What is it?
The supplier selection criteria approach is a key tool for “New Supplier Identification
and Qualification”. It is used to build supplier profiles and find the suppliers who
match these profiles.
A structured approach is necessary in order to document the supplier selection process and
reassure the company that all its needs have been correctly understood, identified and taken
into consideration.
The supplier selection criteria is a direct outcome of the Voice of the Customer approach.
Second, defining the relative importance of each criterion, and especially the ones
considered as veto (“go / no go” items).
Third, defining a measurement system for these criteria. Document it so that the different
people using it will bring an homogeneous result, i.e. all suppliers will be evaluated against
this profile with the same rules,
Forth, finding the suppliers and measure them against the profile. A special care shall be
taken for the presentation of results, so that anyone can read the supplier evaluation and
comparison without any risk of misunderstanding.
Eventually, the outcome of the selection process can be used as a tool for supplier
development. Some of the results can be shared with potential suppliers in order to show
them where they must improve in order to “pass the qualification process” for future business
with the company.
Tool description
The first step consists in determining the objective of the application; this means the decision
which will be made at the end of the process: choosing a new supplier, demonstrating the
necessity to abandon on currently active supplier, qualifying several suppliers in order to
build a portfolio of authorized sources, etc.
This objective has to be documented, since it will be the reference of the application.
The second step consists in collecting the different policies and strategies, in order to derive
the key criteria.
Each item of the policies and strategies should be written down, and the corresponding
criteria for the selection of suppliers should be expressed. An example is given in the table
next page:
Suppliers have to be larger than 1,000 people Number of employees of the supplier.
Co-activities and co-development are planned, and the supplier R&D capability, yearly investments in product development, activities with our
R&D teams will be involved in our product development teams direct competitors.
Supplier profile
Calculated
Minimum relative
Title Category Weight mark weight
Domain 1 Financial 36%
Criterion 1.1 Financial stability on the long term veto 5 5 11%
1.2 Yearly investments in R&D important 4 3 9%
1.3 Investments capacity (India business development) important 3 2 6%
share of our purchase / total turnover of the supplier veto 5 5 11%
Domain 2 Geographical location 13%
Criterion 2.1 Geographical location important 4 4 9%
2.2 Capacity to source from Far East suppliers secondary 2 1 4%
2.3
Domain 3 Activity 28%
Criterion 3.1 Number of employees veto 5 5 11%
3.2 Ownership of specified equipment important 4 2 9%
3.3 Production capacity important 4 4 9%
Domain 4 Commercial 23%
Criterion 4.1 Price positioning vs. market average important 4 3 9%
4.2 Commercial relationships / policy important 3 3 6%
4.3 Activities with our direct competitors important 4 4 9%
Total 100%
Minimum profile
Price positioning vs. market average Share of our purchase / total turnover of the supplier
Number of employees
The fourth step consists in expressing the ways and formulas to measure the criteria, and
document them in order to guarantee a homogeneous measurement, whoever the evaluator.
The specification of one criterion must include:
• a scale of evaluation (e.g. from 0 – worst to 5 – best); remember that all criteria should
have the same scale of evaluation
• a calculation formula, or a description of the way the mark should be decided
• an indication of the “passing mark”; for example, a veto criterion should be fully satisfied,
meaning that the maximum mark is required, while it is not expected from a supplier to be
the best in class regarding a secondary criterion. This creates a “minimum profile”, as
shown in the following example:
The fifth step consists in evaluating and giving the mark to the supplier.
