Supplier evaluation explained simply

Supplier evaluation essentially pursues two goals:

1. Objective comparison of suppliers in order to optimize supplier selection.
2. To monitor supplier quality by means of continuous evaluation in order to identify and rectify quality fluctuations as quickly as possible.

With a supplier evaluation, companies can make the selection process for new suppliers efficient, transparent and accurate. If there are supply bottlenecks, it is also easier to choose an alternative supplier. In addition, companies and suppliers have the opportunity to eliminate any weak points that arise. The supplier selection process therefore has the potential to strengthen a cooperative partnership.

Suppliers are evaluated on the basis of various qualitative and quantitative criteria that a company defines in advance.

Purchasing criteria

Purchasing criteria include questions on costs and are often used by companies with low profit margins.

Typical purchasing criteria are

• Purchase price
• Payment term
• Transparency of prices by means of cost break-down
• Suggestions for reducing prices
• Contracts that include the framework conditions for cooperation

Quality

For many companies, quality is the most important factor when evaluating suppliers. After all, materials and services of the appropriate quality are required in order to manufacture high-quality products.

In order to be able to measure supplier quality, the assessment is carried out using criteria that are checked on the basis of certificates, documents or key figures for the products supplied.

Typical quality criteria are

• Certifications
• Quality management system (e.g. according to ISO9001)
• Number of complaints
• PPM rate, i.e. the number of defective parts per million parts delivered
• 8D and CAPA report
• Quality in the Production Part Approval Process (PPAP)
• Availability of the supplier

Logistics criteria

Logistics criteria provide insights into the reliability of suppliers and the ordering process.

Typical logistics criteria are

• Deadline and quantity reliability
• Ordering systems in warehouse management

Development criteria

In order to be able to work with a supplier on a long-term basis, many companies attach importance to the fact that the products supplied are further developed and always state of the art.

Typical development criteria are

• Ability to implement innovations
• communication
• Investment in research
• Position of the technology used compared to other suppliers
• Quantity of optimized processes
• Proportion of new development

In order to be able to check the criteria presented above as well as possible, companies use various methods. Some examples are

Point scoring method (scoring model)

In the scoring method, points are awarded for different criteria. If necessary, the criteria can also be weighted. The points are then added up at the end. The supplier with the highest number of points wins. This procedure is used particularly in the life sciences sectors.

Strengths and weaknesses profile

In the strengths and weaknesses profile, the supplier's performance is presented graphically as a picture. The company enters the evaluation criteria in the row of a table and the points achieved in a column. The points are linked together and at the end of the evaluation a color-coded representation of the assessment is produced.

SCOPE method

The SCOPE method makes it possible to structure supplier information and divide it into five categories:

• StrategicFit (long-term suitability)
• CustomerPortfolio (reference portfolio)
• OperationalExcellence (operational competence)
• Productand Process Development (product and process development)
• EconomicViability (economic success)

In order to maintain an overview of which areas are particularly important when selecting suppliers, the categories are then weighted according to the company's needs based on the following criteria:

• essential
• important
• interesting

With the SCOPE method, collected information about suppliers can be structured and divided into five categories. The SCOPE approach pursues a strategic and long-term approach. The categories are then weighted into "essential", "important" and "interesting" according to the company's own needs. In this way, a company knows which area it needs to focus on intensively when selecting suppliers and which category can be neglected.

Utility value analysis

The utility analysis indicates the weighting of criteria in the form of percentages. For this purpose, the individual criteria are determined according to importance, whereby the total must add up to 100%, for example

• Quality: 80 %
• Price: 20 %

The supplier offers are then evaluated with the values 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 final value of the suppliers is calculated, weighted according to the criteria, i.e:

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

The decision would therefore be made in favor of supplier B.

Profile analysis

The profile analysis maps the requirements that a company places on a supplier and shows which suppliers meet these requirements. The results are supplier performance profiles that can be used as a basis for selecting the right supplier.

ABC analysis

In the ABC analysis, suppliers are classified according to the criteria A (very important), B (important) and C (less important) in terms of how much they contribute to the company's turnover.

ISO 9001 chapter 8.4 Control of externally provided processes, products and services formulates the requirements for supplier evaluation with regard to quality management in subsection 8.4.1 "General". It requires that suppliers of both physical materials and services must be comprehensively checked and evaluated.

It also requires the retention of documented information on the evaluation process and its results as well as the measures resulting from such an evaluation. To achieve this, ISO 9001 requires companies to define criteria for the assessment. Typically, these are the criteria mentioned above. ISO 9001 does not specify how a supplier evaluation must be carried out.

The EU GMP Guideline Annex 11 in the chapter on suppliers and service providers states that responsibilities must be contractually defined if third parties are used in the validated environment. The supplier's competence and reliability are to be considered key factors. Furthermore, explicitly documented quality audits (on site or by post) at the supplier's premises are prescribed. The corresponding audit results must be made available to the respective authority upon request.

An ERP system can facilitate the creation of a supplier evaluation, as it contains numerous data required for the evaluation.

For example, this includes

• Master records for suppliers
• purchase orders
• framework agreements
• Call-offs and shipments
• warehouse receipts
• Complaints

In many systems, it is also possible to define criteria, classifications and analyses and thus implement supplier evaluation on the basis of reliable values.

The Yaveon 365 industry-specific ERP solution offers specialized functions for the process manufacturing industry. The solution supports supplier relationship management in several important areas:

• Transparency and traceability: the solution offers functions for the structured quality inspection of supplier materials. Inspection reports and deviations are documented to improve supplier evaluation.
• Quality management: Integrated quality control functions ensure that supplier materials can be regularly checked for quality in a structured manner. Inspection reports, tests and deviations can be documented directly and assigned to the supplier in order to have better data for supplier evaluation.
• Supplier evaluations: The software allows evaluations to be created based on various criteria such as delivery reliability, quality and deadline reliability. These evaluations help to make informed decisions about the selection and retention of suppliers.
• Purchasing optimization: Through stored supplier information, Yaveon ProBatch facilitates purchase planning and can generate automatic purchase 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 manner, which reduces administration costs.
• Collaboration and communication: The integrated communication functions facilitate the exchange of information with suppliers, e.g. on quality requirements. This improves collaboration and strengthens supplier relationships.