MOST Analysis

Mission Statement

Vendor evaluation is one aspect of the sourcing strategy itself. Vendor evaluation is done to ensure that a good portfolio of suppliers is available for use in the transformation program. Vendor evaluation can also be applied to current suppliers in order to monitor and measure their performance. It is essential for decreasing costs, minimizing risk as well as for the continuous improvement of the process. Vendor audits must be undertaken from time to time in an organization as there is always a need for quality control in the technology market. Vendors are required to deliver the same quality of products and services as agreed in the contract. Continuous vendor evaluations ensure that they comply with these quality standards. Particularly in the case of a new project or a new procurement, vendor evaluation is absolutely essential. It helps in determining whether a prospective vendor will be able to meet the organizational standards and the specific requirements of the digital transformation project undertaken. The goal is to choose a low-risk vendor that offers the best-in-class products or services. There are many important factors to consider when choosing a vendor for a particular project. Apart from the quality of product or service, there may also be legal risks involved such as regulatory compliance requirements or cybersecurity risks. Proper vendor assessment help in mitigating these and similar risks reducing the liabilities on the organization. Vendor evaluation can be done on many different criteria. If the vendor evaluation is being done for a new product, competitive selection can be done by comparing the features and services offered by different vendors and choosing the one that best suits the project requirements. Vendor evaluation can also be done by separately scoring individual vendors on different factors, such as price, features, reliability in delivery, and so on, and then comparing the scores to choose the highest scoring vendor.

---

Objectives

01. Collect Vendor Data: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
02. Price & Cost Analysis: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
03. Managing Vendor Risk: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
04. Vendor Communication: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
05. Vendor Relationship: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
06. Vendor Culture: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
07. Vendor Stability: departmental SWOT analysis; strategy research & development. 1 Month
08. Vendor Viability: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
09. Vendor Quality: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
10. Vendor Performance: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
11. Classify Multiple Vendors: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month
12. Vendor Audit: departmental SWOT analysis; strategy research & development. Time Allocated: 1 Month

---

Strategies

01. Collect Vendor Data: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
02. Price & Cost Analysis: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
03. Managing Vendor Risk: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
04. Vendor Communication: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
05. Vendor Relationship: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
06. Vendor Culture: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
07. Vendor Stability: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
08. Vendor Viability: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
09. Vendor Quality: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
10. Vendor Performance: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
11. Classify Multiple Vendors: Each individual department head to undertake departmental SWOT analysis; strategy research & development.
12. Vendor Audit: Each individual department head to undertake departmental SWOT analysis; strategy research & development.

---

Tasks

01. Create a task on your calendar, to be completed within the next month, to analyze Collect Vendor Data.
02. Create a task on your calendar, to be completed within the next month, to analyze Price & Cost Analysis.
03. Create a task on your calendar, to be completed within the next month, to analyze Managing Vendor Risk.
04. Create a task on your calendar, to be completed within the next month, to analyze Vendor Communication.
05. Create a task on your calendar, to be completed within the next month, to analyze Vendor Relationship.
06. Create a task on your calendar, to be completed within the next month, to analyze Vendor Culture.
07. Create a task on your calendar, to be completed within the next month, to analyze Vendor Stability.
08. Create a task on your calendar, to be completed within the next month, to analyze Vendor Viability.
09. Create a task on your calendar, to be completed within the next month, to analyze Vendor Quality.
10. Create a task on your calendar, to be completed within the next month, to analyze Vendor Performance.
11. Create a task on your calendar, to be completed within the next month, to analyze Classify Multiple Vendors.
12. Create a task on your calendar, to be completed within the next month, to analyze Vendor Audit.

---

Introduction

Vendor Evaluation: The What, How, and Why

Organizations perform vendor assessments to screen potential suppliers and assess their interactions with current ones. One of the most crucial choices a business must make to be competitive is how to evaluate its vendors, especially in these times of rapid market change.

Putting a Vendor Evaluation System in Place

Vendor performance evaluation should not only be a process used for assessing new vendors; it should also be a regular component of your company’s procurement activity. Using categories and rankings within those categories, a good supplier assessment system will frequently review suppliers to identify strong and weak supply areas. Evaluations assist in identifying which suppliers should be given priority as well as in identifying potential danger areas, even for businesses with a restricted number of suppliers they can use. The system’s ultimate objective is to monitor vendor performance consistency in a way that is integrated into the purchasing process.

