Supplier evaluation explained simply

In essence, supplier evaluation pursues two main objectives:

1. To provide an objective comparison of suppliers in order to optimize supplier selection.
2. To continuously monitor supplier quality, allowing companies to identify and resolve quality fluctuations as quickly as possible.

With supplier evaluation, companies make the process of selecting new suppliers more efficient, transparent, and precise. In case of supply shortages, choosing an alternative supplier also becomes easier. In addition, both companies and suppliers gain the opportunity to identify and eliminate weaknesses early on. Supplier selection therefore has the potential to strengthen a partnership-based collaboration.

Supplier evaluation is based on a mix of qualitative and quantitative criteria that a company defines in advance.

Procurement criteria

Procurement criteria focus on cost and are often applied by companies operating with low profit margins.

Typical procurement criteria include:

• Purchase price
• Payment terms
• Price transparency using cost break-downs
• Suggestions for cost reductions
• Contracts covering the framework conditions of collaboration

Quality

For many companies, quality is the most important factor in evaluating suppliers. To manufacture high-quality products, materials and services must also meet the required quality standards.

To make supplier quality measurable, evaluations are based on criteria that can be verified through certificates, documentation, or key figures of the delivered products.

Typical quality criteria include:

• Certifications
• Quality management system (e.g. ISO 9001)
• Number of complaints
• PPM rate (parts per million defective units)
• 8D and CAPA reports
• Quality in the Production Part Approval Process (PPAP)
• Supplier availability

Logistics criteria

Logistics criteria provide insights into a supplier’s reliability and order management process.

Typical logistics criteria include:

• On-time delivery and delivery accuracy
• Ordering systems in warehouse management

Development criteria

To work with a supplier in the long term, many companies place importance on continuous product development and keeping products up to date with the latest technology.

Typical development criteria include:

• Ability to implement innovations
• Communication
• Investments in research
• Position of the applied technology compared to other providers
• Number of optimized processes
• Proportion of new developments

To assess the previously introduced criteria as effectively as possible, companies use a variety of methods. Some examples include:

Scoring model

In the scoring model, points are assigned to different criteria. If needed, the criteria can also be weighted. At the end, all points are added up – the supplier with the highest score wins. This method is particularly common in the life sciences industries.

Strengths and weaknesses profile

In this method, supplier performance is visualized graphically. The company lists the evaluation criteria in the rows of a table, and the achieved scores in a column. These points are connected, resulting in a color-coded visualization of the evaluation.

SCOPE method

The SCOPE method helps structure supplier information and categorize it into five areas:

• Strategic Fit (long-term suitability)
• Customer Portfolio (reference portfolio)
• Operational Excellence (operational competence)
• Product and Process Development
• Economic Viability

To stay focused on what really matters in supplier selection, these categories are then weighted against the company’s needs, using the levels:

• mandatory
• important
• interesting

This way, companies know which areas to prioritize in supplier selection and which categories are less critical. The SCOPE method therefore follows a strategic, long-term approach.

Utility value analysis

Utility value analysis expresses the weighting of criteria as percentages. The criteria are assigned weights that add up to 100%, for example:

• Quality: 80%
• Price: 20%

Next, supplier offers are scored from 1 (poor) to 5 (very good), for example:

• Quality: 80%; Supplier A: 3; Supplier B: 5
• Price: 20%; Supplier A: 5; Supplier B: 3

Finally, the weighted total scores are calculated:

• Supplier A for quality: 3 × 0.8 = 2.4; for price: 5 × 0.2 = 1; total = 3.4
• Supplier B for quality: 5 × 0.8 = 4; for price: 3 × 0.2 = 0.6; total = 4.6

Accordingly, Supplier B would be selected.

Profile analysis

Profile analysis maps a company’s requirements for suppliers and shows which suppliers meet those requirements. The result is performance profiles that form the basis for choosing the right supplier.

ABC analysis

The ABC analysis groups suppliers into categories A (very important), B (important), and C (less important) according to their contribution to company revenue.

ISO 9001, Chapter 8.4 Control of externally provided processes, products and services, specifies in section 8.4.1 General the requirements for supplier evaluation in relation to quality management. It requires that both suppliers of physical materials and suppliers of services must be thoroughly assessed and evaluated.

In addition, ISO 9001 requires the retention of documented information on the evaluation procedure, the results, and the measures taken as a result of such evaluations. To achieve this, companies must define criteria for evaluation – typically those mentioned above. However, ISO 9001 does not prescribe a fixed procedure for how supplier evaluation must be carried out.

In the EU GMP guideline, Annex 11, the section on suppliers and service providers states that responsibilities must be contractually defined when third parties are used in a validated environment. The competence and reliability of the supplier are considered key factors. In addition, documented audits (on-site or remote) of suppliers are explicitly required. The corresponding audit results must be made available to authorities upon request.

An ERP system makes supplier evaluation much easier, as it contains a wide range of data needed for the process.

Examples include:

• Supplier master data
• Purchase orders
• Framework agreements
• Call-offs and deliveries
• Goods receipts
• Complaints

In many systems, it is also possible to define criteria, classifications, and analyses, making it possible to carry out supplier evaluations based on reliable data.

The Yaveon 365 ERP industry solution provides specialized functions for the process industry. When it comes to supplier management, the solution supports companies in several key areas:

• Transparency and traceability: The solution offers functions for structured quality inspection of supplier materials. Inspection records and deviations are documented, improving the basis for supplier evaluation.
• Quality management: With integrated functions for quality control, materials from suppliers can be checked regularly and systematically. Inspection records, tests, and deviations can be documented directly and assigned to suppliers, providing reliable data for supplier evaluation.
• Supplier evaluations: The software makes it possible to create evaluations based on various criteria such as delivery reliability, quality, and adherence to deadlines. These evaluations support well-informed decisions when selecting and retaining suppliers.
• Procurement optimization: With supplier information stored in the system, Yaveon ProBatch simplifies purchasing planning and can even generate automatic orders.
• Document management: The system enables seamless integration of documents such as supplier contracts, certificates, or specifications. All relevant documents can be stored centrally and in an audit-proof way, reducing administrative effort.
• Collaboration and communication: Integrated communication features simplify exchanges with suppliers, for example regarding quality requirements. This improves collaboration and strengthens supplier relationships.