Supplier Selection and Evaluation Criteria

Supplier Selection and Evaluation Criteria – A Comprehensive CPIM Guide

Why Supplier Selection and Evaluation Matters

Supplier selection and evaluation is one of the most strategically important activities in supply chain management. The quality, cost, reliability, and responsiveness of a company's supply base directly affect its ability to satisfy customers, control costs, manage risk, and maintain a competitive advantage. Poor supplier choices can lead to late deliveries, quality failures, cost overruns, and reputational damage. In the CPIM body of knowledge, understanding how organizations choose and assess suppliers is essential because it underpins material availability, production scheduling, and overall supply chain performance.

What Is Supplier Selection and Evaluation?

Supplier selection is the systematic process of identifying, assessing, and choosing suppliers who can provide the materials, components, or services a company needs at the right quality, cost, quantity, and time. Supplier evaluation is the ongoing process of measuring and monitoring a supplier's performance against established criteria after a relationship has been formed.

Together, these processes form a continuous cycle:
1. Identification – Finding potential suppliers through sourcing research, referrals, trade shows, and databases.
2. Qualification – Screening suppliers to ensure they meet minimum requirements (financial stability, certifications, capacity).
3. Selection – Choosing the best supplier(s) based on weighted evaluation criteria.
4. Ongoing Evaluation – Continuously measuring performance and providing feedback for improvement.

Key Supplier Selection Criteria

The CPIM exam expects you to understand the most commonly used criteria for selecting and evaluating suppliers. These include:

1. Quality
Quality is often the most critical criterion. This includes the supplier's ability to meet specifications, their quality management systems (e.g., ISO 9001 certification), defect rates, process capability indices (Cpk), and their commitment to continuous improvement. Quality problems from a supplier cascade through the entire supply chain and can be extremely costly.

2. Cost / Price
Total cost of ownership (TCO) is preferred over simple unit price comparisons. TCO includes the purchase price, transportation costs, inspection and testing costs, inventory carrying costs, costs of poor quality (scrap, rework, warranty claims), and administrative costs. A low unit price is meaningless if the supplier delivers defective goods or requires extensive incoming inspection.

3. Delivery Performance
This measures the supplier's ability to deliver the right quantity at the right time. Key metrics include on-time delivery rate, lead time consistency, and lead time length. Reliable delivery directly impacts production scheduling, inventory levels, and customer service.

4. Capacity and Responsiveness
Can the supplier handle current and future volume requirements? Can they respond to changes in demand, rush orders, or engineering changes? Suppliers with flexible capacity and responsive communication are more valuable in volatile markets.

5. Financial Stability
A supplier's financial health affects their long-term viability. A financially distressed supplier may cut corners on quality, fail to invest in capacity, or go out of business entirely, disrupting your supply chain.

6. Technical Capability and Innovation
Does the supplier have the engineering expertise, technology, and R&D capability to support current and future product needs? Suppliers who can contribute to product design and innovation add strategic value.

7. Location and Logistics
Geographic proximity affects lead times, transportation costs, communication ease, and supply chain risk. Nearshoring and reshoring trends reflect the importance of this criterion.

8. Service and Communication
Responsiveness to inquiries, willingness to collaborate, transparency in sharing information, and the quality of account management all matter. Strong communication reduces misunderstandings and speeds problem resolution.

9. Environmental and Social Responsibility
Increasingly, organizations evaluate suppliers on sustainability practices, environmental compliance, labor practices, and ethical sourcing. This is driven by regulation, customer expectations, and corporate social responsibility goals.

10. Risk Profile
This includes geopolitical risk, single-source risk, regulatory risk, and supply continuity risk. Diversifying the supply base and evaluating supplier risk management capabilities are important considerations.

How Supplier Selection Works in Practice

Step 1: Define Requirements
Cross-functional teams (purchasing, engineering, quality, operations) define what is needed—specifications, volumes, delivery schedules, and service levels.

Step 2: Identify Potential Suppliers
Sources include existing supplier databases, industry directories, trade shows, referrals, and online research. A long list of candidates is developed.

Step 3: Request for Information (RFI) / Request for Proposal (RFP) / Request for Quotation (RFQ)
- RFI: Gathers general information about supplier capabilities.
- RFP: Requests detailed proposals for how the supplier would meet requirements.
- RFQ: Requests specific pricing for defined items or services.

Step 4: Evaluate and Score Suppliers
A weighted scoring model (also called a weighted-point evaluation system) is commonly used. Each criterion is assigned a weight reflecting its relative importance, and each supplier is scored on each criterion. The weighted scores are summed to produce an overall score.

Example:
- Quality (weight 30%): Supplier A scores 90, Supplier B scores 80
- Cost (weight 25%): Supplier A scores 75, Supplier B scores 90
- Delivery (weight 20%): Supplier A scores 85, Supplier B scores 85
- Technical capability (weight 15%): Supplier A scores 80, Supplier B scores 70
- Financial stability (weight 10%): Supplier A scores 90, Supplier B scores 85

Weighted score for Supplier A = (0.30×90) + (0.25×75) + (0.20×85) + (0.15×80) + (0.10×90) = 27 + 18.75 + 17 + 12 + 9 = 83.75
Weighted score for Supplier B = (0.30×80) + (0.25×90) + (0.20×85) + (0.15×70) + (0.10×85) = 24 + 22.5 + 17 + 10.5 + 8.5 = 82.5

Supplier A would be selected in this example.

Step 5: Conduct Site Visits and Audits
For critical or high-value suppliers, on-site audits verify capabilities, quality systems, capacity, and working conditions.

Step 6: Negotiate and Award Contract
Terms and conditions, pricing, delivery schedules, quality requirements, and performance expectations are formalized in a contract or purchase agreement.

