<< Introduction

Supplier appraisal is the evaluation and monitoring of supplier capability to ensure successful delivery of commercial outcomes. It is an essential part of strategic sourcing, supplier management and securing competitive advantage. It is best considered in two phases, pre-contract and post-contract – often referred to as contract management.

A. Why is appraisal important when choosing suppliers?

The main reason for using supplier appraisal is to avoid appointing a supplier only to discover at a later date issues that mean the supplier does not perform well enough or could cause major problems. This is especially true where such issues could have been identified before appointing. Conducting checks – or due diligence – on your potential supplier does not guarantee there won’t be any future problems, but it will help reduce the chance of them arising.

Unknown suppliers pose a significantly higher risk. Although they may turn out to be much better than first thought, they could also be a lot worse.

Choosing the wrong supplier can lead to:

• Excessive or unexpected price increases;

• Delays in provision;

• An inability to provide the right standard of services;

• Having little influence with the supplier because they have more important customers that they prioritise;

• A supplier being too large or too small for the services you need, which can mean it is out of sync with your organisational culture;

• Problems as a result of communication or cultural differences if the supplier is based in, or provides goods and/or services from, territories far from where you are based

If disputes arise that cannot be settled then litigation can ensue. Legal action always causes disruption and absorbs resources that detract from contract performance.

There are major problems with litigation, summarised on the next page.

B. When to appraise

Not all suppliers will need to go through a full appraisal process, particularly where the goods and services provided are ad hoc, short term, low value, can be cancelled quickly and cheaply or are easily replaceable. Such an appraisal process is usually used if any, or a combination, of the following contract conditions exist:

• High value;

• Highly complex;

• Long term;

• Business critical;

• Likely to affect reputation;    

• International in nature;

• It would be difficult to change suppliers;

• The market has a limited number of suppliers.

>> The problem with litigation