[Interview]
Shortages, delivery delays and soaring prices… In times of crisis, supplier evaluation must make it possible to anticipate risks and negotiate better. But how to proceed? Where to start ? And for what results?
In 2022, we thought we could breathe, the health crisis was behind us. But crises have the unfortunate habit of succeeding one another... The conflict in Ukraine is leading to inevitable shortages with around a third of world cereal exports directly affected. Thus, suppliers and buyers are experiencing the full brunt of shortages of raw materials, delivery delays and price hikes. In calm times, evaluating suppliers helps align the purchasing strategy with the company's strategy. But, in these troubled times, supplier evaluation must integrate the notion of risk management. So, what tools and methods should be used to evaluate suppliers? Jean-Jacques Ruste, expert in international purchasing and business organization, answers our questions.
Why should suppliers be evaluated?
First of all, because a large part of the risks come from suppliers. The question of supplier evaluation is thus linked to the notion of risk management. Of course, the context must be taken into account. Geopolitics is an important element: the crisis in Ukraine is at the heart of buyers’ current concerns. On the one hand, because Ukraine and Russia represent a third of world exports of raw materials (food, steel, etc.). On the other hand, because other countries have decided to no longer export certain foodstuffs (corn in India, for example). This context of shortage considerably affects buyer/supplier relationships.
Generally speaking, supplier evaluation corresponds to a strategic vision of the purchasing function. But, even more today, the challenge of this evaluation is the management of criticality. In other words, it isanticipate the risk by evaluating:
- its potential seriousness;
- the probability of it occurring;
- its upstream detectability.
Where to start ? What are the evaluation criteria?
The evaluation of suppliers begins upstream because it will make it possible to decide whether to work with this or that supplier. The first step is the RFI (request for information) which will allow you to find out about potential suppliers. You must identify your KPIs or key performance indicators.
The evaluation criteria are fourfold.
1/ Price
In reality, better to focus on TCO, that is to say at overall cost of acquisition. Because, in addition to the purchase price, the TCO includes the usage cost and the end of life cost.
“Often, buyers are too focused on price. »
Many other criteria may prove more relevant than the purchase price. For example, it is generally estimated that disputes represent 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
The indicators can be the average delivery times, the number of days of delivery delays, etc.
3/ Qualitative
The qualitative aspect can be considered from the angle of Corporate Social Responsibility (CSR) and sustainable development (SD). The buyer should also seek to know how its supplier evaluates its own suppliers. Or, to evaluate the communication of your supplier. Does it provide an organization chart, a list of contacts?
4/ Services
The supplier can commit to additional services: insurance, confidentiality clause, exclusivity clause, etc.
What place should be given to CSR criteria?
These are very important criteria. Indeed, we must keep in mind that the management of criticality and the anticipation of risks today have a strong CSR dimension and sustainable development. Generally speaking, the social and environmental aspects of risk have taken precedence over the economic, that is to say the purchase price. Besides, visiting a supplier's factory is not just about checking whether they have the right tools and machines. It is also and above all taking an interest in the people who work there.
But, depending on the sector of activity, this can be more nuanced. In some, profitability will be a more important criterion. For others, delivery times will be essential. If, internationally, the social audit of factories seems obvious, the question is anecdotal in France. Unless your supplier has suppliers overseas…in which case, it’s best to investigate.
Evaluate suppliers: yes, but which ones?
It is necessary to evaluate the ovennotstrategic istors. This first means the suppliers with whom the company makes the most turnover. Then, “single source” suppliers (the only ones to provide a good or service). Then, those of intermediate size which operate in a risky sector (space, military). Last but not least, “critical” suppliers, i.e. those who block the system if they do not deliver. For example, maintaining a high-tech machine. In the event of a breakdown, the factory is shut down…
When should suppliers be evaluated?
When everything is going well, the evaluation takes place upstream. Then, strategic suppliers must be re-evaluated at least every year. But, we also re-evaluate in the event of a major problem: late delivery, quality defect. First of all, it is a question of checking the declarative information point communicated by the supplier. The purchasing department will then re-examine each item in the supplier evaluation sheet. This may result in 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 within what time frame.
What is the result of these evaluations?
The evaluations make it possible to establish an overall score and classify suppliers. This is the scoring stage. We can even communicate this anonymized benchmarking to them with the aim of improvement.
“80 % suppliers are in front of you… you can do better! »
Because the better the suppliers, the more they earn and the more you earn. Indeed, they ensure a quality service within the stipulated deadlines. So they don't have any scraps. Their employees are motivated… and their customers – the buyers – are satisfied.
Evaluating suppliers also means support them in an area of progress and ensure a lasting supplier relationship in a win-win logic.
Are there any particular points to watch out for?
Absolutely !
If the supplier does not evaluate its own suppliers, I recommend that the buyer do so. This is a process that must be carried out in complete transparency with the tier 1 supplier, indicating to them that we wish audit tier 2 suppliers. They also represent an important source of information which makes it possible to improve the strategic vision of quality on the buyer's side.
Above all, we must check what we usually call the bottlenecks. That is, sub-providers who can block the entire chain. For example, the one who is the only one to produce a product in the world.
But the greatest risk today is the filing for bankruptcy from a supplier.
To conclude, what should we remember?
Evaluating suppliers allows you to have a better understanding of their ecosystem and the real cost of production. This is essential to better negotiate and not just on price.
Ultimately, the evaluation of suppliers will make it possible to better negotiate preventive stock management, shorter delivery times or even the installation of a “quality wall” on the production line.
It is therefore a question of performance for the purchasing function and for the entire company.
