Simple Mechanism to Evaluate Vendor Performance

A key area of the procurement process that most purchase managers neglect is the mechanism to evaluate their vendors or suppliers performance in order to estimate the suppliers real technical or quality competencies with respect to the delivered products.

According to a recent study by Aberdeen Group "More than 70% of enterprises examined view measurement of supplier performance as very important or critical to their companies overall operations. However, only about half of enterprises have instituted formal procedures for measuring supplier performance.

Specifically, about half of every dollar a company earns is spent on goods and services provided by external suppliers. In certain industries e.g., high-tech and automotive:materials, parts, and assemblies provided by external suppliers can comprise between 70% and 80% of the total cost of new products.

There is a simple yet powerful mechanism every manager can introduce as part of their quality standard. Namely an in-house vendor rating system, a system for measuring, analyzing, and managing supplier performance and driving continuous improvements in value and operations.
and operations.

Evaluation of vendors on a consistent basis can ensure strong vendor/supplier base and identify the right vendor/supplier not only based on price but also quality, on-time deliveries, buyer ratings and inspections.

Vendor Rating System: Some Key Benefits

     1. Vendors Overall Performance
  • Price
  • Quality
  • Delivery
  • Assembly Complaints
  • Service
     2. Consistent Quality Control
  • Technical
  • Product
     3. Tactical Decision-Making
  • On-the Job
  • Short term
     4. Tracking Vendor Performance
  • Specified Time Period
  • Longer Duration Year-on-Year basis
To the small business owner, setting up a supplier performance program might seem a bit daunting, even unnecessary. The benefits for the small business that implements a well-designed supplier performance program include increased efficiency and service levels, and reduced operational cost.
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