Supplier evaluation process

Supplier evaluation process could be divided into ten steps like illustrated in figure 10. Each step is now described and explained. These steps are mainly frames for practice operation indicating the most important inputs and outputs.

4.2.1 Supplier selection

Supplier selection is the first step. Market area’s supplier candidates are selected to be evaluated to supply product and material to JOT Automation Group Plc. Supplier candidates are selected base on research made cross-functionally in side the organisation securing that expected quality and functionality issues are at the minimum level or better. Supplier selection is a proposal to accept supplier it is not an acceptance. An acceptance can be given after supplier is audited and level of performance stated. The most attractive suppliers are taken in the supplier evaluation process.

4.2.2 Supplier evaluation planning

A potential supplier is found and the supplier should be evaluated to fulfil the requirements expected. JOT Automation Group Plc. can set clear requirements for each supplier depending on the product and material supplied. Requirements include targets for customer service as well as delivery promptness. Supplier evaluation planning starts with the selection of the evaluation tools; in this case they are audit and performance measurement. It is advisable to make an audit first, but in some cases supplier measurement can be started before audit. This is because of audit preparation and audit process needs time. However the audit should be done as soon as possible to reduce risk concerning supply.

In this phase it is also possible to do a rough supplier evaluation. Supplier is contacted and future opportunities and threats are speculated. For example supplier’s geographical location and possible connections with JOT Automation Group Plc.’s competitors should be evaluated and accepted before further steps. Supplier can be rejected, if something unpleasant is found. Audit and measurement procedures are agreed on both sides during this step. Good understanding of mutual benefits between parties must exist.

4.2.3 Supplier audit preparation

Supplier audit preparation includes ten points to take care, see figure 11. These steps are based on Qualitas Fennica Oy’s list of audit preparation. (Qualitas Fennica Oy, 1998, p.1-8)

Step Action Input Result

1 Audit process details Defining audit objectives:

scope, special areas, etc. Target of the audit

2 Contact with supplier Announce supplier

3 Material and information collection from supplier

investigation of the most important material

Suppliers reputation, documents, product features, etc.

Audition plan draft

5 Forming of an audit team Cross-functional audit

team

6 Preparation of audit tools Standard checklist Finalised questionnaire

7 Preparation an audit plan Finalised audition plan

8 Dividing tasks among

audit team Responsible

9 Briefing of the audit team Prepared audition team

10 Last minute changes Ready for audit

Audit Preparation Steps

Figure 11. Audit preparation steps. (Qualitas Fennica Oy, 1998, p.1-8)

Every step includes action, input and result. Inputs are tools, which helps to increase the value of an audit. By having standard tools and procedures to prepare audit, standardises audit process as a value giving routine task as a part of supplier evaluation process. This aims to have similar and comparable results from different suppliers. Good preparation saves time and makes an audit easy and conformable to follow trough.

4.2.4 Supplier audit process

Lead auditor commands the team and selects the audit technique. There are many kind of audit techniques review in the literature. An audit can be done using

downstream, upstream or random method. (Qualitas Fennica, 1998, p. 1-8) Downstream is logical and systematic way to go ahead an audit process. This makes an audit easy to educate and plan. Upstream is logical and systematic as well, but can be started any function selected. After selection process continues like downstream method was described. An advantage is that an audit can be done partly just focusing on the most critical areas. Random method is very flexible and quick method compared with two previous ones. However it is more complicated, so team members should be well prepared and experienced auditors. The audit leader should be able to select right way to approach supplier that important information can be found out.

Audit process goes ahead based on technique selected. Team leader leads the delegation, introduces the team while arriving and goes trough all the main areas of audit. Audit plan is also gone trough and possible corrections or modifications are made. Minor agreements, like lunchtime, are decided as well. Supplier audit process follows the audit plan and it is essential to stay in the schedule planned. If it seems that time is running too fast, minor issues can be skipped, to get more time to go trough the most important issues.

During the audit team members should mark names with who has been in contact with. All the outcomes and important details must be written down. Auditor should ask to get a copy from the tables and graph shown for later observation and reporting. It is also essential to observe general atmosphere of the supplier company, how employees act and talk, what is their attitude towards work and functions internally. General cleanliness and image are important issues and can be sensed during the audit.