Step 7: Ongoing Supplier Performance Evaluation
After selection, suppliers are monitored using supplier scorecards or vendor rating systems. Common metrics include:
- On-time delivery percentage
- Quality rejection rate (PPM – parts per million defective)
- Cost competitiveness
- Responsiveness to issues
- Continuous improvement initiatives

Results are shared with suppliers during quarterly business reviews (QBRs) or supplier performance reviews to drive improvement.

Supplier Classification and Development

Many organizations classify suppliers into tiers based on evaluation results:
- Preferred suppliers: Top performers who receive more business and may be involved in early design collaboration.
- Approved suppliers: Meet standards and are acceptable for continued business.
- Conditional/Probationary suppliers: Underperforming; given a corrective action period.
- Disqualified suppliers: Removed from the approved supplier list.

Supplier development programs help underperforming but strategically important suppliers improve their capabilities through training, process improvement assistance, and technology sharing.

Single Sourcing vs. Multiple Sourcing

This is a key concept for the CPIM exam:
- Single sourcing: Deliberately choosing one supplier for an item. Benefits include stronger relationships, volume leverage, reduced complexity, and better quality control. Risks include supply disruption vulnerability.
- Sole sourcing: Only one supplier exists (not a deliberate choice). This represents higher risk.
- Multiple sourcing: Using two or more suppliers for the same item. Benefits include risk mitigation, competitive pricing, and supply continuity. Drawbacks include higher administrative costs and potentially weaker individual relationships.
- Dual sourcing: A compromise—using two suppliers to balance relationship depth with risk mitigation.

The Role of Supplier Selection in the Broader CPIM Context

Supplier selection connects to many CPIM topics:
- Master Production Scheduling (MPS): Reliable suppliers enable more accurate scheduling.
- Material Requirements Planning (MRP): Lead time accuracy depends on supplier performance.
- Inventory Management: Better suppliers allow lower safety stock levels.
- Quality Management: Supplier quality is a major input to overall product quality.
- Lean and JIT: Lean systems require highly reliable suppliers with short, consistent lead times. Supplier partnerships are fundamental to JIT.
- Risk Management: Diversified, well-evaluated supply bases reduce supply chain risk.

Exam Tips: Answering Questions on Supplier Selection and Evaluation Criteria

Tip 1: Think Total Cost of Ownership, Not Just Price
When a question compares suppliers on cost, always consider TCO. The cheapest price is rarely the best answer if there are hidden costs related to quality, delivery, or administrative burden. If an answer option mentions TCO or total cost, it is often the correct choice over unit price alone.

Tip 2: Know the Weighted Scoring Method
Be prepared to calculate weighted scores. Understand that criteria weights reflect organizational priorities. If a question asks which supplier should be selected, multiply each criterion's score by its weight, sum the results, and pick the supplier with the highest total weighted score.

Tip 3: Understand the Difference Between Selection and Evaluation
Selection happens before awarding business; evaluation is the ongoing monitoring after. Questions may test whether you know when each process applies.

Tip 4: Remember That Quality Is Typically the Top Priority
In most CPIM scenarios, quality is the most heavily weighted criterion. If you have to guess which criterion is most important in supplier selection, quality is usually the safest answer unless the question specifies otherwise.

Tip 5: Distinguish Single Source, Sole Source, and Multiple Source
This is a commonly tested distinction. Single sourcing is a deliberate strategic choice; sole sourcing means no alternatives exist. Multiple sourcing spreads risk. Know the advantages and disadvantages of each approach.

Tip 6: Connect Supplier Performance to Inventory and Scheduling
Questions may link supplier reliability to safety stock levels or scheduling accuracy. A supplier with inconsistent lead times requires higher safety stock. A highly reliable supplier enables leaner inventory and JIT practices.

Tip 7: Recognize the Importance of Supplier Partnerships in Lean/JIT
Lean and JIT systems depend on close supplier relationships with frequent, small deliveries and high quality. If a question involves JIT, the correct answer often involves partnering with a smaller number of reliable, high-quality suppliers rather than spreading business across many.

Tip 8: Look for Cross-Functional Involvement
Supplier selection is best done by cross-functional teams, not purchasing alone. If an answer option involves only the purchasing department making the decision, it is likely incorrect. The best answers involve collaboration among purchasing, quality, engineering, and operations.

Tip 9: Consider Certification and Qualification
Suppliers with relevant certifications (ISO 9001, ISO 14001, IATF 16949) demonstrate commitment to quality and environmental management. Questions about supplier qualification often reference these standards.

Tip 10: Read Questions Carefully for Context
Some questions test whether you would prioritize cost, quality, delivery, or flexibility depending on the situation. For commodity items, cost may be the primary driver. For critical engineered components, quality and technical capability dominate. For time-sensitive situations, delivery performance and responsiveness may be paramount. Always match your answer to the scenario described.

Tip 11: Understand Supplier Development
If a question asks what to do with a strategically important but underperforming supplier, the answer is usually supplier development (helping them improve) rather than immediately switching to a new supplier, unless the question indicates the situation is unsalvageable.

Tip 12: Know the RFI/RFP/RFQ Sequence
RFI comes first (gathering information), then RFP (requesting proposals), then RFQ (requesting specific pricing). Questions may test your understanding of when each document is used in the supplier selection process.

Summary

Supplier selection and evaluation is a foundational topic in the CPIM exam that bridges procurement, operations, quality, and strategic management. Master the key criteria (quality, cost, delivery, capacity, financial stability, technical capability), understand the weighted scoring methodology, and be able to connect supplier performance to broader supply chain outcomes like inventory levels, production scheduling, and customer service. By applying a total cost of ownership perspective and recognizing the strategic nature of supplier relationships, you will be well-prepared to answer any exam question on this topic.