PLF LAW FIRM

What should be the criteria for supplier evaluation?

The purpose of supplier evaluation is to select a supplier who is best suitable for one’s own business requirements. This ensures that the investor reaches their business goals on time and also ensures that the production and business activities are not affected or disrupted.

1. Quality of products/services provided

One of the primary concerns of the buyer is the quality of the product or service purchased.

For Products, the aesthetics, form, feel, sound, etc. must meet the investor’s own requirements or quality standards. Additionally, product lifetime, duration of use, what percentage of damage in the shipment is acceptable etc. also need to be considered. Checking the samples, already manufactured goods, production lines, and projects of the supplier, and certificates issued by reputable independent parties to the supplier will help investors have a more comprehensive view of the supplier.

For Services, it is necessary to consider the capacity of the personnel directly providing the service. The delivery process and the agreement should be explicit and transparent. The proximity of the service provider is also a factor to be considered by the investor.

2. Legality of the supplier

To decide whether the supplier is capable of complying with the requirements of the business, besides financial capacity, legal factors should also be considered by the investor.

First, investors should check whether the supplier’s industry has been registered with the competent authority. Further, for each special industry, the supplier must possess the required sub-license.

Then, the investor must check the product standards promised by the supplier, some of which are recorded in documents like a registration document etc. These are documents that record the standards which the supplier’s goods should meet.

3. Delivery of the product/service

The performance of product/service supplied by the supplier has a decisive influence on the investor’s business progress. Therefore, the suppliers must have the credibility to provide the ordered quantity of products/services in time.

Some criteria that should be considered are:

• Delivery time: This includes how long the supplier takes to deliver the product/service after the order is placed.
• Supplier’s commitment to deliver the right quantity and quality of goods.
• Supplier’s adaptability and flexibility to the changing requirements of the This is important as the requirement of the investor may change as a result of external factors.
• Supplier must promptly communicate with the investor to discuss any hurdles which may arise and resolve accordingly.

Reviews and testimonial from customers who have previously used the product/service from the same supplier can also be used for supplier evaluation.

4. Price and payment method

The price of the product/service needs to be competitive in the market and stable over time.  Suppliers must notify investors in advance when there is a change in price.

In addition, flexible payment method is an added advantage which may be considered by the investor.

5. After-sales warranty and customer care

After-sales service ensures that customers enjoy the full value and benefit of the product. A supplier with clearly established ‘after-sales policies’ is an additional positive factor. A good after-sales policy may include:

• Helpdesk and technical support services which is included with the product/service purchased. This support service may include technical support for electronic products, machinery etc.
• Online support via email, chat etc. to respond to complaints and handle returns or repairs.
• Investors should also seek opinions on the quality of the support service, the attitude of the suppliers and the response time of the support staff.

Warranty period and process, terms of warranty and maintenance should be considered and recorded in relevant documents.

How to evaluate and choose the right supplier?

A clear and appropriate supplier evaluation process saves time, effort, and costs when transacting with suppliers.

Step 1: Identifying the investor’s needs  and requirements

Investors need to determine their requirements such as:

• What is the product, material, or service to be provided?
• What are the technical standards or regulations?
• Time of delivery of the products or services.
• Budget of the investor.

Identifying these requirements also helps investors decide whether the existing resources of the organization are enough  or an external supplier is required.

Step 2: Search and list-down potential suppliers

Based on the requirements set out in step 1, investors should prepare a list of potential suppliers capable of meeting such requirements.

Step 3: Evaluate the suppliers

Based on the criteria as suggested above by PLF, investors proceed to develop criteria and evaluate potential suppliers. List out the strengths and weaknesses… from which to choose the most suitable supplier for cooperation.

Step 4: Prepare a feasibility report and select the supplier

Based on the collected key information and statistics, the responsible personnel can choose the suitable suppliers and submit to the higher management for review and selection.

To prevent risks, investors can choose a main supplier and an alternate supplier. This helps in ensuring the availability of another supplier in case the main supplier fails to deliver the goods/services.

Step 5: Negotiate and sign contracts with suppliers

The contract with the supplier should clearly show the details of the product, transaction services, regulatory requirements, delivery time, payment period, warranty, claims, and other terms. 

Writing time: 13 July 2021.

The article is based on the current laws at the time of drafting as noted above and may no longer be appropriate at the time the reader accesses this article due to changes in applicable law and specific cases that the reader wants to apply. Thus, the article is for informational reference only.