Clear KPIs and measurements aimed at company priorities, as well as red flag measures to highlight when a supplier doesn’t meet criteria, should be included in vendor evaluation. Every time a supplier is used, the procurer should rate them, and there should be a deadline for when they should submit their ratings. The individual or group classifying vendors should also routinely check the input. When procurers evaluate supplier performance, adopting a numerical assessment system may be simpler because companies may be quickly ranked using the final results.

These rankings and metrics ought to be external as well. It’s critical to come to an understanding on them with your vendors so that they are aware of them and can offer input. Clarifying expectations for them and motivating improvements can both be accomplished by incorporating a system of recognition and reward for progress. Using agreed-upon KPIs and measurements inconsistently, failing to provide suppliers with regular feedback on their performance, neglecting supplier input when discussing and choosing measures, and conflating metrics and KPIs are all common faults in vendor assessment systems.

What is Supplier Evaluation?

Supplier evaluation in procurement refers to a formal review of suppliers to analyze their performance in relation to various criteria and determine whether they satisfy organizational needs. The goal is to build a portfolio of useable suppliers that is best-in-class and low-risk.

A pre-qualification step in the purchase process, supplier evaluation is a constant process for procurement departments.

According to Hald and Ellegaard (2011), supplier evaluation is “the process of quantifying the efficiency and effectiveness of supplier action.”

So, to put it simply, evaluating a supplier is determining whether or not they are a suitable fit for your company. In addition, it evaluates the performance of your present supplier base to identify areas for cost-cutting, risk-reduction, and ongoing improvement. A transparent and equitable alignment of objectives, data, and analysis with suppliers is the first step in an efficient supplier assessment process.

---

The Importance of Vendor Evaluation

Utilizing few resources as effectively as possible is the aim of every procurement organization. To secure the best contracts in terms of quality, pricing, flexibility, and reliability, it is therefore vital to evaluate suppliers.

Although the supplier evaluation process can be difficult, the rewards of locating low-risk suppliers of high-quality products and services as well as mutually beneficial, long-term business relationships outweigh the challenges.

Some of the other benefits of supplier evaluation include:

• Risk mitigation: You may reduce the legal, contractual, and security risks connected to using technology outside of your business by properly vetting vendors.

• Enhanced supplier performance: The effectiveness of the procurement process as a whole is directly correlated with improved supplier performance. The supplier evaluation and appraisal criteria account for 57.1% of the performance of the procurement process (Murigi 2014). This is so that suppliers are encouraged to continually enhance their operations by increasing productivity and being more creative. However, when businesses base their decisions on supplier performance goals, they observe amazing results.

• Cost reduction: Any firm should consider supplier evaluation because it has a direct impact on the price and quality of purchased goods. Additionally, a small increase in price and quality brought on by supplier choice has important advantages for businesses.

• Leveraged supply base: Evaluation of supplier performance aids in standardization, which produces better outcomes for enterprises. It also enables businesses to plan their objectives and courses of action in accordance with the capacities and performance levels of their suppliers.

A quality criterion is a useful tool for evaluating suppliers since it encourages them to continuously enhance their processes by increasing productivity and becoming more creative. The performance of a purchasing organization’s suppliers is crucial to its success. It’s crucial that both the supplier and the customer agree on what constitutes satisfactory quality.

• Strengthened supplier relationships: Effective supplier management promotes loyalty, cooperation, and communication, which provides the groundwork for long-lasting, mutually beneficial working relationships.

• Improved business outcomes: By working with reputable suppliers, you’ll be able to offer products and services that are of higher quality and more affordably priced. As a result, you will be able to better service your clients and increase both sales and client loyalty.

---

Supplier Evaluation Process

The first step in the supplier evaluation process is to assess your business’ demands and create a list of specifications so that the appropriate vendors may be contacted or discussed. The suppliers are then evaluated using a selection criterion, which includes selecting how to assign a score to each source based on these factors.

