Enterprises should cooperate with suppliers in steps. First, enterprises should establish a supplier management system, communicate through meetings, tap suppliers’ potential, improve areas, and improve suppliers’ performance management and contract relationship management. Secondly, enterprises should design and implement procurement processes to improve work efficiency and satisfaction of both parties. Supplier performance evaluation is an important part of supplier management. Procurement personnel usually evaluate suppliers from the aspects of pricing, quality, delivery time and service level, and calculate scores in the form of a percentage system. The weight of each part can be determined according to the specific situation. Evaluation indicators can be divided into two types: quantitative and qualitative. Quantitative means that accurate results can be obtained based on specific formulas or algorithms, while qualitative requires human judgment.
(i) Price Price refers to the price level of supply. To evaluate the price level of suppliers, you can compare it with the average and lowest prices of products of the same grade in the market, and express it with the market average price ratio and the market lowest price ratio respectively.
Market average price ratio = (supplier’s supply price – market average price) + market average price x 100% Market lowest price ratio = (supplier’s supply price – market lowest price) + market lowest price x 100%
(II) Quality Quality is one of the most important factors in assessing suppliers. In the initial stage, enterprises mainly strengthen the inspection of product quality. The quality can be expressed by quality pass rate, average pass rate, rejection rate and exemption rate.
(1) Quality pass rate: If a total of N items are sampled in a delivery, and one of them is qualified, then the quality pass rate = M ÷ N x 100%. Obviously, the higher the quality pass rate, the better the product quality and the higher the assessment score.
(2) The average pass rate is based on the quality pass rate of each delivery, and then the average of the quality pass rate within a fixed time is calculated to determine the quality of the product. For example: In January, a supplier delivered 3 times, and its qualified rates were >90%, 85%, and 95% respectively. The average qualified rate = (90% + 85% + 95%) ÷ 3 = 90%. The higher the average qualified rate, the better the product quality and the higher the score.
(3) The return rate is the ratio of returned batches to purchased batches. For example: In the first half of the year, a supplier delivered 50 batches and returned 3 batches. The return rate = 3 ÷ 50 x 100% = 6%. The higher the return rate, the worse the product quality and the lower the score.
(4) Inspection exemption rate = number of inspection-exempt categories ÷ total number of product categories supplied by the supplier x 100%. The higher the inspection exemption rate, the better the product quality and the higher the score.
(III) Delivery period
The delivery period is also a very important assessment indicator. The assessment of delivery period mainly assesses the supplier’s on-time delivery rate, delivery cycle, etc. The on-time delivery rate can be expressed as the ratio of the number of on-time deliveries to the total number of deliveries.
On-time delivery rate = number of on-time deliveries + total number of deliveries x 100%
The delivery cycle refers to the length of time from the date the order is placed to the date the goods are received, usually in days. Some companies also include the minimum inventory quantity supplied by the supplier that the company must maintain contact with, the level of the supplier’s logistics system, the logistics system (ERP) used by the supplier, and whether the supplier implements “just-in-time procurement” (JIT procurement) in the assessment.
Just-in-time procurement includes a series of contents such as supplier support, cooperation, manufacturing process, and cargo transportation system. Just-in-time procurement can not only reduce inventory, but also achieve the effects of accelerating inventory turnover, shortening lead time, improving product quality, and obtaining satisfactory delivery.
(IV) Service level
The assessment of suppliers’ performance in support, cooperation and service is usually a qualitative assessment. The relevant indicators include: communication methods, feedback information time, cooperative attitude, participation in the company’s improvement and development projects, after-sales service, and other factors.