How do you evaluate the performance and risk of potential suppliers using various criteria and tools?

The upfront work here is critical to ensure standardization in supplier evaluation. I recommend having the stakeholders (business units / different functions as well as procurement) populate a supply chain requirements document. Why? - It forces each area of the business to document what is actually important (no hip shooting!) - The document is shared to all in advance so there can be no challenge about certain parameters - It becomes the input need for supplier evaluations e.g. need for 5% cost reduction on product to meet market expectation. Parameters become; 1 - Price 2 - Year on Year cost reduction % 3 - Cost Breakdown 4 - Willingness to collaborate on cost This will ensure that you are evaluating what is important.

Quality, cost and delivery are now basic requirements. From my experience the key things I look out for are financial health, current customer base and technological innovation. The financial health of a supplier confirms their longevity, ability to invest and innovate and guarantee supply security for my own business. This also will help in confirming how fluid they are or would be in terms of investment into new technology or innovation. The companies they do business with helps define thier code of business principle based on those organsations they work with. This also helps tick the quality box too. Technological investment. What sort factory do you and what are your investments plans in improving them in future.

Parameters for supplier evaluation: Quality, Cost competitiveness, Delivery performance, Financial stability, Compliance, Experience, Capacity, Innovation Tendency, Risk management, Communication, Sustainability, Contract terms, Internal processes, Geographic location. Thorough evaluation ensures informed decisions and reliable partnerships.

In services procurement, formal criteria like cost, technology availability, and contract adherence help narrow down potential suppliers. But, to make the final decision, it's crucial to be sure about the quality of service. A good approach is to organize workshops with suppliers, letting them explain how they'll solve your business problems and achieve success using your key business indicators. Rather than just checking a supplier's capabilities, it's better to assess how well they can use those capabilities to meet your company's specific needs. You can also gather feedback from other clients of the supplier and use their experiences as part of the evaluation process.

Evaluating potential suppliers involves: 1. Financial and Operational Health: - Tools: Financial ratios, KPIs, site audits. 2. Compliance and Legal Risk: - Tools: Compliance audits, contract management software. 3. Reputation and Data Security: - Tools: Third-party reports, security audits. 4. Sustainability and CSR: - Tools: Sustainability audits, ISO 14001. 5. Risk Management and AI: - Tools: VRM software (SAP Ariba, Coupa), AI-driven insights. 6. Supplier Relationship Management (SRM): - Tools: SRM software, performance tracking. These criteria ensure comprehensive supplier performance and risk evaluation

In supplier evaluation, tools like RFI, RFP/RFQ documents, supplier audits, scorecards, and portfolio analysis are vital. RFIs gather basic supplier information, while RFPs/RFQs detail pricing and terms. Supplier audits involve on-site inspections. Scorecards track performance, and portfolio analysis categorizes suppliers by importance. These tools aid in assessing performance, managing risks, monitoring ongoing performance, comparing suppliers, prioritizing relationships, and resource allocation effectively.

Completing supplier Financial Health Assessments is absolutely critical and is often overlooked. I had to manage one supplier going in to CCAA (Chapter 11). It cost ~$5million, took a team of 3 people 2 years full time to manage the exit, 7 years later you can still feel the impact. Create a portfolio approach to understanding the risk in your supply chain but don't just measure - act on the information that you receive - e.g. you may need a second source or exit the vendor in question. This is a continual and regular process.

Business intelligence tools are prevailent in the market and it is a difficult choice to make when it comes to evaluating efficiency and comprehensiveness. Often you go with most popular tool but it is important to research vendors that provides data intelligence. Lay out risk factors and data attributes that are key in meassuring risk and give higher weightage to the tool that covers most factors.

Request for Information (RFI): Ask suppliers to provide basic information about their company, products, services, capabilities & qualifications. Request for Proposal (RFP) or Request for Quotation (RFQ): Request detailed information about the supplier's terms, conditions & delivery. Supplier Audits: Visit the supplier's premises to inspect their facilities, processes, systems, and records. Supplier Scorecards: Measure and track the supplier's performance on various criteria over time. Supplier Portfolio Analysis: Classify suppliers into different categories based on their strategic importance & risk profile. Supplier Evaluation Questionnaire: Provide a concise yet detailed questionnaire to solicit necessary information from suppliers.

Supplier Scorecards, audits, KPI's, Due Diligences, financial analysis, risk assessment, SRM software, QMS, compliance monitoring. Tailor these tools may provide us a good instinct of the suppliers capability.

Best practices for supplier evaluation include: 1. Clearly define evaluation criteria that align with business goals and objectives. 2. Regularly review supplier performance using key performance indicators (KPIs) and metrics. 3. Monitor and measure supplier performance through periodic reviews and feedback. 4. Identify potential issues early on and take appropriate action to maintain optimal supplier relationships. 5. Establish a supplier evaluation system that regularly assesses suppliers.. 6. Ensure a successful supplier evaluation by outlining a schedule, providing a concise questionnaire, visiting supplier facilities, and involving the right staff members in the evaluation process.

In the 'gather data from multiple sources and perspectives" section, I'd add: Conduct benchmarking interviews with a few long-term customers/clients to validate their experience and whether the supplier's performance aligns with your objectives.

Establish Clear Evaluation Criteria: Clearly communicate evaluation criteria to suppliers, ensuring transparency and alignment of expectations. Regular Performance Reviews: Conduct regular performance reviews based on predefined schedules. Regular reviews facilitate ongoing communication and improvement opportunities. Risk Management: Integrate risk management into supplier evaluation by assessing potential risks related to geopolitical factors, market conditions, and supply chain disruptions. Collaborative Approach: Foster collaboration with suppliers to address challenges and jointly identify improvement opportunities. A collaborative approach strengthens long-term relationships and encourages continuous improvement.

Define Clear Evaluation Metrics: Be clear about what metrics are most important for your business. Consistency in these metrics ensures that all suppliers are evaluated on the same basis. Involve Cross-Functional Teams: Include representatives from purchasing, quality control, production, and finance in the evaluation process. This ensures that all relevant perspectives are considered.

To evaluate potential suppliers, define key criteria such as quality, reliability, cost, delivery time, financial stability, and sustainability practices. Gather relevant information about the suppliers, such as financial statements, references, certifications, and industry reports. Conduct a supplier assessment using tools like questionnaires, site visits, performance metrics, and risk assessment. Score and rank suppliers based on their performance against each criterion, weighting the criteria based on their importance to the organization. Make an informed decision based on the evaluation results, considering overall performance, risk factors, and alignment with the organization's goals and values.

By evaluating potential suppliers using comprehensive criteria, utilizing diverse tools, incorporating best practices, and considering additional factors, organizations can make informed decisions that minimize risks and optimize supplier performance. A robust supplier evaluation process contributes to the development of strong and mutually beneficial supplier relationships, fostering stability and resilience within the supply chain.

Finally, it is worth considering what are the reward mechanisms to incentivize supplier performance. For example, some companies host annual supplier conferences where they give a "prize" or "award" to top-performance suppliers. This is a powerful tool to improve suppliers' performance.

Additionally we shall consider the suppliers; Sustainability Practices: Evaluate their environmental and social responsibility efforts, aligning with your company's values.

In my experience of Procurement, all the above criteria mentioned for evaluating the supplier is great. In addition to it, I believe one of the important aspects to consider would be the after sales services and how they respond to their customers. Most of the suppliers will qualify for cost, quality, documentation, timely communication, etc, but after sales service is something where I found the supplier may have a delayed response which eventually delays the needs of the buyer.