Supplier performance evaluation: Lessons from a large multinational organisation

Purpose Progressive organisations are developing proactive supplier-based strategies in order to integrate key suppliers into their processes and systems. The purpose of this paper is to present an approach that helps to identify best performing suppliers and eliminate those that do not add value in order to improve the efficiency and effectiveness of the materials supply chain. Design-methodology-approach This case study focuses on the development of a supplier performance rating tool for a large multinational organisation. The paper presents a profile of the organisation, the problems encountered, the development and implementation of the supplier rating tool and the lessons learned. Findings The implementation of the tool resulted in a 2.9 fold reduction in the number of suppliers from 23,225 to 8,024 and a 2.6 fold reduction in the value of inventory held from $15.24 million to just over $5.86 million. Practical implications Reducing the number and improving the quality of suppliers resulted in increased quality, reduced lead time and a reduction in the number of errors and defects. Best performing suppliers are more closely integrated and can add their knowledge and experience to development initiatives, potential problems can be anticipated in advance and process changes and modifications can be made earlier. Originality-value The paper presents a successful application of a supplier performing rating tool in a complex and demanding environment.