A market analysis is done to determine a predetermined number of suppliers who will take part in the request for a quotation, or RFQ, procedure before possible suppliers are evaluated. Making an initial list of bids after gathering a small number of suppliers is an alternative to the second phase. The suppliers on this list all meet the criteria. The suppliers on the list are then given a request for information (RFI) to learn more about them. The purpose of the RFI is to see whether the company is interested and to gather enough data to make a preliminary assessment.

All of the company’s stakeholders are involved in the evaluation of the suppliers when the bids or RFIs are received. Companies are ultimately chosen as suppliers depending on the outcomes and negotiations.

The majority of procurement specialists will concur that there is no one optimal method for evaluating providers. Companies employ a variety of strategies to determine what is effective and what is not. Regardless of strategy, the evaluation process’s ultimate objective is to minimize risks and increase total value for the procurement organization.

It’s vital to note that supplier selection does not eliminate the requirement for supplier evaluation. In reality, it is imperative to monitor the supplier’s progress after an association is created. Companies can identify which suppliers are performing the best and where there is room for development by ranking them according to various indicators.

Supplier Evaluation Criteria

A multi-criteria problem, supplier assessment incorporates both qualitative and quantitative elements. Because of this, creating general selection criteria and using them in any circumstance is insufficient.

Having said that, the criteria for evaluating suppliers should be in line with the goals, mission, and vision of your organization. It should also take into account aspects like corporate social responsibility, communication, and cultural commitments in addition to aspects like quality, cost, and financial integrity.

Reviewing the standards that are most important to your business is another step in the evaluation of vendors and suppliers. Data security, for instance, is of highest importance to a healthcare organization, and they must also take into account many compliance rules; as a result, these criteria take precedence over other considerations.

However, businesses frequently face contradictory tangible and intangible elements where it is challenging to decide.

For this reason, the supplier selection process must engage all pertinent company stakeholders, including procurement, engineering, logistics, production, etc. The stakeholders must agree on the selection criteria. By doing this, it is ensured that each is given the appropriate amount of weight based on their relative relevance, corporate priorities, and strategy.

---

12 Criteria to Evaluate Suppliers

The performance of an organization’s procurement department is correlated with its capacity to develop proper supplier evaluation criteria.

Murigi (2014) estimated that the supplier evaluation and appraisal criteria account for 57.1% of the performance of the procurement process.

The most frequently utilized criteria are typically those that relate to the delivery of materials, quality, pricing, financial situation, communication, and technology. However, depending on the method, there may be numerous additional factors that are more crucial than those described above. As a result, compiling a single, exclusive list is difficult.

Here are a few of the different factors that a company could consider when assessing potential suppliers:

1. Quality: Quality is a difficult notion to describe. The description supplied by IBM is the one that best describes the supplier evaluation process: “The extent to which customer requirements are met determines quality.

When both the provider and the client agree on standards and these requirements are accomplished, we talk about a quality product or service.” Thorough departmental, supplier, and customer consultation is necessary for quality management. Following the determination of the necessary quality levels, the entire manufacturing process must be set up to ensure that the quality level is attained and maintained in a manageable manner.

To do this, quality management relies on four interrelated processes: standard-setting, assessment, control, and assurance. The extent to which the procedures are followed to satisfy the requirements listed in national and international standards is determined by an external assessment. The ISO-9000/9001 standards are one illustration of such a standard.

2. Price/Cost: Here, the expectations relate to overall cost rather than material unit pricing, as well as present and future cost requirements, cost reduction, and ongoing development (including any acquisition, inventory, or disposal costs).

3. Performance Delivery: the assurance that the proper product will be delivered in the proper quantity and at the proper time. It entails assessing the procedures for accepting client orders, planning the production of the goods or services required to meet those orders, and then estimating the time necessary to deliver the goods or services in accordance with the client’s expectations.

4. Service: It takes into account aspects like responding quickly, resolving complaints, and following directions. It is quite challenging to develop service criteria because of all these variables.

A supplier’s service is typically evaluated using subjective evaluations. To do this, feedback must be gathered regarding the level of assistance, supplier attitude, speed of assistance requests, support staff qualifications, etc.

For rating supplier service performance, the majority of businesses use a pretty straightforward scale with descriptions, such as excellent, acceptable, and poor.

