What is Vendor Rating Criteria?
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By :: Bapuji
Bapuji Bariki
Bariki
What is Vendor Rating Criteria?
Vendor ratings are a process of measuring the
capabilities and performance of a vendor. These
ratings are part of the company’s vendor
management program. Vendor ratings are
calculated from weighted variables, the most
common being:
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How to conduct Vendor Ratings
The quality of the service: This would cover such factors as
customer service, billing accuracy, quality of the service or
products provided.
Prices and cost of using the service: All companies require
competitive pricing that remains fairly stable so that they can
forecast their future costs.
Adherence to delivery schedules: This includes promptness,
quantity, lead time, packaging and the ability to provide ad
hoc deliveries.
Capability of the business: This includes problem resolution,
technical support and overall service provided
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How to conduct Vendor Ratings
Price rating
Price rating is calculated on comparing the present price
with average/least price for a selected time period.
Quality Rating
Quality rating depends on two factors
Certification (i.e. firm is ISO certified or certified by IRS, ABS,
DQA(WP), DQA(N), PSU, etc)
Quality Acceptance (i.e. Material is accepted during first
inspection or second or third inspection, etc.)
The combination of above factors gives the overall quality
rating of any vendor for particular item.
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How to conduct Vendor Ratings
Delivery Rating
Delivery rating of any supplier is calculated by comparing the actual
delivery with the contractual delivery date. Depending on the number
of days the delivery is delayed with respect to contractual delivery date,
various Ratings have been defined.
Service Rating
Service rating for particular supplier is given by individual project
officer. This rating is given on basis of support rendered by vendor both
pre & post PO including trials, Guarantee period.
Overall Rating
This is a combination of all above factors. Different weight ages can be
given for above four factors out of 100. The combination of all above
factors gives the overall performance of the vendor
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Quality
The quality of the products or goods the vendor supplies is
the main factor. The vendor can maintain good quality by
improving production and having quality planning in
the Supply Chain.
• The supplier should follow the terms and conditions
mentioned in the purchase order.
• The vendor’s products or services must meet the specifications
mentioned in the proposal and purchase order request.
• The product failure rate should be within the appropriate limit.
• The vendor should do proper repair or rework.
• He should provide an adequate time duration for replacement.
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Price
A company always wants to get the materials at less
expense to reduce its manufacturing cost to increase
its profit. Hence the vendor needs to set a
competitive price for his products. It includes the
following things.
• Stable price: The price of the product or service must be stable over
time.
• Accurate price: There should not be much difference between the
purchase order and invoice prices.
• Prior notice about price changes: They should inform about price
changes in advance.
• Billing: They must provide easily readable and understandable bills.
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Delivery
The supplier has to develop the ability to deliver the goods
on a scheduled date. This factor consists following things:
• Lead time: Lead time is between the actual delivery day and order
placement day. The shortest lead time helps to get a good
impression of the supplier. The vendor should deliver products on
or before the promised date.
• Quantity: They must deliver the correct amount of products as
mentioned in the contract.
• Packing and documentation: Packing of the products must be
suitable, studied, and undamaged. The vendor should provide
proper documents along with the delivered products.
• Emergency delivery: The vendor must be able to deliver products
in case of emergency requirements.
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Service
It is one of the crucial criteria for the suppliers. They have to
provide good service by providing an updated catalog, pricing,
technical information, etc.
• The vendor must have the ability to handle complaints
effectively.
• The vendor should provide technical support for installation,
maintenance, and repair.
• The supplier should support in the emergency condition of
product failure or repair.
• The supplier should find the solution to the problem on time.
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Vendor rating procedure
Quality rating: Rate the quality of the product by considering
two factors. They are quality acceptance and certification.
Quality acceptance means material purchased by the vendor
should pass the first inspection level only so that we can
consider that the quality of the product is good.
The material should have some quality certification like
ISO(International Organization for Standardization)
certification, NABCB , IQA, IRS, IRF etc
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Vendor Rating Pprocedure
Price rating: Compare the price of the present vendor with
other vendors and compare the material’s current worth
with the material’s average cost for a chosen period.
Delivery rating: Rate the delivery performance of the
vendor by comparing the actual delivery date with the
predetermined delivery date.
Service rating: Rate the service based on the support
provided by the vendor during post and pre-purchase
orders and consider the warranty period.
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Types of Vendors
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Vendor Evaluation
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Needs for Vendor Consolidation
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Vendor Consolidation
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Vendor Consolidation
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Vendor Consolidation
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Vendor Evaluation Matrix
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Vendor Evaluation Matrix
OM
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Vendor Rating Technique
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Categorical plan
Managers from various verticals list crucial factors for a
vendor and assign performance ratings to each vendor in
categorical terms such as “good”, “neutral”, and “poor”.
They give ratings based on their personal experiences, and
vendors are compared based on the same.
OM
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Vendor Rating Technique
Weighted point plan: Factors are categorized, and weight is
assigned to each factor based on vendor performance.
