We found an interesting post on the progression of the supplier evaluation model, and we thought we should share the most basic supplier evaluation checklist that all companies should have. Before we go into the supplier checklist, let’s quickly summarize the supplier models over the years.
Prior to the 1960’s, the relationship between buyer and supplier was pretty negative: suppliers were not trusted, communication was very formal and limited, information between buyer and supplier was not shared openly, and negotiations between buyer and supplier had a “win-lose” approach.
Eventually the buyer/supplier relationship started to emphasize on quality in addition to price. Companies also started to buy large orders to get a discounted price, but they ended up building a backlog of inventory – this model can be called the Economic Order Quantity Model. Although large inventories may be justifiable for some, the overall cost of this process was expensive. This led to the concept of “Just-In-Time” manufacturing, where only what was needed was purchased when needed. Things like quality and safety also became more regulated. All these factors emphasized the need for a close partnership between buyers and suppliers – i.e. the Partnership Model.
Supplier Evaluation Checklist
To function in this environment, a company’s suppliers should be its closest partners and they can play a major role in the company’s competitive advantage. Therefore, maintaining some basic evaluation criteria and encouraging effective communication and transparency is important between buyer and supplier. According to this post by Supply Chain Management professor Dr. Robert Handfield, the four most basic supplier evaluation categories that every checklist should have are:
You can add other categories to this list, or even expand on each category deeper into other sub-categories, but you must have these four at the very minimum. One of the easiest ways to rate suppliers is by using the weighted point method. Here’s an example comparing two suppliers:
You can see that depending on the weight (or importance) you place on a category, the bigger its impact on the overall rating. To go into more detail by adding other sub-categories, you can have a supplier evaluation checklist that looks like this:
We’ve been getting a lot of great feedback on this article and would like to include some more information.
- Make sure you setup a guideline for the rating method, so that everyone understands how to assign a certain score. For example, under the “Service” category, you may have a “Communication” sub-category. There you can decide to give a ‘3/5′ if the supplier communicates with email in a timely fashion (responds within a day). Or you can give a ‘5/5′ if the supplier uses phone, email, and video-conferencing to effectively communicate in a timely fashion. If the supplier takes more than 3 days to respond, you can assign a ‘1/5′. Detailed rules like this help everyone use the rating system with consistency.
- Share with suppliers what you’re rating them on. Make it clear and objective, so that they can take action to improve. Give them awards and help them develop further so they can be great partners.
- Another essential factor to add would be “Supplier Risk“. This can be measured in several ways. You can add the financial health of a supplier through a background check, or using a D&B style service, or simply talking to several companies already doing business with that supplier. Logistics can also be a risk factor: how fast can a supplier deliver something in the event of a shortage? can they keep up with sudden peaks in demand? do they have the capacity/equipment?
- Under “Price” or “Service“, how much value does the supplier provide. For example, does the supplier always make recommendations for an alternative/cheaper product that meets the same requirements? Or do they just comply with whatever request and never tell you about something better/cheaper? This is a great measurement to see if the supplier is invested in your company’s success.
If you’d like us to email you a supplier checklist template spreadsheet, let us know. Now you can create your own supplier evaluation checklist, and evaluate your suppliers better. Remember, keeping open communication and transparency can also go a long way in turning your suppliers into strong strategic partners.