Lean Supplier Evaluation Checklist

Lean Supplier Evaluation Checklist

For most manufacturing companies, purchased material composes more than half of their cost of goods sold (COGS).  In other industry segments the percentage can be even higher.  And cost is only a portion of the impact that suppliers have on our ability to compete: Quality, Responsiveness (lead time), Reliability, and other parameters are also critical.

When addressing supply chain issues with clients, we utilize the following checklist, along with other tools, to help guide our improvement efforts.  We hope you find it beneficial.

If you would like help in applying this, or the other tools provided in this web site, give us a call.  When correctly used, the payback can be enormous.

    1. What portion of our total product cost (COGS) does purchased material represent?


    1. How are our procurement / purchasing people measured & rewarded?  Raw material inventory levels?  PPV (Purchase Price Variance)?  Other?  Do their measurements align with the supplier’s measurements?


    1. Have strategic suppliers been identified?  What is the criterion?


    1. Number of suppliers for each commodity?


    1. What are the current supplier performance metrics?  How measured?  Frequency of feedback?  Any penalties / incentives?
      Delivery performance:   To what tolerance window?  Penalties for late?  Goals to improve?
      Quality:   How measured?  Goals to improve?  Are any failures, found in production, tracked?  Included in %?
      Supplier Lead Times:   Stable, or floating?  Goals to reduce?  Goals to stabilize?
      Cost: compared to market?  Recent competitive quotes?  Frequency of review?
      Working relationship:   Ease of doing business?  How measured?  Incidents recorded?
      General:   Supplier solvency, Risk assessment, etc.


    1. What is our current Days of Supply for purchased material / components?  Why?  What would we need to do to cut it in half?  How well does our internal “days of supply” (on-hand inventory) correlate to the supplier’s demonstrated lead times and reliability history?


    1. Is permanent inventory reduction sufficient justification for capital spending?  For expense items?


    1. What percentage of our plant’s missed deliveries is caused by late or bad parts from suppliers?


    1. Are the measures and expectations set for corporate approved sources in line with the objectives of the individual operating units / plants?


    1. When was the last on-site process analysis done for strategic suppliers?  Are regular reviews scheduled?  At what frequency?


    1. Is there a policy on the maximum percent of each supplier’s business that we should represent?


    1. Do the suppliers measure their internal on-time completion performance?  Do they have goals to improve?  Do they have a process to force improvement?


    1. Do key suppliers reserve capacity for customer demand fluctuations, if appropriate?


    1. Do we request that key suppliers reserve capacity, and produce JIT? Contractually?


    1. Supplier: Number of shifts in operation? Days of operation?   Opportunity to cut lead times?


    1. Are payment terms used as a carrot / stick to encourage supplier performance?


    1. Is the supplier make-to-order?


    1. Is the supplier stocking parts for us?   Basis for the amount stocked?  Location?  What are our contractual obligations to consume them, i.e. what are our downside risks?


    1. What is our order policy in terms of lot sizing?  What frequency of delivery?  How are shipments triggered?


    1. What are the limitations in terms of delivery frequency?  Can we get to daily deliveries?  Multiple deliveries per day?  To the point of use?


    1. Suppliers: Are World Class quality systems in place?


    1. Does the supplier do an adequate job of capacity planning?  Can they handle a surge in business?  How?


    1. Are order entry disciplines in place, i.e. the supplier does not accept orders in excess of their demonstrated capacity?


    1. Suppliers: Do all of their internal critical skilled people have adequate trained backups?


    1. Suppliers: Critical equipment:  Are there backups?  Adequate spare parts?  Is there a recovery plan in case of failure?


    1. Is the supplier’s management team stable?  Management competency?


    1. Strategic Suppliers: Any threat of unionization?  If so, do we have a protection strategy for risk of interruption of supply?


    1. Is the supplier stable, i.e. Solvent?  Is the supplier a candidate for acquisition?


    1. Does the supplier utilize lean concepts throughout?


    1. Does the supplier have a systematic process to enforce on-going continuous improvement?


    1. Has the supplier’s processes been certified for quality?  If not, has a plan and schedule been established to do so?


    1. Has a supplier disaster assessment been done: Flood, hurricane, fire, etc?  Are recovery plans in place?


    1. Does the supplier have adequate insurance coverage?


    1. What risk mitigation strategies are in place for any union suppliers?


    1. Frequency of pull-ins, push-outs requested by us, the customer, i.e. are WE causing some of the delivery problems?


    1. Do we share our long range plans, including demand projections, with our key suppliers?  If not, why not?


    1. Percent of purchase currently on VMI (Vendor Managed Inventory)?  Consignment?


    1. Have we done a recent make/buy analysis for possible “make internally” items?


    1. Are key suppliers involved, early on, in NPI (New Product Introductions)?


    1. With what frequency do we do price comparisons?  Is that adequate?


    1. Supplier location proximity?  Percent within four hour distance?  1 day drive?


    1. Critical sole-source suppliers: Are there mitigating strategies in place?


    1. Freight cost & risk analysis.  When last done?


    1. Transportation: Are we adequately utilizing: Milk runs?  Back hauls?  Consolidation?  Single sourcing?  Local sourcing?  Use our own trucks?


    1. Supplier packaging / cost of de-trashing: Opportunities?  When last analyzed?


    1. Terms and Conditions (T’s & C’s):  Adequate?  Last reviewed?  Is intellectual property protected?


    1. Have all suppliers been provided with the latest Terms and conditions?  Are T’s & C’s included with each PO?  How are updates communicated?  Are they available on line?


