More and more companies are outsourcing large parts of their value chain. As a result, the systematic management of supplier relationships is becoming increasingly important - also from the perspective of corporate social and environmental responsibility. In the following article, DQS expert Altan Dayankac answers the most important questions about sustainable supplier assessments. And he shows eight steps your company should go through to conduct a supplier evaluation under sustainability aspects.
- Success factor supplier management
- Sustainable supplier evaluation - necessity or illusion?
- Supplier evaluation: six questions, six answers
- What does a criteria catalog for supplier evaluation look like?
- Supplier evaluation: An introduction in 8 steps
- Tip: ISO 9001 requirements for supplier evaluation
- Supplier evaluation under sustainability aspects: Conclusion
- DQS: What we can do for you
Supplier Management as a Success Factor
In the face of globalization, companies are increasingly linking their supplier management with the upstream stages of the supply chain. These complex structures require professional management across all supply tiers. From purchasing to the disposal of products and the processing of recyclable raw materials, key decisions have to be made, in particular regarding
- Supplier selection
- Supplier planning
- Supplier integration
- Supplier evaluation
- Supplier development
This makes the correct selection, evaluation and qualification of suitable suppliers the decisive competitive factor in global procurement. The more carefully and sustainably your company handles supplier management, the more benefits will accrue - for your organization, your customers and your suppliers.
This makes the correct selection, evaluation and qualification of suitable suppliers a decisive competitive factor in global procurement. The more carefully and sustainably your company handles supplier management, the more benefits will accrue - for your organization, your customers and your suppliers.
Where the benefits quickly become apparent, however, it is also important to consider security aspects. This applies to industry-specific regulations and criteria as well as national and international legislation. If you add central aspects such as compliance management and risk management, it becomes clear why supplier evaluation with the integration of CSR aspects* is a strategic decision for continued success.
* Corporate Social Responsibility, or "CSR" for short, is the social responsibility of organizations in the sense of sustainable business.
Sustainable supplier evaluation - necessity or illusion?
Organizations that want to evaluate their potential suppliers in terms of sustainability must not only tap into the numerous facets of ecological, economic and social aspects with their many different interpretations, but also understand the structures and mechanisms that prevail in the market.
"Supplier evaluation incorporating social responsibility is a strategic decision for lasting corporate success."
Even though sustainability references and guides focus on a few sources such as those from the ILO, OECD or UN Human Rights Charter, a variety of international sustainability initiatives and standards as well as industry solutions have become established in the markets. Complicating the issue of sustainability in supplier management is the fact that the different standards generally do not recognize each other.
The key questions here are:
- Which sustainability issues are relevant?
- Which individual criteria, methods and tools are suitable for supplier assessment?
- How are the results evaluated?
ILO: International Labor Organization
OECD: Organization for Economic Co-operation and Development
UN Human Rights Charter: Universal Declaration of Human Rights of the United Nations
Supplier evaluation: six questions, six answers
1. What are the benefits of supplier engagement?
The benefits of a sustainable assessment and targeted integration of suppliers into your own value creation processes are obvious: By working closely with your suppliers in a spirit of trust, you can
- Ensure the consistent quality of your products
- Safeguard efficiency in purchasing and procurement
- Guarantee delivery capability and adherence to delivery dates
- Prevent financial damage and loss of image
- Fulfill your social and ecological responsibilities
- Limit risks and compliance violations
- Increase customer satisfaction and customer loyalty
- Strengthen your competitiveness
2. What are the challenges of complex supply chains?
The increasing complexity of supplier markets, as well as multi-layered and transnational supply chains, require ever greater transparency and better integration between supplier and company.
The more global your suppliers are, the more often language and cultural hurdles arise. Likewise, there are legal, normative and customer-specific requirements that must be observed and complied with. The correct selection, evaluation and regular qualification of suitable suppliers is therefore crucial for economic success.
