Supplier appraisal is a significant matter in procurement procedures. Properly done, you will avoid wasting time, money and effort, not to mention embarrassment that stems from awarding a contract/tender to a supplier who, in reality, lacks the technical and financial capacity to handle the work, or who operates under a system of values inconsistent with your own.
“It is, therefore, crucial that you pay attention to your supplier appraisal procedures”, says Moses Manuel, a lecturer in business, legal and development-related studies and Founder of the Zerite Network.
It is worth noting that there are two points to consider when it comes to dealing with suppliers:
– Pre-qualification, which occurs at the pre-contract evaluation stage
– Supplier performance, which falls under the post-contract evaluation stage
Supplier appraisal falls under pre-qualification, the logic being that it ensures that you have a supplier with the potential to perform a contract/tender to the required standards. Be careful to not confuse supplier appraisal with supplier performance appraisal in which the performance of suppliers is appraised.
To assist with conducting supplier appraisal during pre-qualification, Ray Carter came up with the 10 Cs Model that works as follows:
1. Capability/competence: is the supplier capable/competent enough to handle the contract/tender? Here you need to appraise the supplier’s management, their innovation capability, their designs, basically their competence to produce and deliver the kind of goods and services that you require. The assumption is that you know what you require since, at a later stage in the procurement cycle, you will need to use these requirements in order to manage the contract/tender.
2. Capacity: you have to consider whether or not the supplier has the capacity to meet your current and future supply needs. For instance, if you require 5000 units of Product X on a monthly basis, and the supplier can only deliver 2500 units, that means that they lack the capacity to meet your needs even though they could suggest alternatives around this. Here you would need to find out how effectively the supplier manages their own supply chain.
3. Commitment: this will depend on whether you are aiming for a long-term or short-term relationship. In either instance, you would appraise supplier values, such as quality, service or cost management, as these aspects, generally, determine how a relationship unfolds.
4. Control system: if things don’t go according to plan, what are the supplier mechanisms in place to manage risks? You need to be informed here, as there could be some changes in your business context that may force suppliers to change as well: for instance, environmental regulations that affect how you produce your products.
5. Cash: evaluate your supplier’s financial situation, specifically their working capital. Bear in mind that you may not pay them monthly since most businesses tend to pay only after 30/60/90 days, however, you will expect delivery of the given items on a regular basis. So, in short, do they have enough cash to handle this?
6. Consistency: what is their reputation/record when it comes to delivery and improving their levels of quality and service?
7. Cost: this has to do with price and aspects related to whole-life costing. Is there value for the money that they charge?
8. Compatibility: at this point you want to ensure that the supplier’s way of conducting business is compatible with that of your own organisation, e.g. business culture or even how they utilise technology.
9. Compliance: this relates to the environment and corporate social responsibility. Compliance, essentially, encapsulates all external factors that could become an issue for your organisation.
10. Communication: is the supplier a partner that you can count on for support or for assistance with issues in the supply chain? Or are they slow to respond?
Having a list of pre-qualified suppliers is important as it gives you the advantage of knowing that any supplier on said list is approved and capable of fulfilling your requirements. This enables you to simply pick from your list and award the contract/tender.
Moses Manuel has more than seven years’ experience in lecturing business, legal and development-related studies. He is the Founder of the Zerite Network, an educational company that makes it easy for students to access educational materials and to interact with each other, making education available to all. Manuel is also the host of the Zerite Network channel that delivers weekly episodes on business, finance and law.