You are on page 1of 3

Supplier Appraisal

What is it?
A structured evaluation process to help us assess the technical, commercial and nancial suitability of a potential source of supply. outcomes the organisation needs from this category? The RFI or the PRACTISE process should have shaped your understanding of this. If these are the outcomes that we need, consider what are the drivers that enable these outcomes? For example, if we need challenging cost reductions, you might expect that the supplier who delivers year on year cost reductions has a strong procurement department, or a value analysis function, or tight integration of cost and management accountants with the production activity. A supplier of a category where we need continuity of supply probably has effective production management, or just high stocks of nished goods! What they wont have is incompetent production and below average stocks of nished goods. A supplier from whom we need innovation, will probably have a track record of generating ideas, or a research and development department. A supplier who we want to take the pain away will have a proper account management structure, and named personnel who are experienced in managing customers like the organisation, or at least a track record in this area.
1 Le Garcon Perdu 2012

Therefore if you reverse engineer from the outcomes that we want to the enablers that deliver those outcomes, you can focus on evaluating suppliers against a handful of relevant criteria, rather than a generic shopping list of nice to haves.

How do we do it?
You may have a standard checklist to evaluate potential sources of supply, but these can sometimes reduce the exercise to a clerical task, whereas supplier appraisal done well can be imaginative and create opportunities for both the organisation and the supplier.

The sources of
information for supplier appraisal include: Catalogues. Annual reports will yield good nancial data, and the chairmans report will often be surprisingly honest about strategy and development plans. Supplier visits. References from other reputable customers [but beware, the supplier will choose their best accounts, and very few buyers express extreme views in commenting on suppliers]. Visits to referees sites. Bank references [but these are often very circumspect]. Clippings services or the internet can elicit contextual

...supplier appraisal done well can be imaginative and create opportunities for both the organisation and the supplier.

Consider what you want


to buy. You might think this is obvious, but consider carefully what the key

Supplier Appraisal
material, but you have to know what you are looking for. customers, or a number of awards won. Here is an example of painting word pictures of gradations of capability in respect of design: Good design will be evidenced by a design team with access to the latest hardware and software, senior level support and representation, and a demonstrable track record of success in developing new designs to improve product performance. OK design will be evidenced by a subordinated design team with low motivation and a varied record in contributing new designs. Design may be isolated from the product creation process, or turnover of talent may be higher than expected. Bad design may be evidenced by warranty claims or frequent product revisions. Personnel may be poorly motivated or poorly led. Design may be a marginal player, not well regarded by marketing or production. CVs of the staff may show limited experience or expertise, and investment in technology may show lack of senior management support for the function. Unacceptable design may show unlled vacancies, low morale and poor facilities. Rework or
2 Le Garcon Perdu 2012

production problems may be caused by poor design and other functions may buy in design expertise. The function may be a second third or fourth tier activity, with weak leadership and recognition that there is a problem. Then it becomes possible to calibrate the scoring system. Aim for more than one opinion on each of the dimensions and compare notes among the team. Most supplier appraisals involve a combination of desk research using mainly secondary sources and eld research using primary sources of information.

If you are evaluating


several suppliers, there is a tendency to compare them in relative terms such as A is better than B. In fact, we need to compare them in absolute terms against a high bar that we have set. The location of the high bar comes with experience, but we need to begin with clarity about what are we really buying: If we are buying expertise that we dont possess, aim to develop an idea of what would evidence that expertise. For example, if you are buying design skills, what would evidence good design? Enablers of success would be access to a number of designers, a good recruitment process for design expertise, a passionate culture encouraging good design. Outcomes of success would be a track record of satised

Supplier appraisal is like


piecing together the pieces of a jigsaw, and the key pieces are: Technical capability i.e. can the supplier perform, meet our standards? Commercial capability i.e. can the supplier supply to us at a cost that we can afford? Financial capability i.e. will the supplier still be trading in six months time? In particular, the answer to the last question above is much harder than it looks , because we usually review historical nancial information which means we

Supplier Appraisal
are looking in the rear view mirror. Some simple ratio analysis can help identify early warning signs, especially if you look at two or three years data to nd a trend. much about them prior to engaging with them, as they know about us, before they supply to us. Dun & Bradstreet and other commercial rating agencies were originally set up to assist suppliers avoid bad debts by assessing if their customers were solvent. in all suppliers being rated as somewhere in the middle.

How does it help?


Appraisal is a key process. It creates a level playing eld whereby we make sure that only competent suppliers are engaged to supply us. It creates an image of the organisation as a professional buyer, and it can inform negotiation targets and supplier development programs later on.

Paul Rogers is a freelance procurement consultant.

pdf.pdf

1/20/2011

12:30:58 PM

It cannot be emphasized
enough the importance of a visit to your supplier. This action alone can tell you much more about a supplier than twenty different ratios combined! Be prepared to visit every supplier, and take along the relevant subject matter experts.

In summary, identify
between 5 and 10 key drivers of success, calibrate what good and unacceptable look like, appraise against these benchmarks, and be prepared to have an opinion. If you feel the supplier will cause the organisation problems, substantiate your opinion, and stick to your guns. Better to have an opinion than adhere to some clerical process which results
3

CM

MY

CY

CMY

When it comes to
dealing with suppliers, we probably know a quarter as

Le Garcon Perdu 2012

You might also like