There is no best way to evaluate and select suppliers. This is what many procurement experts agree on. Different companies have different standards and methods to select and evaluate suppliers. But in any case, the goal of the supplier evaluation process is to reduce procurement risks and maximize the value of procurement.

If a company wants to operate and develop, it must choose suppliers to cooperate with. The amount of effort spent on selecting suppliers is related to the importance of the product or service. The process of selecting and evaluating suppliers requires a lot of work and resources. In summary, there are 7 steps.

1. Confirm the need for supplier selection. The first step in evaluating and selecting suppliers is to confirm that the company has a need to evaluate and select suppliers for a certain material or service. Purchasing managers can carry out supplier evaluation and selection based on the expected future purchasing needs. Purchasing should make early predictions about the needs for new product development through early participation. Engineering and technical personnel will provide preliminary technical specifications, but they may not be detailed. With this preliminary information and requirements, procurement can conduct initial potential supplier development and screening.

These requirements include product design and detailed product basic composition, design requirements, functions, scope and purpose of use, project cycle, quantity, approximate R&D cycle table, main responsible technical supervisor, etc. Only by understanding the information of your own products can you find suitable and matching high-quality suppliers. Otherwise, supplier development will become inefficient, delayed, and even full of business risks.

2. Identify key development requirements Through the supplier evaluation and selection process, it is important for us to understand the importance of requirements to procurement. These requirements are determined by external and internal customers in the value chain, and there are different requirements depending on the type of material. Procurement needs to determine what the key selection requirements are, that is, what items need to be evaluated. Of course, the evaluation requirements are also different, but some of the common requirement categories may be the supplier's quality, cost, and delivery performance, all of which need to be evaluated.

3. Determine the procurement strategy. One procurement strategy cannot meet all procurement needs and will affect the supplier selection and evaluation process. Procurement needs to consider the following issues when developing procurement strategies: (1) Single or multiple supply channels? (2) Short-term or long-term procurement contracts? (3) Does the selected supplier need to have design capabilities? (4) Domestic or foreign suppliers? (5) Do you expect to establish a close relationship with the supplier or just a transactional relationship? (6) What kind of procurement strategy will affect the evaluation and selection of suppliers?

4. Identify potential supplier resources. Procurement collects information about potential suppliers through various information sources. The strategic importance and technical difficulty of the purchased product have a certain impact on the intensity of developing suppliers.

5. Lock the scope of supplier selection. According to different materials, procurement first collects various information. However, the capabilities of suppliers are also different. For enterprises, it is unrealistic to use limited resources to conduct in-depth evaluations of all potential suppliers. Therefore, before conducting a formal evaluation, procurement usually removes some obviously unsuitable ones or makes a preliminary evaluation to screen out a list of potential suppliers.

Financial risk analysis: Make a rough financial assessment of the supplier. Companies with poor financial conditions may have potential risks. The financial analysis at this stage is much simpler than the formal evaluation. Procurement can have a general understanding of the financial health of the supplier and can learn some information from the external side, or from Dun & Bradstreet.

Evaluate the information provided by suppliers: For potential suppliers, procurement can ask them to provide some information, send them a request for information (RFI), and do a preliminary supplier survey. Through the information provided by the supplier, procurement can evaluate whether the supplier's capabilities match the company's requirements. Procurement can ask suppliers to provide cost structure, process technology, market share data, quality performance, and other important information to make decisions.

6. Determine the supplier selection and evaluation method After initially screening out some unsuitable suppliers, the next step is to decide how to conduct a formal evaluation to screen out qualified suppliers. This requires us to have detailed evaluation criteria. Of course, there are also various different methods to evaluate the remaining potential suppliers. These mainly include evaluating the information provided by suppliers, visiting suppliers, and using preferred suppliers.

Evaluate the information provided by suppliers

Before signing a contract with a supplier, procurement evaluates detailed information obtained from potential suppliers. This information comes from the previously issued request for quotation (RFQ) and request for proposal (RFP), which is a common method used in procurement in the past.

Many companies will use more direct and in-depth methods to evaluate potential suppliers. For example, more and more companies will require their suppliers to make detailed price breakdowns and itemized quotations when responding to RFQs, including labor costs, material costs, management fees, and profits.

Visiting suppliers

A cross-departmental team of experts will visit potential suppliers. Large companies generally evaluate and select suppliers through a team because they have certain resources. The advantage of a team evaluation is that each person can use his or her unique perspective to conduct a comprehensive evaluation of the supplier. Team members generally have professional capabilities in quality, engineering technology, or manufacturing technology, and are qualified to evaluate suppliers in these areas.

Use preferred suppliers

More and more purchasers tend to include the best-performing suppliers in the preferred supplier list, which can simplify the supplier evaluation and selection process. Preferred suppliers are those suppliers that can consistently meet strict standards. Purchasers can refer to the procurement database to determine whether there is a supplier that can meet the procurement needs. If so, it saves time to evaluate suppliers. Usually, purchasers can also motivate suppliers to make improvements and improve their level by including them in the preferred supplier list. Only those suppliers with the best performance can be included in the preferred supplier list.

External and third-party information

It is a good idea to evaluate suppliers through a third party. You can use Dun & Bradstreet information to ensure that the third-party information is reliable. Using third-party information is a quick and effective way to learn about potential suppliers.

7. Select suppliers and sign agreements The last step in supplier development, evaluation and selection is to select suppliers and sign agreements. These activities will vary depending on the items purchased. For example, for regular purchases, you only need to notify the supplier and send a purchase order to the supplier. For major material purchases, the process is much more complicated, and the buyer and seller need to conduct detailed negotiations to reach an agreement on the details of the purchase agreement.