The following points are indispensable for the procuring company:
- Intensively accompany all outsourcing measures
- Determine relevant criteria and key figures
- Continuously initiate improvement processes
- Evaluate the effectiveness of measures taken
3. How do you go about supplier evaluation?
Effective supplier assessments evaluate the overall organizational and technical performance of individual suppliers - based on the current state and with reference to the target state. This includes, for example
- An assessment or evaluation of the supplier relationship,
- A weak point analysis and
- A review of the supplier portfolio, including short-term relief in the event of resource bottlenecks
It is important to determine the individual criteria or a suitable catalog of criteria according to which relevant suppliers are to be evaluated.
It also makes sense to take a systematic approach to risk assessment. Develop a matrix that, taking into account the delivery stage a supplier occupies in the chain, indicates the existing risk and enables prioritization. The prioritization ultimately determines the type of action and various methods. For indispensable suppliers with high risks, an on-site audit of the procuring company is certainly the best choice.
4. What are the benefits of supplier evaluation?
Systematic supplier evaluation provides legal certainty on the part of your company. It limits risks and provides a visible qualification towards your customers. Set a clear supplier evaluation objective, define quality targets and obligations for your external suppliers. This allows potential suppliers to be compared and evaluated. Existing supplier relationships can be further developed and optimized based on the assessment.
Supplier evaluation from a sustainability perspective also shows that you are making sound and continuous improvements to your organization's value creation - and fulfilling your social and environmental responsibilities.
5. What can a supplier assessment with DQS look like?
In our (customer-specific) supplier audits, we take a neutral look at the stability and resilience of your processes and interfaces. We analyze process consistency and process continuity. Furthermore, we support you in the continuous improvement of your internal processes in supplier management and jointly optimize your risk management in order to limit compliance violations. This is particularly important in view of the future German and EU Supply Chain Act and Due Diligence Act.
Supply Chain Act: Current status in Germany
In February 2021, the legislators in Berlin and Brussels presented their ideas for a supply chain law or due diligence law almost simultaneously. It is intended to serve the further development of the international human rights situation by establishing requirements for responsible management of supply chains for certain companies. The drafts are available - read more about it in our Blog.
6. What do you need to clarify before a sustainable supplier assessment?
Together, determine how to proceed and clarify the following questions:
- What are the relevant sustainability requirements for your industry based on?
- Why are CSR requirements imposed on suppliers?
- Who sets these requirements and to whom?
- What options exist for auditing and assessment - what criteria are used as a basis?
- How can compliance with the requirements be demonstrated?
- Which solutions are suitable for your supply chain?
- How can an individual sustainability profile be determined?
What does a criteria catalog for supplier evaluation look like?
A (customer-specific) supplier audit or the assessment of your suppliers under sustainability criteria should ideally be preceded by a so-called materiality analysis. With the help of this method, your company can first determine its own sustainability profile and, if necessary, disregard any CSR requirements that are not relevant. With the analysis of the relevant criteria, the risks and the scope of your organization, an evaluation matrix for your suppliers can be derived.
A two-axis matrix is used: On one axis, the relevance of a topic for the relevant interested parties is plotted; on the other axis, possible effects on (or by) the business. The position of the topic within the matrix indicates its materiality.
Criteria catalogs and concrete fields of action can be derived from the analysis - both for your company and for your partners in the supply chain. Ideally, the results of the materiality analysis will have the same effect as the codes of conduct that large companies impose not only on themselves but also on their suppliers.
Supplier assessment: An introduction in eight steps
To carry out a supplier assessment from a CSR* perspective, your company should go through the eight steps briefly outlined below: from the materiality analysis, which reveals your sustainability profile, to the further development of your suppliers after evaluating the results.
*CSR: Corporate Social Responsibility
1. Determine relevant sustainability topics
The aim here is to find out which sustainability topics are actually relevant for your company in the supply chain. The issues are considered for potential impact for your organization and for their importance for the relevant interested parties (together with them, if necessary). If you enter the result in a matrix whose axes correspond to the two views, you can read off the materiality of an issue from its position.
2. Adapt the code of conduct
A code of conduct can be derived or adapted from the materiality analysis and presented to the supplier for acceptance.
3. Identify and resolve internal conflicts of objectives
The success of a supplier audit depends not least on the resolution of internal conflicts of objectives that may exist, for example, between purchasing (economic interests) and the department responsible for supplier evaluation from a CSR perspective. Agreement on such conflicts should be reached with the participation of all relevant departments.
