Supplier evaluation in multi-provider environments: Does it really add value? In many companies that have outsourced IT services, supplier evaluation is often initially considered a low priority. After outsourcing, the initial focus is on establishing effective provider management. Companies generally do not revisit the issue because they do not expect it to be of great benefit. We show that supplier evaluation is worthwhile, how it can be designed, and how the results can be consistently used to your advantage.
1. Limiting the scope of consideration
Supplier evaluation serves to make the performance of a company’s suppliers transparent. It should not be an end in itself. Evaluation is a means of enabling the targeted selection and development of suppliers. In the following, we will focus on the evaluation of IT service providers that have already been commissioned and their development. We do not consider the selection of new IT service providers in this article.
2. Initial situation
If companies evaluate IT service providers at all, they often do so only in the purchasing department and with a focus on criteria that are relevant to them, i.e., primarily commercial criteria. These include, in particular, criteria such as price, adherence to deadlines, and delivery reliability, as well as the handling of requests for quotations. Content-related aspects such as service quality and cooperation, which are essential for provider management, are often not considered at all or only marginally.
3. Goals and benefits
Supplier evaluations can serve various purposes, i.e., the evaluation results can be used for different purposes. Three possible objectives are outlined below:
Figure 1: Objectives of supplier evaluations
Evaluations can be used to optimize the performance of individual service providers. Weaknesses are identified and can then be eliminated, ideally through an established continuous improvement process (CIP). In some cases, training and development measures by the client may also be necessary.
Furthermore, the evaluation can also be used to improve the allocation of services to providers. Ideally, this should be done as part of the annual review of the sourcing strategy. With a view to the entire service portfolio, an assessment is made as to which service providers should take on additional tasks in the future based on their evaluation and development, and which should be reduced or no longer used. In some situations, it is helpful to be able to compare evaluations of service providers. This should support the evaluation methodology.
Another objective is to ensure compliance among service providers. For example, compliance with sustainability rules becomes transparent, as stipulated by the recently introduced German Supply Chain Act or international ESG guidelines. (The evaluation results should be verified and substantiated by supplementary audits at the service provider).
4. Designing the supplier evaluation
The design of the supplier evaluation should be aligned with the desired objectives. What does that mean specifically? The evaluation is not an end in itself, but always a means to an end: it provides data on the basis of which improvements can be initiated. These improvements may be the responsibility of purchasing, provider management, or other departments. Regardless of who is responsible, the assessment criteria must provide the data needed to plan and implement these improvements.
Criteria and their assessment
In principle, both quantitative and qualitative criteria can be used for the assessment. Quantitative criteria are measurable, such as compliance with agreed service levels. Companies can determine the degree to which qualitative criteria are met, such as the competence of the service provider’s employees, by means of surveys, as there is no measurement method available. This is evaluated by awarding points on a predefined scale, e.g., from 0 to 10.
In order to set up the evaluation process quickly, some companies determine supplier evaluations exclusively on the basis of surveys.
We recommend measuring all quantitative criteria as a matter of principle and incorporating the results into the evaluation as automatically as possible. The reason for this is that it significantly reduces the manual effort required for service provider evaluations, as only the qualitative criteria still need to be evaluated by people via a survey. In addition, the results are more objective than those obtained from surveys.
So which criteria should be included? As already mentioned, this depends on what is to be done with the evaluation results. It generally makes sense to derive criteria from the following groups:
Figure 2: Criteria groups for supplier evaluation
Service quality derived from SLA reporting,
i.e., fulfillment of contractually agreed services and service levels,
Cost-effectiveness of external services,
i.e., prices in relation to the market,
Soft facts,
e.g., employee skills, proactivity, flexibility, cooperation,
Compliance,
adherence to regulations, e.g., the General Data Protection Regulation (GDPR) and the Supply Chain Act (sustainability, human rights),
Range of services,
i.e., the service provider’s potential to meet future requirements and take on additional service areas.
Tool support
We have already emphasized above that the effort required to carry out supplier evaluations should be as low as possible. For this reason, it is advisable to create tool support for evaluations that, in particular,
automates as much of the evaluation as possible (especially service levels derived from the data sets of the SLA reports),
provides technical support for surveys so that they can be completed with minimal effort by all participants,
provides comprehensible reports for evaluation at the touch of a button,
and enables trends to be evaluated over several evaluation cycles.
5. Conducting and evaluating assessments
It is important to define a role responsible for supplier assessments that is responsible for the further development of the assessment process, as well as for coordinating the implementation of individual assessments and providing the results to those departments that process them.
The survey part of an evaluation should be answered by selected individuals involved in service use or provider management. Depending on the service, these may include provider managers, internal IT staff, management representatives, purchasing and contract management, as well as customers and users.
The evaluation of the results can also provide input for supplier classification. This also helps with supplier selection for future procurement measures. Possible classes include “preferred suppliers,” “suppliers to be developed,” and “blocked suppliers” (further gradations are possible).
6. Conclusion – Supplier evaluation in IT provider management
Supplier evaluation is a valuable tool for developing IT service providers and the entire service organization. It is important that the evaluation process is set up correctly. In particular, companies should ensure that they have good tool support with extensive automation to ensure that the process and the evaluation results are accepted by all parties involved.
Most importantly, however, the evaluation results should be used for control and improvement measures. If companies only produce attractive reports, then the effort involved in supplier evaluation is a bad investment.
