Blacklisting of Suppliers
Once contract negotiation is over and an agreement is reached, the procurement department should track the supplier’s performance over a period of time.
The supplier performance evaluation should focus on quantitative measures to assess the supplier’s performance in areas of quality, responsiveness, cost, and delivery.
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Supplier performance evaluation is a process of evaluating, measuring, and monitoring supplier performance for the purpose of mitigating risks and driving continuous improvement.
Non-conformance should be taken note of and the costs associated with it should be recorded. Non-conformance refers to complaints regarding poor-quality items, poor delivery, frequent price increases, unethical practices, not adhering to procurement policy and procedures, frequent rejects, poor lead time, labor disputes, poor services, lack of technical knowledge, etc.
These incidences should be recorded against each supplier and as per performance evaluation procedures. Warning notices should be sent as and when required. Recording non-conformance helps in arriving at the total cost of doing business with the supplier, which helps in comparing and evaluating suppliers.
In contrast to supplier performance evaluation, which focuses on supplier management and development, blacklisting refers to a supplier policy that provides criteria for excluding suppliers from doing future business due to serious issues in meeting contract terms.
In general, blacklisting is meant to prevent those suppliers, who are fraudulent and unethical, from bidding for future business (rather than those who fail due to incompetence). Blacklisting is warranted due to wrong acts/cheating of suppliers, not due to unintentional mistakes, and much less due to failure on quality commitments.
Reasons for Blacklisting of Suppliers
The reasons for blacklisting of suppliers could be:
- Wrongful acts
- Intention to cheat
- Misrepresentation of facts
- Unlawful gains
- Unlawful activities, such as non-compliance to regulatory norms, non-adherence to minimum wage laws, violation of child-labor laws, non-compliance to health and safety parameters, etc.
- Not respecting confidentiality terms
- Not following disclosure norms
- Unprofessional and unethical behavior
Reasons for Supplier Suspension
Suppliers may also be suspended, instead of blacklisted, for lesser offenses like repetitive failures on meeting quality and other contractual commitments. Reasons for supplier suspension could include:
- Serious failure in executing any contract
- Repetitive transgression of contract terms
- Frequent quality issues
- Failure to execute after winning orders
- Unacceptable delays in deliveries
- Unsatisfactory execution of the contract
- Repetitive non-performance