When you want to buy something, whether it's a new automobile or flat-screen television, you'll probably do some research on costs in your local stores or from an online Vendor. After you've limited down your options, consider other factors such as warranty and availability. Finally, you'll consider less tangible factors like your prior interactions with the provider and how well they handled customer care.
Similarly, when organizations wish to evaluate the Vendor in their supply chain, they behave in precisely the same way. Vendor evaluation process is an important part of the Procurement process.
What is Vendor Evaluation Process?
The vendor assessment or evaluation process is a method of evaluating and approving potential vendors to see if they can satisfy your company's requirements and duties once you've signed a contract with them. The ultimate objective is to find a selection process that will help you each time you need to get new vendors on board. This way you can ensure building a low-risk vendor and supplier portfolio that is best in class.
Vendors and suppliers both provide services or commodities, but there is a distinction: the term vendor refers to both B2B and B2C sales relationships, but the term supplier refers solely to B2B interactions.
Benefits of having a Vendor Assessment Process for Onboarding New Vendors
The benefits of the vendor evaluation process include locating low-risk Vendors for high-quality goods and services, as well as the formation of mutually beneficial, long-term business partnerships.
Creating an efficient supply chain - When you are going to collect data for each vendor at different stages of the vendor assessment process, you get a good database with an understanding of the different capabilities of different vendors.
It ensures that you have an efficient supply chain for any of your needs.
Mitigating risk - Creating proper vendor assessment parameters and having a workflow to follow it every time, helps you to mitigate risk.
Reduce Cost - While evaluating new vendors, there is a highest chance that you can save in costs by comparing the quotations from the top notch vendors. Cost shouldn't be the primary selection criteria on top of the quality and support you need, but it definitely helps.
Help in the future evaluation - The data you accumulate during a vendor evaluation process, helps you in the future when you need to reach out to a few of them again. Any of your team members can also follow through the process and go through the old data to understand the previous assessment and can make informed decisions.
Zero hiccups for new team members - Having a well documented process in place, helps any new members to take up the job easily. A well defined workflow ensures that the best practices for new vendor evaluation is always easy to follow and track for all members of your team.
Key factors to consider in your vendor evaluation process
Evaluating the vendor’s capacity
The majority of vendor evaluations are based on data. As a result, this should be a well-planned process with quantitative performance metrics like delivery times, manufacturing costs, and inventory levels at the forefront. A set of standardized supplier assessment criteria offers a required framework for evaluating a supplier's capabilities and comparing them to those of rivals.
However, before assessing a present or future supplier, a corporation must establish clear expectations for their partnership. You should clearly state your objectives from the start so that the provider is aware of his or her responsibilities and may alter operations as needed.
While supplier evaluation can be based on a variety of criteria, independent of industry, there are some concerns that every organization should address. These are some of the elements:
Production Capacity- All supplier assessments should go through the provider's capabilities and limits in detail. In any assessment, a supplier that is unable to expand output in response to your production cycles will not perform well.
Performance - To establish whether a provider can execute your regular duties, your organization should ask as many questions as necessary. Previous experiences with comparable businesses, recent initiatives that are relevant, and potential improvements to present goods or processes are all appropriate topics for discussion.
Risk- Every firm will unavoidably face certain risks, but suppliers should endeavor to reduce such risks across the supply chain. Examining performance measures like total delays, average response time, and remedial actions may help you construct a realistic quantitative evaluation of a supplier's risks.
Evaluating the vendor’s competency
When you are onboarding a vendor, you need to understand the competency of the vendor to deliver what you want. For a new vendor understanding their past work is necessary.
- Ask for their customer's contact and and speak with them directly to understand how they delivered in the past.
- Look into the reviews of the customer in online portals.
Based on your our nature of business, you can also - - Visit their production facilty to understand how they do it.
- Visit their office to understand their culture, team diversity, training and devellopment procedure.
For a new business, look into the team. Especially the leaders, what is their achievement, personal portfolio, past works, team strength.
Commitment towards quality
While quantifying product quality might be challenging, but it should always be a key component of a supplier evaluation. The industry standard here is ISO BS/EN ISO 9001:2000 certification, which implies that the supplier excels in management accountability, resource management, product realization, measurement, analysis, and improvement.
Also based on the Industry you are in, you must ensure that the vendor has the quality and Certifications necessary in the industry like -
- Healthcare - HIPPA
- SAAS product - GDPR
Reasonable cost
Based on the market price, try to understand if the vendor's quotation is around the market price. If the price is a lot higher, try to understand what more you are getting out of that price than the market. If the price is too low, try to understand what you are going to miss if you go with that vendor.
You need to check whether the product or service can be delivered to you at a reasonable cost and keep your vendor or supplier in business.
Financial stability
Depending on your project timeline, industry, people involved, payment timeline, you need to measure that the vendor is capable to financially sustain and deliver the work. If required you may request the most recent fixed and current asset lists, profit and loss (P&L) statements to ensure they are fit to deliver in the long run.
Proper communication
You need to understand the channels of communication and the frequency of communication the vendor is proposing to do. You can set your own terms for communication too based on your past experience. If you feel comfortable, you can bring the vendor on your communication tool (Slack, Flock, etc.) too.
Understand and also make clear that how both parties can reach each other when required via Email, phone, or a collaborative tool like GoodFlow.
Control of internal process
How a vendor controls it's internal process has impact on the delivery and quality of the product. Specially in a service industry where many organization follow their own standards, you need to know about the process from start to delivery.
Also you must know about the final delivery process, the packaging, quality of packaging, etc. If it is a software then, live environment, option of a staging/test environment. If possible you can should see and know about the the project plan, test plan, be part of a issue management tool.
Clean initiative
Supplier and vendor services and products must abide by legal and environmental standards and requirements. Having a partner who follows law and supportive to social responsibility is a boon and indicator that you can rely on them.
Culture
Working with a partner who share your ethos are just awesome. Ask and find out about the vendor's shared values and working philosophies while meeting with the possible vendors. Similar cultural outlook ensures smooth working relationships and helps you in establishing long-term partnerships.
Choosing new vendors based on your assessment criteria
Based on the data you gathered from the vendors and your own research, the vendor assessment criteria should support your -
- company mission
- ethics
- business goals
- technical competence
- quality
- cost
- financial integrity
- communication strategy
- social responsibility
- cultural commitments.
There are a variety of criteria that may be utilized in comparison, and they are often weighted such that essential criteria receive greater weight. You must choose the criteria that matter most to your company objectives and your industry and stress on them while gathering information from the vendors.
For instance, a business may determine that the quality of the things it receives from suppliers is more essential than pricing, which is, therefore, more important than delivery dependability. Similarly when you want a Software development agency to outsource your requirement, you will want to see their technical competency, past projects, internal process and communication strategy first.
Managing the new vendor evaluation process
To guarantee your assessment method is both accessible and efficient you need to use a tool. Where you must be able to design your business processes like vendor evaluation process, work with your team members, keep track of all the gathered data, automate few steps and document it to ensure in the future anyone can follow them.
A business process mamangement tool like Goodlow, facilitates vendor evaluation and collaboration with your team members and helps you to make a informed decision. The benefit of a good vendor assessment system is that it allows your whole department to quickly identify which vendors are crucial to your company's performance and develop those relationships.
Keep in mind, that the value a vendor brings to your firm is equally determined by the quality of your purchasing process and negotiation abilities. You want to make sure your workers offer as much value to your company's vendor relationships as the suppliers do to yours.
