Source: Gerard Chick, Optimum Procurement
Regardless of what business you are in, your supply base plays a pivotal role in your organisations
success. Without a robust system in place to evaluate supplier performance you will never reach the
point at which you derive real value from your suppliers and impact the profitability of your business.
The contemporary business must embrace its supply base. It is an asset and you should work with it in partnership to strengthen the business. Mutuality of benefit is essential and will certainly impact price as well as quality and service throughout the relationship. If a supplier is a key part or service to your operation invite them to strategic meetings that involve the product they work with. Become the intelligent client.
Many businesses still see the combative relationship between its procurement people and suppliers as
the only relationship. And yet this is the opposite of what businesses should be seeking. The shortsightedness
of such a strategy is manifest and the recent hubris at Tesco’s emphasises this.
The myopic focus on price reduction only; and no focus on quality or service is as short-sighted as it is
redundant. Procurement professionals need to understand and communicate to the business what
value can be derived from a solid, reliable supply network. CPOs must have a system in place for
evaluating, selecting and re-evaluating the suppliers they work with.
Here are seven tips to help you effectively rate your suppliers, monitor their performance, and
increase the productivity of the business you serve.
1. Deploy realistic performance indicators early
As you enter a relationship with a supplier you have to determine what qualities they need to
demonstrate and maintain from the outset. Create specific performance criteria for monitoring and
evaluating your suppliers; and do it on a regular basis.
Considerations in developing your system should reflect their size, quality management systems,
complaint history, and financial stability. Do they have a documented procedure for the product or
service they provide? Are they timely and accurate in delivery? How well do they service you? Is there
a system for handling complaints or problems? Are there corrective or preventive actions? Is this
supplier if they are ISO certified?
Procurement professionals need to look to for more value from suppliers but it won’t always be about
improving processes. Increasingly it is about leveraging supplier resources and integrating supplier
functions 1-to-1 with their own.
2. Create classifications for your multiple suppliers
If you have a large number of suppliers, when you decide to evaluate them save time and effort by
separating suppliers into levels (1, 2, and 3) based on how critical they are to you. Decide the
classification that is best for you and evaluate suppliers according to the effect they have on your
product or service in order of importance.
Many organisations use the Pareto Principle or the 80-20 rule to distinguish the vital few from the
trivial many. By placing your suppliers into two categories such as critical and non-critical, allows you
more time to measuring the performance of those who are key to your organisation.
3. Develop a bespoke evaluation method
There are lots of techniques for rating a supplier’s performance; evaluation forms, surveys, system
metrics, and software applications. However by developing a customised method, you can ask your
own teams to answer questions and rate your suppliers. You can review how many corrective actions
you had to issue a supplier, how many products you had to scrap or return, or how many customer
complaints you received due to a bad part or service. The bottom line is that you need to generate
measurements or reports at the beginning of the relationship and continue with it throughout the life
of the relationship with that supplier.
You could also work with your suppliers and discuss with them what they have on the shelf or are
working on; and would it represent a significant improvement over what had been previously
purchased, and what were competitors buying from a particular vendor.
The timing of these customer-supplier collaborations is important; today, suppliers may be asked to
contribute ideas to existing designs or to help fix existing processes. In the future they may well be
from the outset of a project.
4. Who’s calling the shots
You need to discern who in your organisation will be responsible for reviewing the data and the
relationship. As the CPO you may assign one person or a team with this task. When selecting and
evaluating level 1 suppliers you may require input from other CXOs across the business; whereas with
level 2 and 3 suppliers it may be the procurement team only who approves the supplier list and
In any event ensure that the stakeholders are involved in the process. Procurement is spending their
budget and these individuals need to be active in the process from the very beginning.
5. Maintain Good Relationships
Treat your suppliers as part of the team. Communicate often and openly. Never overlook the personal
touch of a phone conversation or face to face meetings, avoid conflicts by paying on time or at least
honestly addressing late payment issues. Be upfront and transparent with suppliers. Make sure they
understand your needs and expectations.
6. Decide very carefully when to show the ‘red card’
You have to decide when to praise suppliers and when to warn them. Show appreciation for a job well
done; give a supplier additional business because of excellent performance.
Giving a warning, allows suppliers the opportunity to correct the problem. Use data that you have
collected to work with them. Your process should be there to help them to improve their performance.
Longer-term relationships yield loyalty and better service.
7. You are the weakest link – goodbye
Never tolerate ongoing bad service. If having delivered a warning and put the supplier on notice to give
them the space to improve and they do not correct the situation; then the time has come to let go of
that underperforming supplier.
The relationship with your supplier is a business partnership, and if both parties are working to make
sure that the partnership is a success it will be a success. In the long run, having a win-win supplier
relationship will bring competitive advantage.