When asked about a supplier, an intuitive answer is usually given. People say we work well or there are some issues, but the basis of this judgment is vague.
Intuition is shaped by recent events. A supplier that experienced delays last month is remembered poorly despite two years of flawless performance.
In this article, we explained by which criteria supplier performance will be measured, the scoring method, and how the results will be used.
Table of Contents
Why is it necessary to measure?
Unmeasured performance is unmanaged performance. Recurring issues go unnoticed and uncorrected.
Measurement also removes supplier selection from personal preference and turns it into a corporate decision.
Bargaining power also increases; a discussion conducted with concrete data yields much more effective results.
Most importantly, the source of the problem becomes clear. It is distinguished whether production disruptions originate from the supplier or planning.
Records are kept in the supply module and fed from purchasing data.
Delivery performance
Delivery performance is the most critical criterion for most businesses and the easiest to measure.
The key indicator is the on-time delivery rate. The percentage of orders arriving on the promised date is calculated.
Average delay duration must also be monitored; a one-day delay and a two-week delay are not the same.
Quantity accuracy is a separate indicator; shipments arriving short are also performance issues.
Whether delays were reported in advance should also be recorded; a supplier who gives notice is more manageable.
Quality performance
Quality issues can be more costly than delivery delays because they emerge later.
The return and rejection rate is the most fundamental quality indicator and is calculated from goods receipt records.
Errors noticed during production should also be attributed to the supplier; these do not show up at goods receipt.
Problems that emerge after reaching the customer should carry the highest weight.
If traceability is established, defective products can be traced back to the supplier on a lot basis.
Price stability
Price alone is not a criterion; what truly matters is price predictability.
A supplier who changes prices frequently and without notice makes planning difficult.
Giving advance notice of changes is an important indicator of supplier quality.
The alignment of price changes with market movements must also be monitored; unjustified increases should be questioned.
Maintaining a price history makes this evaluation possible; price comparison see the article.
Communication and resolution speed
There is no supplier relationship without problems. The difference lies in how problems are resolved.
Response speed is a measurable indicator; how quickly questions are answered is monitored.
Problem resolution time must also be recorded; how long does a return or exchange take to complete?
Flexibility is also valuable; the response to urgent requests becomes decisive during crises.
These criteria are partly subjective; however, when recorded regularly, the trend becomes reliable.
Scoring structure
When criteria are combined into a single score, comparison becomes easier, but weighting is required.
Weights should be determined according to the business's priority. In a manufacturing business, delivery performance stands out.
The number of criteria should be kept limited; four or five criteria are sufficient for most businesses.
How the score is calculated must be transparent; an incomprehensible score is not used.
Periodic calculation should be made; a one-time score does not show development.
Using the results
When scores remain only in the report, the measurement effort goes to waste.
The first area of use is the bidding process. Less work is given to low-performing suppliers.
The second use is order distribution. Critical items are directed to high-performing suppliers.
The third is the negotiation table. Concrete data provides a strong basis in price discussions.
The fourth is the search for alternatives; consistently low scores trigger new supplier research.
Sharing with the supplier
Sharing performance results with the supplier is often the most effective improvement tool.
A meeting held with concrete data produces far more results than general complaints.
The supplier may also not be able to see their own problem; data eliminates this blindness.
Making the sharing regular turns the relationship into a partnership.
Recognizing suppliers showing improvement also strengthens the continuity of the relationship.
Supplier risk
Apart from performance, dependence on the supplier is also a separate risk factor.
Being dependent on a single supplier for a critical item creates serious vulnerability.
Therefore, alternative suppliers must be maintained for critical items.
It is not enough for the alternative to just be on the list; the relationship must be kept alive by placing orders occasionally.
The business volume ratio per supplier should also be monitored; excessive concentration provides an early warning.
Points to consider
The reliability of measurement depends on the discipline of record-keeping. If delivery dates are not recorded, performance cannot be calculated.
Blaming suppliers for internal delays also creates injustice; a late-placed order means a late delivery.
Constantly changing criteria prevents periodic comparisons.
Evaluating only large suppliers also creates an incomplete perspective.
Turning the evaluation into a punishment system damages relationships and reduces cooperation.
Where to start?
Starting supplier evaluation with a comprehensive model makes the project unnecessarily heavy and it is usually abandoned halfway.
The first step is to record delivery dates regularly. This single piece of data is enough to calculate the on-time delivery rate.
The second step is to record issues identified during goods receipt. The quality indicator emerges from here.
These two indicators produce sufficient awareness for most businesses in the initial period.
Then, the evaluation is expanded, starting with the most frequently worked suppliers.
Price stability and communication criteria should be added after the basic structure is established.
Frequently asked questions
How often should the evaluation be conducted?
Quarterly periods are suitable for most businesses; the frequency can be increased for critical suppliers.
Can scores be calculated automatically?
Delivery and quality data can be calculated by the system; subjective criteria are entered manually.
Should small suppliers be evaluated as well?
They should be evaluated; small-amount but critical items can carry serious risks.
How are scores used in bid selection?
They are weighted along with the price; you can check the bid comparison article.
Supplier evaluation is a simple yet effective structure that moves purchasing decisions from intuition to data.
Start with a few criteria; delivery and quality alone produce significant awareness.
Separate internal delays as well; blaming a late order on the supplier makes the results meaningless.
Share the results with the supplier; a meeting based on concrete data drives much more improvement than a general complaint.
Keep an alternative supplier active for critical items; an alternative that just sits on the list without ever being ordered is not a real alternative.
By consulting with the EQLEM team, you can plan your supplier evaluation structure.