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5CMS MODULE II .....

The document outlines the process of supplier selection and evaluation, emphasizing the importance of assessing vendors based on production capabilities, financial position, technical capabilities, and other conditions. It describes various methods for vendor rating, including categorical plans, weighted point methods, and cost ratio methods, with a focus on quality, price, and delivery. The document provides examples of vendor evaluations, demonstrating how overall ratings can determine the preferred supplier despite differences in unit pricing.

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15 views12 pages

5CMS MODULE II .....

The document outlines the process of supplier selection and evaluation, emphasizing the importance of assessing vendors based on production capabilities, financial position, technical capabilities, and other conditions. It describes various methods for vendor rating, including categorical plans, weighted point methods, and cost ratio methods, with a focus on quality, price, and delivery. The document provides examples of vendor evaluations, demonstrating how overall ratings can determine the preferred supplier despite differences in unit pricing.

Uploaded by

Shrey Raj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PE 307

COMPETITIVE MANUFACTURING
STRATEGIES
Dr. Abhishek Kumar Singh
Assistant Professor
Production & Industrial Engineering
B.I.T Mesra, Ranchi
Supplier Selection and Evaluation
Recognize the need for supplier selection

Identify key sourcing requirements

Determine sourcing strategy

Identify potential supply sources

Limit suppliers in selection pool

Determine method of supplier evaluation and selection

Select supplier and reach agreement

2
SOURCE SELECTION (VENDOR SELECTION)

The selection of right source of supply is an importanl aspect in materials


management. The vendor is to be examined with respect to his capability and
competency to-supply right quality of material at right lime and at a competitive
price. The buyer looks for the following details befo"re a decision regarding
vendor selection is made.

Production Capabilities
 Capacity to manufacture the products as per the specifications and required
quantities.
 Availability of spare capacity.
 Capability to understand the needs of buyer company both technical and
commercial.

Financial Position of the Vendor


 The type of the company - Private limited, Partnership or Sole proprietorship.
 Company's capital structure.
 Financial position and profitability of the company since last 3-4 years.
Technical Capabilities
 Whether the available plant and equipments are in a position to meet the
quality and quantity specifications of the customer.
 Whether there are enough technically skilled and trained people.
 Whether R & D facilities are available.

 What is the market standing of the vendor with respect to quality


and delivery commitments (Reliability of supply).
 Whether he has enough storing and warehousing facilities.

 Quality control procedures - whether an JS0-9000 certified supplier.

Other Conditions
 Working conditions in the vendor company.
 Industrial relations and bargaining power of unions.
 Possible reasons for interruptions in supply.
VENDOR RATING (EVALUATION OF SUPPLIERS)

The appraisal of the vendor performance is a continuous process. The vendor


can be rated on various characteristics such as
 Delivery (To deliver as on time as per the order).

 Quality (To delivery as per specifications).

 Price.

 Other factors such as capability to meet urgent/rush orders, readiness to try out
new designs or new methods etc.
In vendor rating, one usually gives weightage to these various characteristics and
measures the performance of the vendors periodically on the basis of certain norms
and procedures.
Vendors will get the feed back based on objective evaluation and can compare his
own performance with that of competitors. It is a fair evaluation since the rating is
based on facts and not on opinions or prejudices. Vendor company' s can know their
 Categorical plan: managers from various verticals make a list of factors that are
crucial for a vendor to own based on their personal experiences and vendors are
compared based on the same.
 Weighted point method :Weighted point plan: factors are categorized and weight is
assigned to each factor based on vendor performance.
 Cost ratio method: Supplier rating is done based on different costs incurred for
procuring the materials from different suppliers. The cost ratios are ascertained for the
different rating variables such as quality, price, timely delivery. The cost ratio is
calculated in percentage based on the total individual cost and the total value of the
purchase.
Factors considered are quality, price, delivery.
Weights for each of the above factors is
Quality – 60%
Price – 20%
Delivery – 20%
If we multiply each of the factors’ values by their weights, we can derive
Company A inputs:
Total quantity supplied: 10 units, total quantity accepted: 8 units, Price per unit: $10,
Delay in delivery 20% time delay.
Quality rating = (8/10)X100=80%
Price rating =(10/10)X100=100% [ price rating =(Price Ratio Lowest / Supplier Price)
x 100 ]
Delivery rating = 100 – 20= 80%
weighted vendor rating of company A= (80X60+100X20+80X20)=84
Company B inputs:
Total quantity supplied: 20 units, total quantity accepted: 18 units, Price per unit: $16,
Delay in delivery 10% delay.
Quality rating = (18/20)X100=90%
Price rating =(10/16)X100=62.5% [ price rating =(Price Ratio Lowest / Supplier Price)
x 100 ]
Delivery rating = 100 – 10= 90%
weighted supplier rating of company B= (90X60+62.5X20+90X20)=84.5
Though the price per unit of company B is more than company A, still company B
wins because of overall rating is high.

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