Managing procurement spend requires more than just assessing supplies pricing—it demands examining the vendor pool to uncover opportunities for increased efficiency and improved decision-making. Supplier evaluation tools like vendor scorecards or security questionnaires help give procurement a clear view of the vendor landscape. They can also uncover performance and pricing gaps that sap cost efficiency and create more work for teams. 

Knowing how to build or refine a supplier evaluation plan can help you find the best suppliers, improve contract management, and reduce costs. Our free supplier scorecard template provides the framework to get started. 

Download the free tool: Vendor Scorecard Template

What is a supplier evaluation?

Supplier evaluation is the process procurement teams use to assess and monitor a supplier's performance, capabilities, and product quality. Tracking performance metrics ensures suppliers provide competitive pricing, offer high-quality service, and maintain contract compliance. Regular evaluation helps strengthen vendor relationships and drive cost efficiency.

What are the benefits of a supplier evaluation process?

While implementing continuous evaluation of the vendor pool may seem like a big undertaking, proactive management brings significant benefits. Beyond cost savings and streamlined vendor management, monitoring supplier key performance indicators (KPIs) and performing regular lifecycle management can reduce organizational risk, improve communication, and strengthen the procurement function. 

Cost savings: A thorough evaluation process helps identify cost-saving opportunities, such as negotiating better terms or finding more efficient suppliers, improving the bottom line.

Improved supplier performance: Regular assessments motivate suppliers to maintain high standards, fostering a competitive atmosphere that can lead to better overall performance.

Risk mitigation: By closely monitoring supplier activities and capabilities, companies can identify potential issues early on and take preventive measures to mitigate risks.

Strengthened supply chain resilience: Understanding your supply chain's strengths and weaknesses enables strategic decision-making that bolsters resilience against disruptions.

Enhanced quality control: Continuous monitoring and feedback can improve product quality since issues are identified and addressed promptly.

Better supplier relationships: Regular evaluations foster closer relationships with key suppliers, turning transactional interactions into strategic partnerships that offer mutual benefits.

Increased contract compliance: Ensuring suppliers adhere to regulatory requirements and industry standards minimizes legal risks and protects the company's reputation.

Stronger decision-making: Accumulating data over time helps uncover valuable insights that inform procurement decisions like supplier selection, contract renewals, or diversification of the supplier base.

A well-designed supplier evaluation process is instrumental in creating a dynamic and responsive supply chain that meets current needs and adapts to future challenges.

Tool

Vendor Scorecard Template

Objectively evaluating vendors can prove to be a challenge. Download our free vendor scorecard to make the process easier.

Download the tool

The outcomes of poor supplier evaluation

Neglecting supplier management can lead to undesirable outcomes like uncontrolled budgets and reputational risks. However, investing in a supplier evaluation program ensures smoother operations by mitigating these and other common challenges. 

1. Higher costs

Poor supplier management can result in higher procurement costs due to missed deadlines, subpar goods, or services that do not meet specifications. Over time, relying on underperforming suppliers has compounding effects, resulting in missed opportunities for more competitive pricing or better product solutions. Increased oversight from a well-managed vendor evaluation system helps prevent these problems.

2. Reduced product quality

Supplier performance directly impacts the end product you receive. Suppliers failing to uphold quality standards weakens the entire supply chain, leading to defects, inconsistencies, and delays. With a well-managed system, you can spot issues and course-correct before they affect the supplier relationship. Managing quality with a collaborative approach also benefits suppliers, providing insights to help them improve quality performance for all clients. 

3. Supply chain disruptions

Delays are a part of life, especially in stressed supply chains. However, when supplier-side issues become common, it may be time to evaluate the contract or end the business relationship. Inadequate vendor oversight can result in delayed shipments, inconsistent quality of goods, and a breakdown in the trust and reliability essential for a smooth supply chain operation.

4. Compliance issues

While companies should expect contract compliance from suppliers, monitoring is crucial to maintain standards. What gets measured gets managed, so creating a routine contract and supplier performance monitoring program brings the necessary attention to maintain high compliance and strong communication regarding vendor expectations. 

5. Third-party risk

Third-party risk is a perennial concern for procurement teams, especially considering that over 60 percent of organizations had a third-party breach or security issue within the past 12 months. Without a supplier onboarding and vetting process, companies may unknowingly increase their risk profile. A solid oversight system helps prevent operational disruptions, legal issues, and reputational damage. It also creates a point of communication between buyers and suppliers to keep relationships strong. 

6. Extra effort

Efforts to save time by skimping on the vendor analysis process often prove counterproductive. Ironically, the time teams try to save is frequently redirected toward addressing issues that arise due to poor management—issues that could have been avoided. Proactive management can help prevent countless hours wasted researching problems, ironing out compliance issues, or addressing quality defects. 

Every organization encounters some of these challenges, even with monitoring. But a proactive approach can greatly reduce the incidence and severity of issues that lead to extra costs or delays while providing the visibility to respond to and remedy them.

Why supplier evaluation is critical for business success

With over 3,000 residential and commercial units across 12 locations, the vendor management process for Clinton Management is naturally complex. Since spend control and visibility are top priorities for the property management company, it partnered with Order.co to consolidate its vendor pool and simplify the AP process for hundreds of invoices. 

