The Supplier Selection Criteria Approach

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.

The structured approach will consist in:

First, building the supplier profile, by identifying the following criteria::

• company global policy (e.g. supplier commitment to security / conditions of work)
• purchasing global policy (e.g. suppliers in Eastern markets in order to sustain sales and
development in those areas)
• purchasing category / segment strategy (technical criteria, criteria due to the market
situation, etc.)

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.

When and why to use it?

This tool is a decision making support for supplier qualification process in order to
create a “preferred” or “approved” supplier portfolio.

The supplier selection process can be used to:

‚ qualify and select new potential suppliers for future business

‚ “re-qualify” incumbent suppliers
‚ create a portfolio of approved suppliers for a specific category / segment

It is a structured and formalized process which provides:

‚ visibility to the added value of a buyer in the supplier selection process

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 ‚ visibility to the company needs and requirements for suppliers of a specific category /
segment
‚ process for cross-functional workshops for supplier selection
‚ documentation of “New Supplier Identification and Qualification” process

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 approach is based on seven steps:

Step 1 – Define the objective of the application

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.

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Step 2 – Get the policies and strategies

The second step consists in collecting the different policies and strategies, in order to derive
the key criteria.

Mainly, there are three policies and strategies to consider:

• the company global policy and strategy,
• the purchasing global policy and strategy,
• the policy and strategy to be deployed for the concerned purchasing category. The Voice
of the Customer can be an important input for this step.

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:

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 Policies and strategies
Company global policy and strategy
Elements of the policy and strategy Derived criteria
Our company aims a development of activity in India, China and Geographical location of the suppliers. If they are not located in the Far East,
Malaysia. This has to be supported by all functions, including geographical location of their suppliers and/or willingness and flexibility to source
Purchasing (possible offset management should be considered) from the Far East.
Commercial positioning of the suppliers compared to the market average. For
We have targeted a reduction of 20% of our sales price, which is
the active suppliers: commercial policy and commercial relationship with our
decomposed in objectives for design, operations and purchasing
company.

Purchasing global policy and strategy

Elements of the policy and strategy Derived criteria
Existence of a supplier ethical code including rules and processes for the
Suppliers have to commit to respect sustainable development
design, the manufacturing and the purchasing (possibly 2nd tier suppliers audit).
rules: environmental, social, economical
Supplier status (press releases in that domain).

Suppliers have to be larger than 1,000 people Number of employees of the supplier.

Our company shares in the supplier sales should not be higher

Supplier turnover compared to the turnover we would represent for him.
than 25%

Policy and strategy of the purchasing segment

Elements of the policy and strategy Derived criteria
Three suppliers will be chosen, and three to five years
Financial stability on the long term.
agreements will be signed with them

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.

A possible development of one factory in India will be studied,

Financial capacity for investments. Geographical location and/or willingness to
and the supplier can be associated to the building of that
develop business in India.
business

Suppliers should own and run rubber injection presses

Ownership of specified equipment. Production capacity.
(technical specification attached)

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Step 3 – Build the profile

The third step consists in consolidating the list of criteria:

• gathering the different criteria in criteria groups, based on their domain: quality, product
range, financial, company policy, R&D and design, production, sourcing, etc.
• assessing the relative importance or weight of the criterion:
- veto criteria (5 from a scale of 1 – worst to 5 – best):
- clearly defined requirements or performances
- they are "go/no go" criteria, evaluated by "yes" or "no"
- important criteria (3 or 4 from a scale of 1 to 5):
- requirements or performances not necessarily clearly defined (for example:
the minimum level is…)
- they can be compensated by other requirements
- they are used to choose suppliers which comply with the veto criteria
- they are key for relationship development
- secondary criteria (1 to 2 from a scale of 1 to 5):
- requirements or performances that if they are outstanding can compensate a
"important criteria”
- may be used by the buyer to define "market share" among suppliers
- they represent the "extra" features expected by the Voice of the Customer
• consequently allocating weights to the different criteria (i.e. their share in the final mark)
• building the corresponding evaluation profile.

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%

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 Supplier profile

Financial stability on the long term

Activities with our direct competitors Yearly investments in R&D

Commercial relationships / policy Investments capacity (India business development)

Minimum profile

Price positioning vs. market average Share of our purchase / total turnover of the supplier

Production capacity Geographical location

Ownership of specified equipment Capacity to source from Far East suppliers

Number of employees

Step 4 – Express the criteria for the profile

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:

Example of calculation formula:

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Example of descriptive evaluation procedure:

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Step 5 – Measure the criteria

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):

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 Supplier profile

Financial stability on the long term

Activities with our direct competitors Yearly investments in R&D

Commercial relationships / policy Investments capacity (India business development)

Minimum profile

Price positioning vs. market average Share of our purchase / total turnover of the supplier

Result of supplier
evaluation
Production capacity Geographical location

Ownership of specified equipment Capacity to source from Far East suppliers

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.

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Step 6 – Compare the suppliers

The sixth step consists in building the comparison table, to be used for the making of the
decision.

The following table gives an example of a comparison table:

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

Step 7 – Make the decision

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.

The decision should be documented and a review period should be defined.

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Required Resources
A multi-functional team is always necessary to build up a complete profile. However the
existence of a detailed strategy for the management of the purchasing category should give
enough input to draw the supplier profile (provided that the strategy has been elaborated by
analyzing the market and asking all stakeholders in the process their various requirements –
Voice of the Customer)
.
Points of measurement will be found in different functions:
• auditors will evaluate the potential suppliers by visiting them
• current performance will be evaluated by different functions in the company: accounting,
logistics, purchasing, etc.

Purchasing should be the leader for the collection and the aggregation of the data.

Tool Limitations / Common Pitfalls

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

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