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Supplier Development 3 - Supplier Assessment

 

Supplier Assessment

In the third article of this series dealing with Supplier Development, David Birch of Purcon addresses the topic of Supplier Assessment.

During my years in purchasing I have been constantly surprised to see how little attention is given to assessing potential suppliers. It is said that prevention is better than cure. This certainly applies to purchasing. Correct evaluation and assessment of potential suppliers can prevent future problems between the purchasing company and supplier.

As with any new relationship, the objective must be to identify which potential supplier is best equipped to help you achieve your purchasing strategy. To achieve this objective, there are fundamental questions that need answering. Questions such as:

  • What exactly are we assessing?
  • How do we apply this assessment to potential suppliers?

Assessment must be addressed in a structured way. It usually begins with measurement against predetermined criteria. To establish the measurement criteria you must first decide what sort of relationship you are looking for. Much will depend on the Product Portfolio Matrix approach which was addressed in the previous ‘Make or Buy’ article in the series. The matrix matches the importance of the product/service to your company, against the number and type of suppliers needed.

Purchasing and supplier relationships tend to fall into categories. These are usually: the ‘competitive’, in which contracts are put out for tender or are price based; the more traditional negotiation style or a ‘business alliance’. It is important to decide at an early stage what sort of relationship you are looking for.

Supplier Alliances

Once you have conducted the initial evaluation, the results must be assessed. There are two techniques which can be used. These are the ‘standard’ assessment, or the ‘alliance’ assessment.

The standard assessment looks at the suppliers capability - or potential capability - in terms of quality, delivery and financial viability. The emphasis will be on the suppliers existing product or service. Quite often this leads to a supplier having to deliver a higher quality performance in order to win the contract. This is all part of conditioning a supplier at an early stage to meet your requirements.

The alliance assessment echoes the trend in recent years to form a long term relationship with suppliers. Whatever form the relationship takes above all, it should be mutually beneficial. To make sure the potential alliance works, both parties must consider the following:

  • Is there a commitment at Director level to make the relationship viable?
  • Is there a clear understanding of the requirements needed to make it work?
  • Are the personnel involved capable enough to ensure success?
  • Are there agreed processes to identify and resolve problems?
  • Are clear communication paths established?
  • Are both parties committed to resolve difficult issues?
  • Do continuous improvement programmes exist?
  • Are both parties committed to imaginative cost reduction programmes?

If both parties can answer “yes” to all of the above, it would be the perfect start for a long term buyer/supplier relationship. However, in reality some will not be immediately achievable. Both parties must establish the framework to discuss these benchmarks and agree that they should all be addressed openly and regularly.

Assessment checklist

The approach a purchasing company takes to supplier assessment must be tailored to that company’s core business strengths and to those of its suppliers. One of the most effective methods for supplier assessment was developed and refined by the automotive industry. This technique breaks down the supplier’s business into five areas of: Quality, Cost, Logistics, Development, and Management style - QCLDM.

These five main headings can help to develop a checklist. Although the actual information required under each heading might vary, the main headings will be the same. This approach will allow you to assess, in a methodical manner, compatibility.

As an example, the information under the main headings might include the following.

Quality

- ISO 9001?

- Quality awards from other customers?

- Does a quality department exist?

- What are the quality improvement processes?

- Are these processes continuous?

Cost

- Is the supplier prepared to work with an open book policy?

- Will the supplier agree to shared cost reduction benefits?

- Will the supplier agree to work within agreed profit margins?

Logistics

What is the supplier’s performance in delivering products or services:

- At the right time?

- At the right place?

- In the right quantities?

Development

-What research and development capability does your company need from a supplier?

- Does the supplier have the research and development facilities required?

- How much of the suppliers profit is re-invested in research and development?

Management

- What is the management style of the supplier (autocratic or democratic)?

- Does the supplier have a good record of industrial relations?

- Do the supplier’s management team understand what their business does best - their core business competence?

The answers to these questions are not always easy to obtain, particularly if the buyer/seller relationship is not transparent. A supplier who is less than open about their business may have something to hide. A lack of openness should sound alarm bells as far as the establishing a long term business relationship.

A further benefit of this technique is that it can be used to condition the supplier at an early stage. To win the business, potential suppliers must adapt their business to satisfy all the parts of your assessment criteria and meet your requirements.

Supplier assessment is critical for an effective and efficient business relationship. Also, as you can see, it becomes a tool for preparing and conditioning suppliers so that you get what you want from the word go.

About the author: David Birch is Director of Purcon Training. Coming from a background at the highest level at Jaguar Cars and Nissan Europe, David is in demand for his extensive purchasing knowledge and strategic influence. For more information, contact Purcon on 01494 737300.

 

If you would like access to previous articles in this series:

  • Make or Buy
  • Supplier Preparation and Conditioning

Please e-mail us for more information.