With Order.co, Clinton was able to meet its goals for a more streamlined, cost-efficient procurement process: 

• The company automated 100% of its offline vendor ordering process, cutting down on manual tasks while capturing full transactional data.

• Clinton consolidated 109 vendors for a more streamlined procurement process that takes full advantage of discounts and efficiency.
• The AP team consolidated 100% of its invoice payment into a single monthly payment across vendors.
• Clinton used strategic sourcing to save over $1,200 per month on purchasing.

With the help of a streamlined vendor evaluation system and a comprehensive purchasing platform, Clinton was able to save money and frustration while serving the needs of its distributed locations.

How to evaluate supplier cost efficiency and performance

Beyond the immediate allure of cost savings, there are many factors to consider when it comes to measuring overall vendor performance. Comprehensive evaluation includes context regarding quality, reliability, compliance, and sustainability. These evaluation criteria collectively influence not only the direct financial outcomes but also the long-term strategic approach to procurement. 

Consider the following factors when building or refining a supplier performance evaluation plan or vendor scorecard:

• Market benchmarks: Compare prices of similar products or services from multiple suppliers to ensure you receive competitive rates.
• Total cost of ownership: Look beyond the initial purchase price at all costs associated with procuring, using, and maintaining a supplier's goods or services over their lifetime.
• Quality vs. price: Determine the balance between the quality of the products or services and their prices to ensure cost-efficiency does not compromise product standards.
• Warehousing and shipping costs: Track how effectively and efficiently a supplier fulfills orders, including accuracy, lead times, and responsiveness to changes or issues.
• Contract terms: Evaluate the supplier's payment terms for opportunities to improve cash flow through extended net terms or discounts for early payment.
• Future scalability: Consider whether a supplier’s pricing model is sustainable as your business grows and if they can accommodate increasing demands without significant cost increases.
• Available discounts: Negotiate discounts based on volume purchasing to reduce per-unit costs when buying larger quantities.

Taking a holistic view of each supplier relationship helps procurement leaders evaluate and enhance cost efficiency and operational success.

Tool

Vendor Scorecard Template

Objectively evaluating vendors can prove to be a challenge. Download our free vendor scorecard to make the process easier.

Download

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How to set up a basic supplier evaluation system

Supplier evaluation can be a simple process if you build the right system to support it. While evaluation programs often evolve with procurement's needs and volume, you can get started by codifying what you want to achieve, creating a rubric to score vendors, and tracking KPIs that align with organizational aims. 

1. Think about challenges and goals

Establishing clear supplier and procurement goals helps teams understand current challenges and choose achievable goals. Examples include reducing costs, ensuring product quality, promoting faster delivery timelines, and fostering strong supplier relationships for mutual growth. These objectives guide the selection process and help reveal the performance levels of current suppliers against set criteria. 

2. Adopt a grading system or scorecard

Adopting a vendor scorecard, Kraljic matrix, or weighted decision matrix allows procurement to systematically evaluate each supplier based on established, standardized criteria such as cost, quality, delivery time, and reliability. This approach provides a transparent method for comparing suppliers' capabilities and making informed decisions. 

For instance, the Kraljic matrix helps identify strategic suppliers and manage risk by classifying supplies into categories like leverage, strategic, bottleneck, and non-critical. The tool enables procurement managers to focus efforts where they are most needed, ensuring efficient and effective resource allocation and optimized supply chain operations. 

Looking for a simple way to get started? This free vendor scorecard template offers a straightforward approach to evaluating vendors. It's also easy to customize to meet your company’s specific goals. 

3. Establish and monitor KPIs

To build effective KPIs, align them directly with your procurement goals. For cost reduction, track metrics like average cost savings per purchase. To measure supplier reliability, monitor on-time delivery rates and assess quality via defect rates in received goods. Review your selected KPIs regularly to ensure continuous improvement that fosters strategic supplier partnerships aligned with organizational objectives.

Best KPIs for supplier evaluation 

Selecting the right KPIs is the best way to accurately assess supplier performance. To choose which KPIs to monitor, start by identifying critical performance areas that directly impact your operations, such as cost efficiency, quality, and delivery timeliness. Then, select specific, measurable indicators that accurately reflect these priorities.

Consider these categories and data points when selecting supplier assessment KPIs: pricing and costs, delivery and logistic efficiency, quality, and contract compliance. 

Pricing and costs

• Pricing against market benchmarks
• Purchase price variance (PPV)
• Procurement ROI
• Cost avoidance
• Cost savings 
• Volume discount percentage
• Cost to service 

Delivery and logistic efficiency 

• Cost of delivery
• Delivery exceptions
• Order lead times
• Order accuracy
• Stockouts and substitutions

Quality

• Damages and replacements
• Return shipping costs
• Percentage of defects
• Item quality scoring

Contract compliance 

• Contract compliance rate
• Security questionnaire rating
• Third-party risk profile
• ISO or other standards compliance

How Order.co simplifies supplier evaluation

Order.co gives buyers the information and technology necessary to centralize the supplier evaluation process. This enables improved vendor quality, enhanced supplier enablement, and streamlined procurement management—all while saving your business time and money.

If better supplier management can help your company meet its efficiency and cost-saving goals, start your evaluation process with our vendor scorecard. To learn more about using the platform to strengthen your supplier relationships and build more effective and cost-efficient procurement, get a demo of Order.co today.

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