Supplier Evaluation Checklist: A Must Have

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.

Adversarial Model

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.

Partnership Model

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:

  1. Quality
  2. Delivery
  3. Cost
  4. Service

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:

Supplier Evaluation Checklist General

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:

Supplier Evaluation Checklist Detailed

Updates

We’ve been getting a lot of great feedback on this article and would like to include some more information.

  1. 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.
  2. 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.
  3. 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?
  4. 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.

Happy procurement!

If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

Tags: ,

8 Responses to “Supplier Evaluation Checklist: A Must Have”

  1. K.Roy January 3, 2013 at 5:37 am #

    Nice evaluation method. Practical.

    • Daniel January 4, 2013 at 2:49 pm #

      Thanks, and Happy New Year to you!

  2. Richard January 9, 2013 at 5:47 am #

    Good topic and concise directions for practice in the real world.

    • Daniel January 14, 2013 at 12:37 am #

      Thanks Richard!

  3. Remeres Bekker February 7, 2013 at 5:25 pm #

    I agree with the above but I also believe building a relationship with a supplier has merit. Once you have established an ‘working’ relationship, negatiating becomes somewhat easisier.

    • Daniel February 10, 2013 at 11:14 pm #

      absolutely agree, thanks for the comment Remeres.

  4. Mariyana October 4, 2013 at 8:14 am #

    Hello, I have a practical question regarding the measurement. Let’s say we evaluate several suppliers with the suggested weighted point method. Supplier 1 gets overall measurement equal to 4 (out of 5), Supplier 2 gets 5 (out of 5). We choose Supplier 2. But then we get Supplier 3 who has even better performance than Supplier 2 but due to the fact Supplier 2 has already gotten the highest score how do we differentiate in the scale that Supplier 3 is better than Supplier 2? Do we need to re-do all the previous scores of Supplier 1 and 2 with a scale down?

    • Daniel October 8, 2013 at 1:24 am #

      Great question Mariyana. In your example, if supplier #2 had 5/5 overall, and supplier #3 shows up with better performance, you would reduce the score for supplier #2 in the areas where supplier #3 beats it.

      So for example if supplier #3 gets 5/5, but it has a much better price than supplier #2, you would change the price ranking for supplier #2 from 5/5 to 4.5/5. This way supplier #2 would be ranked lower than #3.

      If supplier #3 does EVERYTHING better than supplier #2, then you just reduce everything to 4.5/5 (or 4.2/5, 4.7/5 etc…) for supplier #2, as long as it doesn’t fall below supplier #1.

      Lastly, you may no longer need supplier #1, so you can drop supplier #1 from your list of preferred suppliers, and keep your list to 2 great suppliers.

Leave a Reply