Why Do You Need to Conduct a Supplier Capability Assessment?

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A successful supply chain requires multiple parties to work together to meet goals. Perhaps you rely on lean principles to remove waste and improve processes during manufacturing. Doing so makes the enterprise able to maintain high performance while staying within its budget.

You can also apply the lean approach to procurement. Efforts to achieve optimal quality do not rest with a single party. They require each responsible entity to oversee individual aspects that combine for the best possible outcomes. Supplier capability assessments can help you develop accurate expectations about each supplier while understanding which roles they play in meeting your company’s quality goals.

What Is a Supplier Capability Assessment?

Conducting a supplier capability assessment means engaging in a formal process that evaluates a potential or current supplier’s genuine production capacities for a given product or across the timeline of a contract.

These checks also let you apply lean thinking to the procurement process. They enable taking a source-specific approach to quality. You may find weak links and realize that a particular company hinders your progress towards milestones. However, these assessments also allow working with suppliers to collaboratively solve problems before they get out of hand.

When Should You Evaluate Your Suppliers?

A common mistake made by supply chain professionals is that they only feel compelled to formally assess their suppliers once something goes wrong. That’s a purely reactive approach, though. It makes sense to take action once the lack thereof causes adverse consequences. What if you could do things differently and prevent problems from occurring?

Think of supplier assessments as a continual process. In the same way your company constantly strives to improve its operations,  it should adopt the same objective for supply partners. Begin supplier assessments when you learn about prospective companies, and continue them for the duration of your business relationship.

How Does Your Supplier Relationship Affect These Audits?

Supply chain professionals should understand that their reasons for scheduling in-person assessments will vary depending on specifics between the parties involved. For example, people who go on site visits concerning potential suppliers do so to learn more about those companies and discuss business objectives. While assessing a supplier with identified performance issues, in-person visits conveys a sense of urgency that motivates.

Regardless of your specific reasons for checking in with suppliers, remember that such visits are vital for successful partnerships. Emails, images and video chats make it easy to stay in touch, but those options don’t negate the need to be in the facilities and see a supplier’s inner workings.

Which Benefits Can You Expect From Regular and Ongoing Assessments?

Supplier capability assessments require time and financial-based investments. However, they offer you a variety of perks. These include:

  • Spotting problems before they affect your supply chain
  • Making smarter decisions about procurement
  • Assisting suppliers in reducing waste
  • Having more confidence about contract renewals
  • Showing partners that you want to help them succeed
  • Implementing metrics that demonstrate your expectations
  • Verifying that suppliers follow regulatory guidelines
  • Getting assurances that companies can meet your current needs

Assessing your suppliers for the entirety of the relationship also increases trust within all the associated parties. If suppliers are uncertain about whether they meet your needs satisfactorily, they’ll likely feel anxiety that could cause them to show resentment towards your company.

How Should You Begin Performing These Supplier Checks?

Specialty companies exist that can help you formally evaluate your supply partners. Representatives from those enterprises know best practices for various industries, and they schedule on-site visits to get an accurate perspective of what happens at a supplier’s facility.

You’ll get a capability assessment report that suggests what to do with the information acquired from the audit. It includes a list of gaps and risks identified, plus the best ways to mitigate problems. Having those details lets you build an effective plan for gauging how shortcomings affect your company and how you can help a supplier address them.

Which Measurements Belong in a Supplier Capability Assessment?

The aspects examined in a supplier capability assessment may vary slightly depending on your company’s immediate needs and its vision for the future. Knowing which metrics you’ll look at ensures transparency. Suppliers need and want to know what factors go into one of these examinations.

Some of the broad topics encompassed in an assessment could include:

  • Cost
  • Quality
  • Scalability
  • Delivery speed
  • Inventory turnover
  • Response time to queries

Within those subjects, you should choose relevant metrics to track. For example, six sigma is a quality goal based on the number of defects per million. If looking at delivery speed, you might assess how many of a supplier’s deliveries in a given month arrived late.

Build a system so that the supplier knows how they stack up, too. For example, you might have ranges for each category and associated numerical scores. These benefit everyone involved because they show how things change — for better or worse — over time.

How Should You Discuss Evaluation Results With Suppliers?

Several factors influence how to talk about assessment findings with suppliers. How severe are the identified issues? Is this the first time the company posed major risks? Are the problems confined to one department or prevalent throughout the whole organization?

Your initial response may be to focus on all of the identified failures. Try to take a more balanced approach by recognizing where and how a supplier performs well. Give praise as appropriate and specifically call out what impresses you. Make sure the discussion also clarifies the timeframes in which you expect to see improvements. Spell out what could or will happen if a company does not promptly take remedial action.

What Are the Consequences of Not Doing Supplier Capability Assessments?

When the responsible parties feel overeager, pressed for time or unwilling to invest the required money into assessing suppliers, they may decide to go without these checks. Doing that could prove far more costly and damaging than carrying out a supplier check, however.

Imagine a situation where a supplier wooed you with big promises and fancy language but demonstrated an inability to meet standards a couple of months after signing a one-year contract. Those circumstances could hurt your company’s bottom line, plus increase customer dissatisfaction.

Other disasters could happen if a supplier cannot cope with sudden changes that negatively affect its ability to source parts or raw materials. The associated delays could substantially disrupt a schedule or halt your company’s expansion plans.

Do You See Areas for Self-Improvement?

After reading the sections above, it may become apparent that suppliers shouldn’t be the only ones to change. You may have areas to address, too. Perhaps you have not performed a supplier assessment before despite having over a decade of experience choosing and working with supply chain partners. Maybe you’ve struggled to come up with a good system for measuring how close companies come to the level of excellence you want.

Don’t feel discouraged about such shortcomings you may identify. Knowing they exist is the first step to figuring out how to improve your approach. The resultant enhancements could benefit your company and its supply chain partners alike.

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