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Supplier approval: Why it is important & what you need to know

Posted by Bertrand Duteil on 02/02/2017

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As a purchasing company, you have to decide which suppliers fulfill your acquisition standards and to which criteria they have to follow. This process is an important and extensive part of supplier relationship management since it takes place before the very first delivery.The supplier approval can be part of the strategic approval and later used as basis for audits and evaluations. Approval and evaluation are also mandatory for some certifications such as the ISO 9001.

Today we will review the fundamentals of supplier approval and see why it plays an important part in your supplier management.

The approval process can take place for every supplier, regardless of their current role in your company. There are two types of approval processes:

Approval during the supplier selection

Who: new suppliers which have not yet been approved

How: basic inquiry and evaluation of the supplier about their product quality, delivery reliability, price / service ratio or future orientation.

Approval for supplier development

Who: Suppliers already active in your process - especially important for top suppliers

How: To improve your quality management and support your suppliers in their development, the supplier approval can be used to set together targets and development process to optimize production and the mutual business relationship.

In both cases, the approval can be based on supplier questionnaires. The different standards to match are directly asked through questionnaire and the answers compared with the expectations. If every criteria matches, the supplier will receive an approval for buying process.

This questionnaire can also be used as a basis for supplier evaluations and to determine the classification of the supplier according to its importance in the supply chain. During an audit, it can also be used as a basis to set targets and develop follow-up actions aiming to approve a supplier.

Approval status

The approval process is always specific to each supplier according to their importance in the supply chain and the buying process.

The approval status will generally have three different levels:

Approved: The supplier is approved by quality and purchasing department, deliveries can be operated. 

Limited approval: With a limited approval, the supplier can either only deliver a limited amount of goods or only for a limited period of time. It can strategically be interesting for top suppliers which do not fulfill every approval criteria yet. A limited approval gives the supplier a chance, to improve its product quality together with the buying company in order to develop a long term collaboration.

Refused: While the two first levels make transactions possible, a “Refused” approval status will lead to an immediate end of any purchase so long their status has not been changed. In some cases it could be useful to include the supplier in the supplier portfolio and use it later to check the process of the refused supplier again.

Approval through quality management and purchasing departments

Supplier approval generally lies in the hands of purchasing departments responsible for the purchase of every product and service in a company. But when it comes to critical suppliers where quality plays an important role for production and supply processes, Quality management departments can be solicited in the approval process. In some cases, further departments such as logistic or environmental management can also be involved  in the supplier approval process.

During the approval process, quality management will especially check the compliance to quality standards such as the presence of certifications and quality management systems attesting the quality of their products.

Systematic collaboration

During an approval process, it is especially important for every department to have the same supplier data and information, in order to base their choice on the same basis. A central system for supplier data can here be a great support. It can help you share important information within your company, data and documents on each supplier, but also notify the other internal teams of your approval or refusal of a supplier. On the long term, it helps developing a central and systematic supplier management and business collaboration.

 

Do you want to learn more about systematic supplier approval and supplier evaluation? Discover now our different modules and how ecratum can support you with your supplier management. Here you can chedule a free online demonstration:

Click HERE to register for a free online-demonstration

Tags: Insider, tips