Supplier evaluation and selection is one of the most important factors in the purchasing function of any organization. Proper planning and organizing the list of suppliers can help to improve the efficiency of its supply chain. However, many experts agree that there is no best method to evaluate and select suppliers, and that explains why companies ended up using different approaches. Ultimately, the objective of a proper evaluation process is to mitigate risk and maximize the value to the organization. This articles discusses the key factors for consideration in suppliers selection.
Supplier Financial Stability
Establishing a long-term relationship with the supplier relies on financial stability, before entering into a supplier relationship, the supplier’s financial status should be cautiously assessed. It is an important part of the financial evaluation as this might potentially affect its capability to support the customer. If a supplier’s financial status is not carefully assessed, the customer’s organisation will be at risk from delays, damage to the reputation, loss of profit and time wasted.
Financial statement analysis performs a part in the financial evaluation. In the financial statement, the information includes the management, experience and facilities of a prospective supplier. The purchasing officer can retrieve reports of a supplier’s financial statement, and the policy of pricing by implementing the analysis tools of ratio to the supplier classified balance sheet and income statements. Additionally, a supplier with a good financial status usually can provide a better rate of supplying goods. The purchasing officer can negotiate for good quality material at a lower price, exclusive material or product.
Supplier Quality Manual
Supplier quality is defined as the capability of a supplier to produce goods or services that fulfil customers’ requirements. It is the assurance of reducing risk, complying with regulations, improve the reliability of their products or services and determine their organizational process. A supplier’s service or quality must be in line with pre-established requirements. This is usually achieved through the proper implementation of supplier quality management systems. This allows companies to monitor supply chains, audit materials, conduct inspections and services regularly.