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Most organizations leave supplier management to chance, meaning they lack insight into how their suppliers are performing and whether they’re profitable or at risk. However, what isn’t measured cannot be improved. Awarding additional business based on supplier performance can bring significant results.
There are 2 main reasons you should perform supplier evaluation:
For existing suppliers, it can help you uncover and remove hidden waste and costs and achieve sustainable procurement;
For new suppliers, it can set a threshold that can lead to higher-quality results.
When organizations have a good understanding of their suppliers’ capabilities and performance levels, they can better plan new products and services. But before we go deeper into why and how to perform supplier evaluation, let’s first define what it means.
What is supplier evaluation?
Supplier evaluation is the process of assessing and approving potential suppliers through both quantitative and qualitative assessments. This ensures that only the best-in-class suppliers meet your organization’s needs.
Supplier evaluation can also be applied to current suppliers to track their ongoing performance, reduce costs, mitigate risks, and foster continuous improvement. A robust supplier performance evaluation process allows businesses to make informed decisions and strengthen supplier relationships.
There are several ways you can carry out a supplier assessment - questionnaires, scorecards, site visits, and third-party standard certifications. Or you could use a supplier management platform like Prokuria.
The most important thing you should remember is that you should perform a supplier evaluation regularly (at least 2 times a year, but best-in-class organizations perform an evaluation every 3 months). Each time, you should check whether your suppliers get better scores than they previously got.
Why is Supplier Evaluation beneficial?
Regular supplier evaluations provide multiple benefits, whether for new or existing suppliers. Here’s why it matters:
For existing suppliers:
Helps uncover hidden costs and inefficiencies
Supports sustainable procurement practices
Enables cost reduction and risk mitigation
For new suppliers:
Sets performance standards
Leads to higher-quality results
Improves long-term business outcomes
Understanding your suppliers’ capabilities and performance levels allows you to make better decisions for future products and services.
How do you evaluate a supplier?
Every organization is different. So, to ensure you’re evaluating suppliers as fair as possible, you must first determine what matters most to you. What are you looking for in a business partner? Quality products? A good relationship with you?
Once you write that down (using a supplier performance scorecard), it will be easier to decide which suppliers meet your criteria and which don’t.
To evaluate a supplier effectively, you must first identify your core criteria. Here are some key areas to consider in your supplier evaluation:
Here’s what we think you should consider:
Fairness: when negotiating, do your suppliers abide by the highest standards of ethical business practices? Do they display fair play behavior to all stakeholders, including their own customers, employees, suppliers, and community?
Customer focus: are they dedicated to anticipating and meeting the expectations and requirements of your customers? A good business partner should have a thorough understanding of market trends and opportunities and act in your best interest.
Team spirit: do they value diversity? Do they advocate for trust, respect, mutual commitment, and boundaryless thinking?
Business approach: do their business objectives align with yours? Do they leverage their expertise to grow both their business and yours?
How to evaluate supplier performance template?
Even though the information we described above is important, it’s not easily quantifiable - it’s more helpful for establishing a good business relationship with suppliers.
For a more objective approach, here’s a template of what criteria to use for supplier evaluation:
Production capacity
Environmental impact
Compliance to specifications
Meets specification requirements
Meets standards
Customer service
Policy and practice
Surveys customers
Systems to measure customer satisfaction
Backup and advice
Quality of deliverables
Certification
Documented system
Capability
Staffing structure
Availability of experienced staff
Experience in the industry
State of technology
Past performance
Experience in the industry
Previous experience
Customer recommendation
Strategic
Location
Networking
Innovation
Leading technology
Creativity
Financial viability
Does the supplier satisfy key financial ratios for the industry?
Can the supplier provide full financial disclosure?
Risk and insurance
Adequate insurance
Allocate and acceptance of risk
Legal aspects
Complies to the terms and conditions
Conflict of interest (existing, potential, or perceived)
Legal proceedings related to contractual issues (past or present)
The total cost of ownership
Bid price
Ability to propose an innovative financial approach (gain-sharing, etc.)
Freight
Warranty
Price breaks and quantity discounts
Satisfies best value analysis
Maintenance costs
Financial review
Tax
Accounting
Lease vs. Buy
Foreign exchange
Payment terms
Business justification
Insurance
Net present value analysis
Payment methods (i.e., EDI, etc.)
How to perform supplier evaluation with Prokuria?
Managing supplier performance manually can be time-consuming, especially if you have hundreds of suppliers. This is where supplier evaluation software like Prokuria comes in.
Prokuria makes it easy to evaluate supplier performance through a digital supplier scorecard.
Here’s how it works:
Score Suppliers:
Assign a score for each criterion based on performance.
Calculate Overall Performance:
Prokuria automatically calculates a final score based on the weighted criteria.
Export and Compare:
You can export the scorecard to Excel for easy comparisons and to track progress over time.
With Prokuria's supplier management software, evaluating suppliers becomes streamlined and more efficient. Whether assessing current suppliers or onboarding new ones, Prokuria simplifies the process, helping you stay on top of your supplier performance and make informed decisions based on data.
Conclusion
Regular supplier evaluations are essential for building strong, reliable, and efficient supply chains. Whether using a supplier scorecard, a supplier performance evaluation template, or supplier evaluation software like Prokuria, you’ll be able to identify strengths, weaknesses, and opportunities for improvement in your supplier relationships.
By integrating supplier performance evaluation into your procurement strategy, you can reduce risks, lower costs, and drive continuous improvement across your supplier base, ensuring long-term success for your business.
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