    1. Internal failures due to a vendor part: Is the data captured?  How?  Accuracy?  % Returns?  Penalties?  How communicated to the supplier?


    1. Do we have any suppliers on long term contracts?  Who?  Why?  Terms?


    1. Cancellations / Volume Reductions: Are there any supplier penalties? Contractual limitations?


    1. Blanket Orders: Are cancellation terms clearly specified?   Does it include the supplier’s Raw material?   WIP?  F/G’s?  How are they determined?  How are they verified?  When were they last reviewed?


    1. Can we hold, or fund, the raw material for our supplier, and have them produce Just In Time?


    1. Do we use “column pricing” i.e. price based on the quantity per individual buy or delivery?  Or, are prices determined by annual “total volume” type agreements?


    1. Have we done any hedging for commodity price fluctuation; e.g. indexing?  What / where are we at risk?


    1. Are we taking adequate advantage of buying from distribution (for small lot, short lead time purchases)?


    1. Are all core competencies (competitive differentiators) being kept in-house?


    1. What supplier kanban triggers are in place?  Are they adequate?  Percent failures?  How measured?  How are these triggers adjusted for changes in sales volumes?


    1. What portion of procurement requires incoming inspection?  Do we do 100% inspection, or sample?  Basis for sampling plan?


    1. Do we have a schedule to move from incoming inspection to certified parts / suppliers?


    1. Lead time through Receiving?  Receiving Inspection?


    1. What percent of purchased parts and materials are on replenishment systems?  To the point of use?


    1. How are engineering revisions controlled?


    1. Do we receive on the “off” (2nd or 3rd) shifts?  Evenings?  At night?  Weekends?)


    1. What is the amount of delay between receipt of material and “available for production”?


    1. What supplier lean tools would need to be implemented in order to cut lead times in half?  By 90%?


    1. Amount of excess / obsolete raw material inventory?  % of total?  Plans in place to reduce?


    1. Root cause analysis done?  Plans in place to eliminate?


    1. Do we have all procurement categorized by ABC codes?  Definitions?  Stocking rules (days of supply) for each category?  How well does our actual days of supply compare to these targets?


    1. Lot sizing / re-order quantity rules?  Why?  Plans to reduce?


    1. Has a “bottoms up” costing been done for purchased “A” items?  How often updated?  Is this data utilized in price negotiations?


    1. Who actually makes our sourcing decisions?  Criteria?  How often reviewed?


    1. What is the criteria for “Dock to Stock” parts?  Dock to Line?


    1. What percentage of discrepant parts / material is accepted “Use As Is”?  Is this data utilized to re-assess purchased part specifications?


    1. Are ordering rules (min-max levels, order points, lot sizes, etc.) regularly reviewed?


    1. Do our buyers have written procedures?  Are they being followed?  When / how reviewed & revised?  By whom?


    1. Are any of the procured parts / commodities suitable for aggregation (pooling purchases with other purchasers, typically via a third party aggregator)?


    1. Our internal skilled individuals: are their adequate backups?  Trained?  Do we use job rotation to retain the skills?


    1. Payment terms: Any pre-paid items?  Progress payments?  Pay on receipt?  Pay on usage?  Adequate controls?  Review process?  How well are the negotiated terms being followed?


    1. Our purchased product specifications: Are they accurate?  Complete?  NOT over-specified; i.e. costing the vendor for non-essentials?  Have specs been reviewed with the strategic suppliers for cost / quality improvement opportunities?


    1. Has a supplier day been held?  When? Are our expectations clearly understood?  Is another supplier day planned?


    1. With what frequency, and discipline, do we conduct on-site reviews of our “A” suppliers?  Is this frequency adequate?


    1. With what frequency do our “A” suppliers visit us, on-site?  Who (position) attends?


    1. Is traceability a requirement?  How is it being handled?


    1. Do we provide (own) any raw material for our suppliers?  How is it verified / audited?


    1. Overall supplier plant impressions: Are trip reports retained?  Are action items recorded and followed up?


    1. What are our customer’s in-house days of supply of our product (their raw material)?  Why?  What can we do to reduce this amount?


    1. Is it standard practice that all receiving / receiving inspection to be completed “same day”?


    1. What is our inventory accuracy?  How is it measured?  Do we cycle count?  On the off shifts?  How is corrective action handled?


    1. Do we use MRP / ERP?  Order point?  Min-Max?  Replenishment?  VMI?  What disciplines are in place?  Are procedures written?  Training process established?


    1. Do the buyers have written procedures?  Are they being followed?  When / how reviewed & revised?  By whom?


    1. Of the supplier’s total lead time, what percent is production time, i.e. value added time?  Does the supplier have internal goals to reduce the non-value add time?


    1. Have we offered to help our key supplier’s in “leaning” their own operations?


    1. Do shipments (or production completions) of our products automatically trigger replacement material buys?  Is this technique applicable in our market?


Over the past twenty years of helping companies compete, a powerful Lean Supplier process has been developed.  It has been proven to generate large amounts of cash through permanent inventory reduction, while dramatically improving supplier lead times, delivery performance, and overall Cost of Procurement (which encompasses price, cost of quality, hidden wastes like packaging and freight, etc.)

Contact us for a risk free assessment of your supply chain:

The Hands-On Group
fax: 407-290-1441

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