Cost ratio plan: Supplier rating is based on different costs
incurred for procuring the materials from other suppliers.
The cost ratios are ascertained for the various rating
variables such as quality, price, and timely delivery. The cost
ratio is calculated in percentages based on the total
individual cost and the total value of the purchase.
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Vendor Rating Technique
Eavastons’s vendor selection: Previous
vendor performances are considered for
choosing them.
Forced decision matrix: The attributes of rating like quality,
service, price, reliability of the vendor, and lead time of
supply are identified first.
Then these factors are compared between themselves.
If something is more important, it will be assigned with
one’s weight, and the other will be zero for evaluation.
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Vendor Rating Technique
Service cost ratio:
Subjectively measuring other intangible aspects of a
supplier’s services. Aspects to consider could be labor
stability, financial stability, flexibility in production for rush
orders, research, and development (R&D).
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Vendor Rating Technique
Bell quality rating system: This is developed by the Bell helicopter
company Lot Quality Index(LQI). It assesses lots received against lots
rejected. X/L gives LQI. Where, L = total number of lots received
during the period, X = (L1 x 1.00) + (L2 x 2.10) + (L3 x 2.90) + (L4 x
3.10)+ (L5 x 3.90)
• L1 = number of lots acceptable as received.
• L2 = number of lots rejected by sampling inspection but labeled.
• L3 = number of lots rejected and dispositioned, rework at supplier’s
end.
• L4 = number of lots rejected and dispositioned, returned, not usable.
• L5 = number of lots rejected and dispositioned rework at Bell Helicopter
Company.
• This formula can be modified easily to suit the needs of a particular
company.
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Vendor Rating Technique
• Spectrum quality rating system:
It uses quality costs as the basis for rating vendors.
The formula is VGR=
((Desired cost of inspection)/(Actual cost of inspection)) x 100
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Review of Vendor Performance
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Vendor Performance
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Vendor or Supplier Selection Process
➢First, set performance criteria for the vendor.
For example, consider your vendor’s qualities, the vendor’s financial
condition, complaint history, quality management system, production
process, and product quality. Based on these things, you can establish
the performance of the vendor.
➢List out the vendors who meet your criteria. Now choose your vendor
from that list by considering his services.
➢Keep on evaluating vendors quarterly/ yearly. Periodically do the
audit to monitor the vendor.
➢Depending on the resources available, assign a person or a team to
assess the vendor frequently.
➢Consider the type of relationship that the vendor has with you while
selecting your vendor or supplier.
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Gartner Vendor Rating
➢ Support provided by the vendor
➢ The pricing structure of the product or services
➢ Technology
➢ Strategy
➢ Corporate Viability
➢ Product/Service offered by the vendor
• Strong: Vendors with the best focus, quality products or services,
and a good market position will come under this category. The
customer feels comfortable and shows interest in continuing the
relationship with the vendor. They consider this provider as the best
choice for new investments.
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Gartner Vendor Rating
Positive: Vendors with good focus and quality products/services will
come under the positive category. Customers can continue working
with vendors for planning investments.
Variable: Average vendors will come under this category. The
customer should consider the maturity of the vendor and the short-
term &long-term effects of the relationship.
Caution: Poor service providers will come under this type. The
customer should understand the limitations of the vendor and
eventually plan based on risk and future business effects.
Weak: Vendors with inferior performance will come under this
category. Customers should consider this vendor only for planned
investment and eventually arrange another vendor.
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10 C’s of Supplier Evaluation
10C’s of supplier evaluation is defined by Dr. Carter, who is
the DOSS consultant. In 1995, he wrote an article in the
Journal of Purchasing and Supply Management. In that, he
defined 7C’s of vendor evaluation and added Competency –
How competitive is the supplier?
Capacity – How capable is the supplier of fulfilling
requirements?
Commitment – Is the vendor committed to supplying
expected quality products or services?
Control – Does the supplier have control over policies and
procedures?
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10 C’s of Supplier Evaluation
Control – Does the supplier have control over policies and procedures?
Cash – What is the financial status of the supplier? Are they able to supply
raw materials on time?
Cost – What is the cost offered by the supplier for their products? Is it
worth it?
Consistency – Is the supplier able to provide quality products or services
consistently?
Culture – What is the business culture of the supplier? Is that culture
match your culture?
Clean – Does the vendor follow sustainable practices and green
management rules? Is the vendor’s business ethical?
Communication – What is the communication process? What is the
response time?
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Benefits of Vendor Assessment
▪It helps the buyer understand the vendor in every critical
aspect, and it helps to know whether the vendor is suitable to
deal with. It does not deal with prejudices and word-of-mouth. It
is more dependent on data.
▪It helps the buyers to strike the right kind of communication
required.
▪ It ensures a consistent vendor performance standard with
updated performance reviews.
▪ It helps the buyer identify areas of weakness in the vendor’s
performance and allows the buyer to take corrective actions.
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Thank You!
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