You know you need to keep a healthy vendor roster, but how deep can you go in supplier evaluation without interrupting the streamlined purchasing process you have worked so hard to develop? The answer is to create a vendor evaluation system, which:
Vendor evaluation is a business term that defines the process of evaluating and approving new and old suppliers on a quantitive basis, not a qualitative basis. Every business will have a portfolio of suppliers, and it's important to to measure their performance for the purposes of ensuring things like contract compliance, cost reduction, risk mitigation and continuous improvement.
As your business grows, more vendors are added and handled by an increasing number of purchasing employees. The challenge of identifying and nurturing relationships with the right vendors, then, gets increasingly more complex.
You have to both safeguard the company from destructive supplier relationships while also identifying and nurturing relationships with those vendors who add value and help you grow.
The prospect of implementing a new procedure can be daunting. We’ve developed three easy steps to create a vendor evaluation system to help you do what you need to do with minimum pain or fuss.
Organisation is the first step in developing an effective vendor evaluation system.
This breaks down into some simple administrative tasks:
For example, if your company plans events, you work with caterers, performers, florists, speakers, photographers and venues. None of these categories can be compared to each other because they don’t contribute to the final product, the event, in the same way. Florists and balloon suppliers, however, could both be considered 'decoration suppliers' and comparing could prove useful when you have to pull off a budget event or a quick turnaround.
The categories you designate should be specific to your business and enable purchasing employees to quickly discern which vendors supply which products or services. It will also serve the evaluation process so you don’t compare apples to oranges.
Any purchasing employee can instantly differentiate critical vendors who have come through for them and those who have not. However, you don’t want employee after employee to learn through trial and error. Ranking:
Prior to implementing a vendor evaluation system, you can look to the amount of business employees are directing to certain vendors and place them under one of the following ranks:
You can use colours, numbers, letters or words to help your employees identify which level a vendor is operating at within your vendor network. It’s important to both define and communicate what each rank means to your business so you can assign vendors appropriately based on your evaluations and adapt purchasing behaviour.
Tracking vendor performance requires all-hands-on-deck so that poor or remarkable performance isn’t overlooked. You need the employees who are conducting transactions to provide first-hand feedback through:
A survey or vendor evaluation scorecard will ask specific questions about a transaction to give insight into the vendor’s performance. These questions might include:
This list is a start, but you also need to develop questions specific to your business and vendors. Then, following a number of transactions with a vendor, you will be able to base decisions on indicators like the number of:
These indicators provide valuable insight into what each of the vendors in your network add to your business. With this information in hand, you can move on to maintaining a healthy vendor roster.
Organising your roster and putting criteria in place isn’t enough. If your surveys and scorecards are generating valuable information, you need to finish the process by ensuring that information is regularly reviewed and acted upon. To do this:
Vendor evaluation is about creating an orchestrated cycle. It’s important to implement a timeline of when employees should submit feedback following a transaction and when that feedback will be reviewed whether monthly, quarterly or otherwise.
It's also worth implementing trigger metrics such as the number of poor indicators that warrant a special evaluation or the number of positive indicators that should promote a vendor. This way, employees have a way to recognise when vendors fail to meet or exceed standards.
Appoint an individual employee, small team, (or take it on yourself if necessary) to evaluate the data from your surveys or scorecards effectively and act on the results. The auditor is tasked with seeing the big picture and has the power to:
The benefit of appointing a single employee or team is that they can exercise judgment about whether or not a change to the roster should be made based on both the feedback and the value the vendor has provided to your business.
Store feedback and results in a cloud-based tool to ensure your evaluation system is both accessible and efficient. It makes for easy review and easy communication with employees who can adapt their purchasing behaviour to suit what your vendor roster tells them.
The benefit of an effective vendor evaluation system is that the entire department can easily recognise which vendors are critical to the success of your business and nurture the business relationship with those companies.
However, always keep in mind that the value added to your company by a vendor also depends on the quality of your purchasing process and negotiation skills. You want to ensure your employees add as much value to your company’s relationship with vendors as you expect the vendors to add to your business.