“Having a clear and scientific criteria and process for supplier evaluation will help investors choose their suppliers quickly and accurately, saving time & costs, and minimizing risk & wastage for the company.“
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.
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.
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.
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:
Reviews and testimonial from customers who have previously used the product/service from the same supplier can also be used for supplier evaluation.
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.
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:
Warranty period and process, terms of warranty and maintenance should be considered and recorded in relevant documents.
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:
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.