of this article is creating a supplier scorecard. Supplier evaluation scoring (SES) is one of the ‘best in class practices’. Which businesses have to embrace for maximizing profits and minimizing losses.
Keywords: SUPPLIER, EVALUATION, BUSINESS, PERFORMANCE, Supplier Evaluation Scoring, PURCHASE, RELATIONSHIP, KEY, TERM, CRITERION