5. Financial Strength: It entails assessing the financial standing of a potential provider. In plain English, it refers to determining if a supplier can make resource investments, pay its vendors and employees, and continue to fulfill its debt and financial responsibilities. These elements are crucial in figuring out whether the supply will be interrupted or not.

6. Lead-Time: This is a reliability issue and means the elapsed time from the order being placed to delivery.

7. Technical Ability: This criterion determines how technically advanced a supplier is and whether they will be able to follow the development based on that ability.

8. Flexibility: It’s an adaptability criterion that defines the ability of a supplier to adjust volumes and delivery times as per the client’s needs.

9. Development: It takes into account factors like innovation and improvement that are needed to improve products and reduce costs.

10. Management Approach: This factor is especially crucial for a business wanting to establish lasting connections with its suppliers. These connections are typically made with vendors who supply crucial commodities in large quantities, or those in the critical quadrant. The parties involved must talk about and agree upon their goals and KPIs in order to lay the groundwork for such a relationship. If these connections are made properly, they can open the door to cooperative efforts to develop new products and cut costs.

11. Geographic Location: The proximity criterion is crucial since greater distances can occasionally result in other transportation-, logistics-, and currency-related variations that limit flexibility.

12. Environmental Regulation Compliance: This criterion, which takes into account a supplier’s capacity to adhere to sustainability standards, is quickly turning into a prerequisite for supply chain alliances.

---

Identifying the Key Supplier Evaluation Criteria

It was recommended that businesses group their selection criteria into the following categories:

Mandatory – As the name implies, a supplier must meet certain requirements in order to be included on the bid list.

Preferred – A provider may still submit a proposal even if they are unable to achieve these requirements. However, the selection of suppliers will be based on these factors.

Leading – Attempt to keep these to a minimum. These problems will actually distinguish providers and set the great ones apart from the average ones. The supplier selection procedure should place the most emphasis on these considerations.

5 Tips for Successful Supplier Evaluation

1. To properly carry out their duties, procurement managers must develop scoring criteria that will guide them in evaluating and selecting the suppliers they should work with and keeping them on the list of authorized vendors.

The provider might be chosen based on a variety of factors. These standards, however, occasionally conflict. For instance, pricing and quality frequently do not coincide. As a result, it becomes vital to assign weights to the criteria in order to identify which supplier can offer the best trade-off among all the chosen criteria. It is recommended to select fewer critical criteria rather than a lengthy list, as each will have less of an impact on the final score individually.

2. Certain factors are difficult to evaluate since they can only be qualitatively measured (and not quantitative). These standards are more individualized and subjective. For instance, whereas the cost may be quantified, the quality of the good or service is a qualitative criterion. Direct measurements are impossible. The cost of returning the product, the cost of the services provided after the sale, and other factors should be considered in that situation.

3. For businesses, managing tens of thousands of suppliers across numerous departments is a major burden. By building and maintaining a central database of all the suppliers, it can be successfully overcome. Here, a supplier management tool like Ignite Procurement can help you centralize and auto-populate your supplier data.

4. Choose the person who will be in charge of the evaluation. Usually, a member of the procurement team performs this position, although hiring an analyst for complicated or expensive cases is a good idea. As an alternative, a consultant can assist with some of the laborious parts of the process, such as research, creating the request for proposal (RFP), and doing a financial analysis—some of which may not be available within the company.

5. Setting a deadline is also essential; without one, it may be challenging to complete the hiring and selection processes.

A Quick Supplier Evaluation Checklist

A continual process of supplier evaluation makes sure that your customers and interests remain at the forefront. The steps listed below can be checked off as you proceed through the procedure to make sure you evaluate your suppliers using best practices:

• Conduct regular evaluations of your supplier’s performance.
• Establish supplier evaluation criteria as well as standards, processes, and procedures around it.
• Create a supplier assessment form to standardize your evaluation and make your decisions better, faster, and more strategic.
• Select and classify your suppliers based on your supplier assessment goals.
• Make use of your data and bring facts to your supplier discussions. Also, keep the communication going at all times, especially with your strategic suppliers.
• Use technology to make the best use of the information you have.
• Organize regular conversations with your suppliers to plan and improve on sub-optimal areas.
• Re-evaluate supplier performance based on your established criteria.
• Repeat the process.