4. Define evaluation criteria
A risk matrix is suitable for defining and prioritizing these criteria, taking into account all stages in the supply chain. The prioritization determines the type of measures or tools that are appropriate for the supplier audit.
5. Define verification procedures
Once the suppliers have been assigned according to their relevance, the audit or verification procedure and the subject of the audit are determined, incorporating the results from the risk matrix. A Code of Conduct, a self-disclosure to the company or a self-disclosure via an online portal are suitable as a document-based audit.
The assessment based on audits can be done according to either:
- Cross-industry standards (IQNet SR 10, SA8000 etc.)
- Industry solutions (SEDEX, TfS etc.)
- A list of requirements developed by the customer, which contains the topics identified on the basis of the materiality analysis in a company-specific CSR Risk Assessment
6. Winning over suppliers for the selected verification procedure
The successful implementation of measures depends on the suppliers' understanding of sustainability issues, the balance of power and the agreed volume of business. It is therefore important to develop a strategy for supplier cooperation and to clearly demonstrate the benefits of working together, not least in order to be able to answer questions and dispel reservations.
7. Audit suppliers
The subject of the audit is the sustainability topics or CSR standards defined in step 4. The audit is carried out using the method defined in step 5. Depending on the intensity of the audit, it can cover the entire range, i.e., document review, plant inspection, interviews, etc. The audit must be carried out in due time. As a matter of principle, attention must be paid to timely fulfillment of the set requirements by the supplier. This is especially important if the supplier has to become active himself for an inspection method.
8. Monitoring and evaluation of the results
The results from the verifications can be assigned to aspects such as risks, industry, topics, benchmark/best practice, hot spots or countries. The evaluation can be used to further develop the supplier(s). For the evaluation of the results and effective monitoring, the following aspects should be considered, or actions taken:
- Identify deviations (non-conformities)
- Pay attention to problems in emerging and developing countries
- Determine and accompany corrective actions
- Develop escalation process
- Develop suppliers
- Measure progress, discuss results
- Use key figures
Tip: What ISO 9001 requires for supplier evaluation
The internationally recognized standard for quality management also requires measures for dealing with suppliers. Here is a selection of those standard chapters from ISO 9001 that are related to the topics of external suppliers and supplier evaluation:
- Understanding the organization and its context (chap. 4.1)
- Understanding the requirements and expectations of interested parties (Ch. 4.2)
- Measures for dealing with risks and opportunities (chap. 6.1)
- Managing externally provided processes, products, and services (Ch. 8.4 and Appendix A.8)
- Risk-based thinking (Appendix A.4)
Conclusion: Supplier evaluation under sustainability aspects
In supplier management, it is becoming apparent that legislation continues to gain importance as a driver. It is characterized by a gradual transition in the area of sustainability. The development goes from "island" regulations, such as the reporting obligation on non-financial key figures, to the systematic coverage of sustainability issues, especially with a focus on due diligence obligations.
Many voluntary sustainability initiatives and their criteria are also increasingly being replaced by mandatory, verifiable and enforceable regulations. Goals such as those of the United Nations listed in the Sustainable Development Goals (SDG) have a strong recommendatory character. Industry-related initiatives such as Together for Sustainability (TfS) from the chemical industry or data platforms for more transparency in sustainability engagement (SEDEX), on the other hand, are often mandatory for suppliers due to customer requirements.
DQS: What we can do for you
As an internationally recognized certifier for management systems and processes, DQS audits on more than 30,000 audit days per year. Our claim begins where audit checklists end: Take us at our word! We look forward to talking to you and will be happy to show you what the performance and quality of our audits are based on. Namely on
- Competent auditors with integrity and industry experience
- Tailor-made solutions that are appropriate for your organization and your management system
- Targeted identification of potential weaknesses and risks
- Objective, comprehensible results and substantial decision-making aids
- Internationally recognized certificates with high market acceptance
- The follow-up of audit/analysis results including effectiveness checks of measures taken
- Individual development and creation of criteria catalogs and evaluation systems
DQS Supplier audit
Our supplier audits focus on the question: What do the market, customers and your interested parties demand from you in terms of sustainability? Find out. Free of charge and without obligation.