May
26
Supplier Scoring – The Importance Of Ranking Your Suppliers
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Suppliers are an intrinsic part of your supply chain, poor performance can hinder your business and selecting the wrong supplier at sourcing stage can result in challenges later on. Supplier evaluation should be a cornerstone process for your organization as it provides you with an in-depth assessment of performance set against objective and detailed criteria.
Scoring Your Suppliers
The first part of this process is the scoring of suppliers. This is a means of evaluating your suppliers, measuring their performance against a set of targets. The targets have to be of importance to you and can include how they perform in terms of delivery, their lead time, the quality of items supplied, the price, service levels and so on. This process of scoring is helpful because it assesses all of the suppliers against a very standard set of criteria. The result of this is an independent and objective assessment of how well the supplier is performing and whether they are meeting your needs in a way that is acceptable.
Some scoring systems offer the opportunity to utilize weighting according to the importance of certain criteria. For example, if price is viewed as very important, then that will be given a higher weighting than something that is viewed as less important, which could be invoicing procedures etc.
Often there are various sub-divisions within any one measure. For example, the price of the product is not just about who much it costs, there are often more factors to be taken into consideration. These could include the stability of the price, whether invoicing procedures are acceptable and the invoices accurate and how much notice is given about any changes to the price etc. So this is about much more than simply how much each unit item costs, there are other ‘hidden’ factors that need to be taken into consideration.
All the points that will be used to rate or score a supplier will have the same variances, especially complex issues such as quality issues and service factors. This makes the whole scoring system quote an in-depth analysis of how the supplier is performing.
The system can also be used with potential suppliers to see how they could meet supply demands in the future.
Ranking Suppliers
To complete the analysis it is important not just to score the supplier, but also to rank them. This provides the customer with a real insight into who is performing well, who is average and who is languishing at the bottom of the league.
This format is very clear to understand and can also be used to share information with suppliers, so that those who are performing poorly can work towards improving their performance. Often details of other suppliers may not be shared, but individual suppliers will be furnished with details of how they scored and what their ranking was in the overall table.
Once ranked suppliers can be grouped (typically into A, B, C groups). Specific groups may then result in targeted action (often along the lines of Develop, Maintain or exit).
Objectivity Is Key
Key to this process is objectivity. There are times when personalities creep in or even personal bias, so if no objective scoring or ranking system is used, then it can be easy to use memory or even prejudices to rank a supplier as ‘good’ or ‘bad’ but with an objective tool to analyse performance and assess each supplier ‘against’ each other, a true picture emerges of exactly who is performing well and who is to some extent ‘the weakest link’.
May
25
Reasons To Exit Suppliers
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Exiting or terminating supplier contracts should not be done lightly. If you have been working with a supplier for a long time, then there is a loss (and sometimes cost) associated with ending any contract with a supplier, and in some cases commercial agreements can make it complex. So it is always best to end supplier contracts as a last resort only; not on a routine basis and when you want to terminate be sure of your legal position.
However, there are some instances where terminating with a supplier is a logical option for example
Failure to meet contractual terms of supply
The most common reason for terminating with a supplier is failure to meet the terms of the contract – this could be anything from being unable to supply the goods through to a myriad of other issues.
Supplier Changes
Many suppliers are fairly stable and carry on for years without change. But often suppliers can face upheaval. So you may have been doing business with Supplier A for a number of years. Then they find themselves being subject to a hostile takeover by Company B. At first things progress normally, but then you find that the supplier does not meet its contractual obligations or no longer wants to manufacture that product.
Defective Products
Defects are a huge problem within the manufacturing process. If sub-standard raw materials or products are provided then the manufacturing process can be delayed by machinery becoming ‘clogged’ or by the defect rate of the finished product becoming too high and re-manufacturing has to take place.
Although it is unlikely that any supplier will ever be able to provide 100% perfect goods on a 24/7 basis, 365 days a year. But if you find that there is a constant problem with defective goods then it is worth thinking about the role that the supplier has in the problem
Cost
Given that we now live in a global village with lots of new markets opening up on an almost daily basis there are new suppliers popping up at a similar rate. So if you find that you can purchase items cheaper elsewhere then that is certainly reason to consider your position. Commercial terms may prevent you from terminating due to price only but you may have grounds within the contract to look at the market position to influence the incumbent supplier.
Late Delivery
Late delivery can be a major headache. Given that there are times when even with the best will in the world, it will be impossible for suppliers to meet deadlines, there are other times when the suppliers simply seem to not care about whether or not they meet deadlines. This is common grounds to look for an alternate supplier. Delivery performance can be an emotive subject and close attention needs to be paid to accuracy of the data and route cause of the problem.
Service
If you find that suppliers are not treating you as a valued customers and are not responsive to any complaints or fail to address any issues that you have raised.
Avoidance of Termination
Although you should not feel that you are simply ‘stuck’ with a supplier, if you are considering terminating a contract with a supplier, especially one that is a long standing supplier, it may be worth approaching the supplier to try to persuade them to rectify the problem.
Sometimes if a supplier is aware that you will terminate the contract unless the problem is rectified it can act as a catalyst for them to take immediate action and ensure that you will soon be satisfied with the relationship!
If you do not have a supplier ready and waiting to take over provision of your supplies then you will experience at least some operational difficulties. Remember that you will possibly have to get used to how they operate, their new processes and procedures and so on, so the process of switching suppliers can be expensive!
Due consideration of the commercial agreement is vital, getting this wrong can open up all sorts of potential penalties. Inclusion of a termination clause in your contract can be a start – clearly articulating the reasons why a termination may be valid and be executed.