---

Executive Summary

Chapter 1: Collect Supplier Data

What is vendor data? Vendor data is any information related to a specific vendor and or vendor process, from researching and sourcing, to onboarding and payment. All information on the vendors your company has onboarded and used is considered vendor data. This includes vendor contracts, contact details and location, purchasing terms, and legal documentation. It comprises gathering all of the details about a vendor that are needed to onboard them, do business with them, and measure performance and related spending.

But usually, vendor data management goes beyond the surface level: at first glance, these look like a list of trivial details…but all it takes is one misspelling, or one incorrect number, location or other seemingly inconspicuous oversight to create a big delay, and that vendor won’t be paid anytime soon, and anyone relying on that work might experience a slowdown.

Ongoing business operations require access to information on vendors for all manner of processes: For example finance managers – the people actually releasing the money to vendors – need to ensure everything is as it should be; other stakeholders have a part to play involving compliance, procurement and analyzing vendor performance. And if there’s even one hitch or incorrect detail during these processes, things can go very wrong.

Amazingly, it really doesn’t need to be that way. Vendor data management solutions should help you automate the entire process, collecting related data to provide you with data-driven reports and dashboards.

It’s time you made the move, and start reaping the rewards for managing your data correctly.

The Benefits of Better Vendor Data Management

Your company’s business decisions should be based on your vendor data’s insights, allowing you to make high-level decisions from an effective, automated vendor data management system.

With correctly managed vendor data, you’ll be able to gain visibility and insight into how much your business is spending across suppliers, contracts and timeframes…all of which can help you make further important (and data-driven) business decisions in the future.

You’ll save time, effort and budget by collecting and maintaining a centralized vendor database, reducing manual, repetitive work – as well as invaluable working time.

Team members will move away from a siloed mentality, and be able to easily access more up to date, workable information; vendor relationships and compliance will be far more easily manageable, thanks to higher-level, data-driven decisions.

---

Chapter 2: Price & Cost Analysis

When businesses can find cost-effective suppliers to meet all of their inventory needs, they can begin creating long-term partnerships to benefit both parties.

Vendor analysis is a criterion in which a company judges a supplier based on their overall production value and efficiency. Businesses can also utilize a cost analysis that provides data on an item’s total cost to determine if its manufacturer price is sensible.

By using these elements as a gauge, businesses can choose new suppliers or consolidate their existing vendors to prioritize those providing the best overall service. Running this analysis periodically ensures that the supplier is still meeting the company’s product fulfillment needs.

Data collected from the vendor cost analysis allows management to determine which manufacturers offer the best product services and costs that promote their bottom line.

Cost Analysis vs. Price Analysis

While often used interchangeably, cost and price analyses are two very different processes.

Price Analysis

The price analysis is the less complicated strategy of the two, solely focusing on the market prices of similar products. The main goal of this method is to determine whether a vendor’s set price for an item is reasonable.

Price analysis for an item can be conducted quite easily by-

• Researching e-commerce sites to find an average online retail price.
• Contacting multiple manufacturers to discuss how they set their prices.
• Asking competitors within the market what they normally pay for a product.

Taking these simple measures can help a company decide whether they should begin a business venture with a supplier or find a seller with better prices.

Cost Analysis

On the other hand, cost analysis considers a good’s overall value through direct and indirect costs. This strategy is more complex as it seeks to break down the value into a comprehensive format. Companies perform cost analyses when manufacturers are unable to provide a direct item cost or are producing a unique product that is not yet offered on the market.

To conduct a cost analysis, businesses must first examine the direct costs of an item, such as:

• Labor wages
• Materials
• Fringe benefits
• Travel

All of these elements are expenses necessary to produce and sell a product, directly affecting its profit margin.

Then, the company must consider the indirect costs, including:

• Advertising/Marketing
• Legal fees
• Repairs
• External labor wages
• Communication
• Insurance
• Taxes
• Depreciation
• Overhead costs

By combining all of the inventory costs associated with an item, businesses can determine if a good’s price tag is reasonable based on its related expenses.

---