As a consumer, when you want to purchase an item, whether it is a new car or a flat screen television, you will most likely do some research on the prices of your local stores or from vendors on the internet.
When you have narrowed your search you then look at other criteria that may be important to you, like warranty or availability. Lastly, you will look at other less tangible criteria such as your previous experiences with the vendor and how their customer service was.
This behavior is exactly the same for companies when they want to evaluate the vendors in their supply chain.
Unless your company only uses one vendor for each item they purchase, there will invariably be an occasion when a decision has to be made as to which vendor gets your business. There are a number of different scenarios when this will occur, for example when the item is purchased for the first time and when an item is no longer single sourced.
Purchasing An Item For The First Time
When a decision has to be made between vendors, the purchasing or supply chain department will use some vendor evaluation method to be their tool in the decision.
If the item is to be bought for the first time, the purchasing or supply chain department may have contacted a number of vendors and sent them a Request for Quotation (RFQ). Each vendor would then complete the RFQ with the information that was required, normally the price and terms.
The purchasing or supply chain department would then use these completed quotations, in conjunction with other information they have collected on the vendors, to make a short list for further evaluation or make a final selection.
The purchasing or supply chain department would evaluate the vendors based on a number of criteria they had decided upon which may include objective criteria such as price and warranty and subjective data which would include past experience with the vendor.
Based on the weighting given to these criteria the purchasing or supply chain department would be able to fairly evaluate each vendor.
Choosing Between Vendors
If the sourcing of an item has been from a single vendor but another vendor has been approved to supply the same item, a decision would need to be made on vendor selection when a requisition has been received by the purchasing or supply chain department.
Many companies use a vendor evaluation tool that allows transaction data to be analyzed to give a comparison between vendors. The vendor evaluation uses criteria that have been determined by the purchasing or department to compare vendors such as:
- Delivery reliability
- Delivery date adherence
- And the quality of the item
There are any numbers of criteria that can be used in a comparison and these are usually weighted so that important criteria are given more credence.
For example, a company may decide that the quality of the items it receives from vendors is more important than price, which in turn is more important than delivery reliability. The company would then weight these criteria so that the overall score reflects that requirement.
Vendor evaluation is important as it can reduce supply chain costs and improve the quality and timeliness of the delivery of items to your company. The skill in evaluating vendors is to determine which criteria are important and the weighting that these criteria are given.
It is important to remember that these criteria may be different for each item you are sourcing and possibly different between regions or countries.
Objective data is useful to compare the information that you can obtain from each purchase order and goods receipt, but sometimes the subjective data that your purchasing agents can provide such as customer service and the willingness of the vendor to accommodate your requirements is as or more important in a vendor evaluation.
Optimizing your supply chain means that you and your company are delivering your customers what your customers want when your customers want it— and doing that by spending as little money as possible. A robust vendor evaluation practice will help start that process off by guaranteeing lowest costs, highest quality and on-time delivery.