4.2.5 Supplier audit reporting

Report is done after audit and it is at least half of the process. This means that without a good reporting and conclusions audits are meaning less. The report should

follow the audit checklist, which can be part of the report and statement and every step should be mentioned and marked if accepted or rejected. Deviations are marked and described and report should include recommendations and conclusions of the audit as well as opportunities, which supplier can offer to JOT Automation Group Plc. Reports must be framed such a way that people who are not involved the supplier audits, can understand it easily and point out most important statements.

Documentation should be done in the way, that reports are easy to reach and can be compared to each other.

4.2.6 Supplier acceptance or rejection

After analysing the results and conclusions of the supplier audit, the supplier is either accepted or rejected to operate with JOT Automation Group Plc. An acceptance is given to suppliers, which can fulfil requirements set at the minimum level. If there where a lot of deviations, acceptance cannot be given. However approval can be given assuming if the deviations are not remarkable and the supplier can provide improvements and corrective actions. Corrective actions should be detailed and exact deadlines should be defined.

Audit checklist includes feature for counting points to supplier. By adding points together recommendation for acceptance or rejection can be seen. This is just a recommendation, final judgement should be done based on wider analysis.

4.2.7 Supplier action plan preparation

Action plans aims to develop supplier relationship as well as supplier itself. Action plan is based on audit report remarks. Also some actions can be done on the most critical factures, like development of customer service. In a principle action points should give to JOT Automation Group Plc. opportunities and security for future times. Supplier better service and support help more gaining competence on tight

markets. Action plan includes corrective actions as well as follow-ups of the supplier development strategy.

Frequently kept regular meetings with a key supplier enables continuous check of improvements and suppliers performance. New actions can be added, if some problems occur, for example in the delivery promptness or the quality issues.

Action plan is important tool in the whole evaluation process. It support audit as well as performance measurement. Investigation of plan should give a clear picture of the state of the relationship.

4.2.8 Performance measurement and reporting system implementation

When supplier starts to supply material and components for JOT Automation Group Plc., implementation of the performance measurement system is done. This means that measurement methods and indicators are explained to supplier and checked that issues are understood. Standard requirements, targets, are agreed and performance measurement can begin. Targets are set individually to each supplier. In practice this means that excel and reporting template for supplier are prepared.

In the implementation step information technology systems should be investigated as well as in the continuous performance measurement and reporting step. Indicators must be modified such a way that data get from the systems can support them.

4.2.9 Continuous performance measurement and reporting

Performance measurement is done continuously and reports are published quarterly.

Information and data are put together and calculation for SPI is made. Each supplier will get SPI after every quarter. SPIs can be compared and suppliers ranked against each other, forming base of Supplier Rating System (SRS).

Suppliers performance should be analysed and trend indicated. Possible deviations and downward trends should be taken under discussion at frequent supplier meetings.

Based to performance cycle in supplier evaluation process continues. Every now and then constructive approach to supplier performance should be made. This means going back to step 6, supplier acceptance or rejection, which is more likely evaluation of the relationship. If relationship can be felt non-value adding, supplier dumping should take under consideration.

Local sites maintain supplier performance measurement system. Purchasing managers handles quarterly reporting and controls purchasers, that reliable information and points are given. Unreliable data and carelessness can lead to remarkable and time-consuming negotiations, which have direct result to the supplier relationship.

4.2.10 Continuous feedback and development

Like all the other system and procedures, supplier evaluation needs continuous development and changes. When something becomes as a routine work in most of the cases it will loose its meaning. Supplier standards, targets, should be updated regularly and the indicators changed according to the changes in the business environment.

Feedback means mainly that work done concerning supplier evaluation should be worth of doing it. It can be sometimes time consuming and seen as a bureaucracy. If there are points or steps, which include problematic features, constructive feedback should lead to process development. Continuous feedback and development support the whole process and each step of it. Supplier evaluation process should support JOT Automation Group Plc. business strategies as good as possible. Evaluation process should add value and gain more competence.

5 SUPPLIER EVALUATION PROCESS AT JOT AUTOMATION GROUP