Evaluating suppliers: how to balance your gut feel and the numbers
Bijan is a senior consultant and co-founder of Symphony Consulting, a management consulting firm located in Sunnyvale, California that specializes in sourcing, procurement and supply chain management. This article originally appeared in the Symphony quarterly newsletter.
As supply chain and procurement professionals, Symphony Consulting is regularly called upon to evaluate and select suppliers for our clients. This task comes into play in a wide variety of situations—trying to find a new contract manufacturer for an OEM, sourcing a part for a new product, selecting a new service provider for a data center and more.
It’s interesting to see the way people approach the decision making process when it comes to selecting final supplier candidates. We can generally put people in two broad camps: either the numbers people or the gut-feel people.
The numbers people like to translate everything into a grade, average the grades across a disparate set of attributes and let victory go to the highest score. A supplier with an overall grade of 91 must be better than one that gets an 89—right? It is comforting to have an objective way to get a black and white answer. In our experience though, a pure numbers play does not lead to the right answer.
Having an objective way to evaluate suppliers on a consistent set of criteria is good, but the approach generally breaks down when you try to average across attributes. For example, a very high score in an area like Management and Leadership cannot necessarily balance out a poor score in an area like Product/Service Quality. Some people try to fix this by applying weights to different attributes. Again, this is logical and may feel good to some people, but based on our experiences, numbers alone will not lead you to select the right supplier.
Then there are the people who operate solely on intuition or gut-feel. They eschew any type of grading. Even if they play along with some type of numbers based evaluation, they are convinced of their end decisions and may fudge the numbers to get to their desired answer.
Intuition can be a powerful tool. In his book titled Blink: The Power of Thinking without Thinking, Malcolm Gladwell dissects a person’s ability to make highly accurate decisions with incredibly thin slices of experience and gives numerous examples of when a person’s snap judgment has proven to be more accurate than a decision made after careful and prolonged analysis. There are also characteristics that are hard to measure objectively, such as organizational cohesiveness or a sense of whether what you are seeing and hearing is a sell-job or not. The downside of this approach, however, is that it can be hard for a person who relies on gut-feel to explain or quantify their decision in a way other team members can understand. They know what they feel but they cannot necessarily explain why they feel it.
Learning to strike a balance
The best processes include a balance of these two extremes. There should be some structure and analytics when it comes to defining important characteristics, agreeing on a set of questions, establishing a means for measuring competency in those areas and agreeing on how to collect the information (e.g. research, phone calls, meetings, on-site visits, etc.). But, there should also be room for ‘gut feel.’
In our experience, we typically ask participants to record their gut reactions to various suppliers so that we capture their initial feelings. Then, we conduct a more structured evaluation and facilitate a discussion. New information often surfaces as a result of the dialogue, and some people may end up adjusting their scoring or overwriting their initial perceptions. In the end, we share the results with everyone on the team to see. When the numbers and the intuition align, the decision is easy. When they do not, it can be a clue to keep digging.
Visiting a potential supplier
Depending on the type of supplier and the nature of the products or services, it may be beneficial to visit the supplier. There is a wealth of information and signals to pick up on when you see a company on its own turf and in its daily operational mode.
When on-site, make sure to be flexible and follow threads through the organization. Instead of just asking about a Corrective Action process, pull a case from the file and follow it through from beginning to end. This gives you a much deeper sense of what really happens in an organization and you may be surprised what you uncover as you follow the thread to its end.
Choosing the right supplier is important, so take the time to do it right and use a process that values both analysis and intuition. Supplier selection and negotiations is one of Symphony’s specialties, so please get in touch if you’d like help.