Basic documentation must be kept to indicate who made the evaluation, and what was the
means used to make it (supplier visit, output from a RFI, output of discussions with key
people and aggregation of perceptions, etc.),
Supplier evaluation
Calculated
Minimum relative Weighted
Title Category Weight mark weight Evaluation result
Domain 1 Financial 36%
Criterion 1.1 Financial stability on the long term veto 5 5 11% 5 25
1.2 Yearly investments in R&D important 4 3 9% 3 12
1.3 Investments capacity (India business development) important 3 2 6% 3 9
Share of our purchase / total turnover of the supplier veto 5 5 11% 4 20
Domain 2 Geographical location 13%
Criterion 2.1 Geographical location important 4 4 9% 4 16
2.2 Capacity to source from Far East suppliers secondary 2 1 4% 4 8
2.3
Domain 3 Activity 28%
Criterion 3.1 Number of employees veto 5 5 11% 5 25
3.2 Ownership of specified equipment important 4 2 9% 3 12
3.3 Production capacity important 4 4 9% 3 12
Domain 4 Commercial 23%
Criterion 4.1 Price positioning vs. market average important 4 3 9% 3 12
4.2 Commercial relationships / policy important 3 3 6% 3 9
4.3 Activities with our direct competitors important 4 4 9% 3 12
Total 100% 172
The weighted result is the Evaluation x Weight. In this example, maximum result would be
235 points (if all the marks in the evaluation were 5 and multiplied by the corresponding
weight).
When the measurement is done, the result for each supplier can be plotted on a radar chart
(the blue area is the profile, the red line shows the minimum profile, and the green line shows
the evaluation of the supplier):
Minimum profile
Price positioning vs. market average Share of our purchase / total turnover of the supplier
Result of supplier
evaluation
Production capacity Geographical location
Number of employees
In this case, the supplier meets the minimum requirement except for:
- the dependency on our business (share of turnover),
- the production capacity, and
- the activities with our competitors.
The sixth step consists in building the comparison table, to be used for the making of the
decision.
Comparison
Supplier A Supplier B Supplier C
Minimum Evalua- Weighted Evalua- Weighted Evalua- Weighted
Title Category Weight mark tion result tion result tion result
Domain 1 Financial
Criterion 1.1 Financial stability on the long term veto 5 5 5 25 5 25 4 20
1.2 Yearly investments in R&D important 4 3 3 12 4 16 5 20
1.3 Investments capacity (India business important 3 2 3 9 4 12 4 12
d
Share lof our purchase
t) / total turnover of the supplier veto 5 5 4 20 5 25 4 20
Domain 2 Geographical location
Criterion 2.1 Geographical location important 4 4 4 16 5 20 3 12
2.2 Capacity to source from Far East suppliers secondary 2 1 4 8 5 10 4 8
2.3
Domain 3 Activity
Criterion 3.1 Number of employees veto 5 5 5 25 5 25 4 20
3.2 Ownership of specified equipment important 4 2 3 12 5 20 3 12
3.3 Production capacity important 4 4 3 12 5 20 3 12
Domain 4 Commercial
Criterion 4.1 Price positioning vs. market average important 4 3 3 12 1 4 3 12
4.2 Commercial relationships / policy important 3 3 3 9 2 6 3 9
4.3 Activities with our direct competitors important 4 4 3 12 3 12 3 12
Total 172 195 169
The last step consists in making the decision planned in step 1, based on the measurement
collected and gathered in the comparison table.
The only point to remember when analyzing those data is not to think in terms of “good / bad”
suppliers, but in terms of “requirements met / not met”.
In the example, supplier C does not meet the veto criteria. It should be eliminated. Supplier A
and B pass the veto criteria and B has a overall result better than A.
Purchasing should be the leader for the collection and the aggregation of the data.
When evaluating a supplier the buyer must keep in mind some limits of the supplier selection
process:
• dynamics of the supplier data, i.e. the selection process gives a static picture of a given
supplier. For example, a supplier with low capacity may be investing heavily to increase it
in the near future.
• global aggregations: suppliers can perform differently on different products, activities,
from different production sites, etc. A detailed comparison has to be drawn whenever
relevant.
Attached tools
See the Presentation of the Supplier Selection Criteria
Go to the Supplier Selection Criteria Tool
See the Supplier Selection Criteria Example