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How to Evaluate a Vendor

Evaluating a vendor can be an unpleasant and challenging task. If you are dealing with a supplier that is always punctual with deliveries, never shorts shipments, paperwork is in order and provides invoices that match your purchase order pricing then this type of vendor performance review will be enjoyable.

If the vendor ships incorrect materials, seldom meets promised delivery dates and requires constant expediting this will usually mean the performance review will garner a poor rating and will require that a firm message be delivered to ensure corrective measures are taken, result in less business or possibly dropping a supplier altogether. latierrademisamores The evaluation process will help facilitate this process. If you wish to salvage this vendor, you need to employ efforts to assist them in introducing corrective measures.

Most formal vendor rating analysis track vendor performance on quality, price, delivery and service. The following is an example supplier evaluation chart which can be used for recording delivery performance:

Vendor Evaluation Chart

Top Rating_____A.______Meets delivery dates without expediting.

_____________ B.______Requested delivery dates are usually accepted.

Good_________C.______Usually meets shipping dates without substantial follow-up.

_____________D.______Often is able to accept requested delivery dates.

Fair__________E.______Shipments sometimes late, substantial amount of follow-up required.

Poor_________F.______Shipments are late, delivery promises seldom met, constant expediting required.

Price performance of a vendor is easily tracked as discrepancies between agreed to prices and those invoiced by vendors should be quickly discovered and brought to purchasing department attention during the year.

It is the service area which requires the most judgment as service levels are a matter of opinion and does involve input from user departments. To evaluate key vendors you must develop a form of measurement using weights and other factors. More on this later…

Here are some steps to help you with the process of evaluating a vendor:

Steps

Do you homework before calling the vendor for the review.
Commence by identifying a key vendor. Select a vendor that is in your top 20% for number of purchase orders issued. This high volume or big $ vendor is our definition of key. Use the ABC Pareto distribution principle.
Determine your annual spend with the vendor. If statistics are available, check the number of purchase orders issued, including line items per purchase order versus number of shipments required to complete delivery of the purchase orders. Investigate incorrect shipments, short shipments, poor or incomplete paperwork, and so on. Some materials management software allows the buyer to drill down and extract detailed reports which are beneficial to your review process. These tools will make your job easier and provide the back up you can use as part of your evaluation.
Circulate your evaluation form to departments — ask for their feedback and examples of both shortcomings and of good practices. For example, your shipping / receiving department will have feedback on deliveries, vendor returns and so on.
Complete the first draft of the evaluation, reviewing the weights you have placed on specific areas of importance. With some vendors a higher weight may be placed on service levels versus supply of tangible goods. For different product classes, only your organization can ascertain the impact on your organization and the factors, weights to apply.
Review and finalize it with your backup reporting, statements.
Arrange for a time when you are not under pressure and you can dedicate at least 1 hr of uninterrupted time.
Book Boardroom – Perform the review in a neutral environment like a boardroom and avoid your office unless you need access to a computer system. Put the vendor at ease.
Give the vendor the opportunity to respond to each issue and document their response.
Ask the tough questions. Ask vendor how can you improve service levels?
Tell them what they are doing right. Good effort needs to be commended and recorded in the evaluation.
Finish with a review of where you feel they need to pull up their socks, provide a copy of the evaluation and ask them to identify how they can improve in the areas of weakness noted. Your goal is to hopefully improve productivity at both operations. Add complete by dates for action items and ensure you follow up.
All vendors that are important to the profitability of your organization should be evaluated at least once annually.

To evaluate a vendor on all aspects of performance you will need to develop a template which measures all levels of service.

RFQPro.com has a detailed Vendor Evaluation Review with weighted measures. RFQ30 – Vendor Performance Evaluation is one of the most comprehensive vendor performance tools in the marketplace.

RFQPro.com is all about simplifying the procurement process. To check out more RFP or RFQ templates visit http://www.rfqpro.com

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