1. Develop a high-level plan
2. Develop a process plan
3. Acquire data
4. Evaluate supplier
5. Select / develop supplier
6. Implement the project
7. Performance measurement and continuous improvement
Implementation Risks and Pitfalls
Supplier evaluation can be implemented corporate wide, division wide or SBU wide. In each case, support and approval from upper level management is essential. A team should be formed from cross-functional areas including marketing, procurement, finance, operations and any other departments that may be affected by the implementation. Many corporations also seek help from consulting firms who have expertise in strategic sourcing. They can either involve the consultants as team members or as teachers and mentors. The supplier evaluation implementation can be processed in seven stages as following (15).
At this stage, upper-level management presents the expected improvement opportunities. Cross-functional team members and key shareholders develop a communication plan and the financial department estimates the possible cost savings.
During this stage, the team schedules timelines and reports them to related operational departments.
The team collects requirements both internally and externally and analyzes data from existing or potential suppliers. Throughout this stage, the team also maps current procurement processes to define the operational situation. At the end of this stage, a list of potential suppliers will be delivered.
At this stage, the team develops criteria to narrow the potential supplier pool and estimates the economic and operational benefits of the project. The evaluation could be implemented directly or indirectly. In direct mode, the team would go to suppliers to examine manufacturing and management processes and to test outputs or collect performance data. In indirect mode, the suppliers would be asked to provide information about manufacturing / management processes and performance information such as cost, quality and delivery. Each mode has advantages at this stage. Using the direct mode, the team gets a first-hand observation of processes, a holistic view of supplier organization and an opportunity for active supplier development. On the other hand, the indirect mode fits large bureaucratic customers better. Firms can get summarized product information and extensive documentation of processes. This is a good method to narrow a large supplier pool (16).
During this stage, the team calculates the actual benefits of the project and communicates them to key shareholders. They then negotiate with candidates and select the optimal suppliers.
At this stage, the team posts related reports including expected results, economic benefits, project procedure and measurement of performance to all the associated business units.
This stage will be performed routinely. The team may require the supplier to gain certification through an appropriate standard setting body such as the International Standards Organization (ISO) (2). They may also use pre-determined criteria to maintain performance. The team communicates with suppliers whenever additional improvement is necessary to assure the procurement process is flexible enough to meet changing market conditions. In addition, both customers and suppliers grade suppliers’ performance on at least a yearly basis. Similarly, internal operations are evaluated. Some examples of areas in which internal operations are evaluated are given below (4):
- Efficiency of the suppliers’ administrative system: Are credits and rebates dealt with quickly?
- Efficiency of the suppliers’ sales office: Do they transmit order progress information quickly and accurately? Do they immediately agree on alternatives?
- Ability to bring new ideas: Do suppliers incorporate innovations? Are they are willing to work closely on research projects?
- Assistance in solving technical problems: Do suppliers respond quickly and correctly?
A number of people should be involved in such a project. First, upper-level management is necessary. Normally, firms authorize a VP or COO to support the project. Second, cross-functional personnel are needed to form the project team. People from marketing, purchasing, customer service, operations and finance have different perspectives and various skills to implement the project. Third, key investors / shareholders should be involved in examining the potential benefits of implementation. Finally, suppliers should be urged to participate in order to build long-term channel partner relationships.
The implementation of supplier evaluation has risks and pitfalls. If the project is abandoned, project deadlines will not be met and the desired results may not be achieved. Even worse, employee enthusiasm, commitment, credibility, and morale may be lost. Additionally, evaluating supplier performance may be very costly or the performance of selected suppliers may not be measured properly (Patterson, 2000). The implementation may fail by considering only quantitative measures, such as price and service. As a result, a myriad of other variables, mostly qualitative measures, may be ignored. This may affect the value of a relationship from a channel partner’s perspective (21).
Additionally, the implementation may not rank potential suppliers on a relative basis to assist firms in the channel partner selection and retention process. Many supplier evaluation techniques rely on industry or national certifications such as ISO 9000 as heuristic indicators of superior supplier performance. As more suppliers obtain these certifications and achieve the same standards of quality, these awards will not be sufficient to distinguish one supplier from another.