[Interview]
Shortages, late deliveries and soaring prices... In times of crisis, evaluating suppliers should help you to anticipate risks and negotiate more effectively. But how do you go about it? Where should you start? And what are the results?
In 2022, we thought we could rest easy, the health crisis was behind us. But crises have a nasty habit of coming one after the other... The conflict in Ukraine is leading to inevitable shortages, with around a third of the world's cereal exports directly affected. As a result, suppliers and buyers are being hit hard by shortages of raw materials, delivery delays and soaring prices. In calm times, evaluating suppliers helps to align purchasing strategy with corporate strategy. But in these troubled times, supplier evaluation must incorporate the notion of risk management. So what tools and methods should be used to evaluate suppliers? Jean-Jacques Ruste, an expert in international purchasing and business organisation, answers our questions.
Why is it important to evaluate suppliers?
Firstly, because a large proportion of the risks come from suppliers. The question of supplier evaluation is therefore linked to the notion of risk management. Of course, the context has to be taken into account. Geopolitics is an important factor: the crisis in Ukraine is at the heart of buyers' current concerns. Firstly, because Ukraine and Russia account for a third of the world's exports of raw materials (food, steel, etc.). Secondly, because other countries have decided to stop exporting certain commodities (maize to India, for example). These shortages are having a considerable impact on buyer/supplier relations.
Generally speaking, supplier evaluation corresponds to a strategic vision of the purchasing function. But even more so today, the challenge of this assessment is to manage criticality. In other words, it is a question ofanticipate the risk by assessing :
- its potential seriousness ;
- the probability of it happening ;
- upstream detectability.
Where should you start? What are the assessment criteria?
Evaluating suppliers starts upstream, as it will help you decide whether to work with a particular supplier. The first stage is the RFI (request for information) to find out about potential suppliers. You need to identify your KPIs or key performance indicators.
There are four types of evaluation criteria.
1/ Price
In reality, it's better to look at the TCOin other words overall acquisition cost. This is because, in addition to the purchase price, TCO includes the cost of use and the end-of-life cost.
"Often, buyers are too focused on price.
Many other criteria may be more relevant than the purchase price. For example, it is generally estimated that disputes account for 6 to 7 % of the cost of purchases. So having a reliable supplier is undoubtedly more attractive than a slightly lower price.
2/ Supply chain, logistics, delivery
Indicators can be average delivery times, number of days delivery is late, etc.
3/ Qualitative
The qualitative aspect can be seen from the angle of the corporate social responsibility (CSR) and sustainable development (SD). Buyers should also find out how their suppliers evaluate their own suppliers. Or assess the supplier's communication. Does the supplier provide an organisation chart or a list of contacts?
4/ Services
The supplier may commit to additional services: insurance, confidentiality clause, exclusivity clause, etc.
What role should CSR criteria play?
These are very important criteria. It's important to bear in mind that criticality management and risk anticipation have become increasingly important. strong CSR dimension and sustainable development. Generally speaking, the social and environmental aspects of risk have taken precedence over economic considerations, i.e. the purchase price. Visiting a supplier's factory is not just about checking that they have the right tools and machinery, it's also about the people who work there. It's also, and above all, about taking an interest in the people who work there.
But depending on the business sector, this can be more nuanced. For some, profitability will be a more important criterion. For others, delivery times will be paramount. While social audits of factories seem to be a matter of course in international markets, in France they are anecdotal. Unless your supplier has suppliers abroad... in which case, it's best to investigate.
Evaluating suppliers: yes, but which ones?
We need to assess ovennotstrategic drivers. This means, firstly, the suppliers with whom the company does the most business. Next, the "single-source" suppliers (the only ones who supply a particular good or service). Then there are the medium-sized suppliers who operate in a high-risk sector (space, military). Last but not least, "critical" suppliers, i.e. those who will block the system if they fail to deliver. For example, the maintenance of a high-tech machine. In the event of a breakdown, the factory comes to a standstill...
When should suppliers be assessed?
When everything is going well, the evaluation takes place upstream. Then, strategic suppliers must be reassessed at least once a year. But they are also reassessed in the event of a major problem, such as late delivery or quality defects. The first step is to check the declarative information provided by the supplier. The purchasing department will then re-examine each item of the supplier evaluation form. This may involve a visit to the supplier, who then bears the cost. In the event of a re-audit, the supplier is informed of the points to be improved and the timescale.
What are the results of these assessments?
The assessments are used to establish an overall grade and to classify suppliers. This is the scoring stage. We can even send them this anonymised benchmarking with a view to improvement.
"80 % of suppliers are ahead of you... you can do better!"
Because the better the suppliers, the more they win and the more you win. After all, they deliver quality on time. So they have no rejects. Their employees are motivated... and their customers - the buyers - are satisfied.
Evaluating suppliers also means support them in their progress and ensure a long-term, win-win supplier relationship.
Are there any particular points to watch out for?
Absolutely !
If the supplier does not evaluate its own suppliers, I recommend that the buyer does so. This should be done in complete transparency with the Tier 1 supplier, indicating that you wish to audit tier 2 suppliers. They are also an important source of information for improving the buyer's strategic vision of quality.
Above all, we need to check what we usually call the bottlenecks. In other words, sub-suppliers who can block the whole chain. For example, a supplier who is the only one in the world to produce a product.
But the greatest risk today is the bankruptcy petition a supplier.
To conclude, what should we remember?
Evaluating suppliers gives us a better understanding of their ecosystem and the real cost of production. This is essential if we are to negotiate more effectively, and not just on price.
In the end, supplier evaluation will enable you to better negotiate preventive stock managementIn this way, we are able to offer our customers a wide range of benefits, including shorter delivery times and the introduction of a 'quality wall' on the production line.
It is therefore a question of performance for the purchasing function and for the company as a whole.
