Vendor Rating

INTRODUCTION :

Industry has to depend upon outside suppliers or vendors due to –

• Cost consideration including economy of scale.
• Impossibility of total vertical integration.
• Specialization, some time leading to proprietary products and patents processes.
• As an alternative or stand by and for load leveling.
• Standardization
• Social considerations like government regulations, obligation to community, etc.,
• Decentralization
• Strategic reasons

The number of vendors who can satisfactorily meet all the requirements of the industry and be able to operate economically is few. This is because –

• Lack of capital.
• Unsteady marketing conditions.
• Lack of entrepreneurship.
• Non-availability of specialized listing facilities.
• Availability of trained manpower.
• Non-availability of know-how i.e. drawings, specifications, techniques, etc.

Hence industry has to develop vendors so that their production is not hampered and cost is kept at reasonable level. Of course vendor-vendee both should be stable and there should be live and let live approach. Industry can resolve the problem by -

1. Promoting new Vendors.
2. Locating suitable vendors from the existing.
3. Developing the vendors to reduce cost, improve performance and affect growth by diversification and expansion.

Actions required by Industry in this regard are –

1. Allocating specified areas for vendors.
2. Identifying technocrats from amongst company employers, Qualified personnel willing to take risk.
3. Assisting the entrepreneurs in preparation of project report, negotiating with financial institution and other government agencies.
4. Assisting in the purchase and commissioning of capital equipment.
5. Providing complete know-how, drawings, gauges, fixtures and supplying or locating of source for raw material.
6. Providing specialized facility for material analysis, inspection, total maintenance etc. at reasonable cost.
7. Arranging quick payment, sorting out financial difficulties.
8. Monitoring vendors on performance.

OBJECTIVES :

Objectives of vendor rating are –

• To motivate suppliers to improve performance.
• To apportion orders to deserving vendors for overall cost reduction.
• To select vendors for further development.
• To reduce the cost of inspection of incoming lots by modifying sampling plans.

METHODS OF VENDOR RATING :

Methods of vendor rating are –

• Point method.
• Cost Ratio method.

Point method.

Vendor rating is the total of the points for all the factors together and they can be grouped as –

• Excellent keep it
• Satisfactory
• Poor
• to be discontinued

Vendors can be arranged decending order, the no.1 rank getting all the preference for future orders etc.

The performance is affected by –

1. the relationship governed by status i.e. size of the vendor

vendor - vendor equal status

vendor - big manufacturer

vendor - is small manufacturer

2. technically in capable due to personnel inspection method or due to inefficient methods or equipments.
3. lack of communication in terms of interpretations, use of gauge, etc.

Cost l Ratio Method :

In this method identifiable purchasing and receiving costs are totaled I and related to the value of the lot received. Higher the ratio, lower is the rating. The items generally considered are –

1. Visit to the vendors plant
2. Sample approval
3. Incoming inspection
4. Reworking cost
5. Value of rejected parts
6. Follow up cost, etc.

Other Methods of Supplier Evaluation :

A. Supplier Quality Audit – in this system a team from Vendor visits the Vendor and allocates points against a number of queries in a questionnaire. Actual working of the quality department is audited by examining records, analysis of the system and talking to people on the spot. If carried out periodically – will show up the changing conditions.

B. Supplier Quality Assurance Certificate –Vendors may be asked to send the inspection report of the samples taken from the lot being shipped. Acceptance can be based on these reports or on a reduced sampling basis.

C. Supplier Source Inspection - Vendors may be asked to keep the lot ready and vendors inspectors can go to vendors premises to check the items. Inspectors may be stationed during the processing of the batch also.

D. Acceptance can be based on the inspection reports by independent bodies, authorized to certify.