Tuesday, December 16, 2008

Evaluating Supplier

To evaluate suppliers, we need to understand the importance of supplier for smooth functioning of the organisation. We purchase from suppliers because our organization simply needs our suppliers’ products and services in order to operate in the manner desired and achieve certain results. A supplier that performs well can help our organization be more efficient, produce higher quality products or services, reduce costs, and increase profits. A supplier that performs poorly can disrupt our operations, make our organization fail in the eyes of our customers, increase our costs, and threaten our profits.

It is utmost important to evaluate two type of supplier viz., High Volume Supplier and High Impact Supplier; as these kind of suppliers' role will have direct impact to the PL of the organisation.

High Volume Suppliers are those kind of suppliers whose supply is bulk in nature and also the transaction amounts to major percentage of the procurement. These suppliers are to be evaluated mainly in terms of Quality, Quantity, Average Realisation(rate) and Lead Time of supply(delivery & service).

High Impact Suppliers are those kind of supplier whose supply or service is critical in nature. To understand High Impact Supplier you may ask following questions yourself; if your answer is yes than those are High Impact Supplier.

  • If this supplier delivered late, would it shut my company’s production line down?

  • If this supplier delivered late, would my company be unable to meet its obligations to its customers or otherwise lose sales?

  • If this supplier provided a product or service that was of unacceptable quality, would it shut my company’s production line down?

  • If this supplier provided a product or service that was of unacceptable quality, would it result in a failure of my company to meet the quality standards of its customers?

  • If this supplier raised prices, would my company continue to purchase the same products or services from that supplier, resulting in a reduction of profit?

  • If this supplier provided poor service (e.g., failure to promptly answer a question), would it result in my company providing unacceptably poor service to its customers (e.g., failing to promptly answer a customer’s question)?

We may evaluate supplier on following parameters -
  • Cost
  • Delivery
  • Service
  • Quality

Cost performance measures relate to the direct financial impact of a supplier’s performance and can include price, payment terms, shipping charges, savings from process improvements, and so forth.

Delivery performance measures relate to a supplier’s ability to support your scheduling requirements and can include on-time delivery of goods, on-time completion of services, stock availability, or anything related to the cycle time between order and receipt.

Service performance measures relate to the personal and electronic interaction between the buyer and seller and can include responsiveness, resolution of problems, technology used to provide customer service, and so forth.

Quality performance measures relate to the conformance of a product or service to requirements and can include rejection rates, warranty claims, technology used to improve products and services, and other metrics related to the durability, reliability, and consistency of a product or service.

After evaluating on those parameters you may reward the suppliers in terms of periodic gifts, recognisation of association, bigger volume of order, concessional offer on finished goods produced, etc. This will enhance the performance of the supplier further and finally we shall benefit more from them.

1 comment:

deepankar said...


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