104vendor Appraisal


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104vendor Appraisal

  2. 2. Typical cost structure of manufacturing companies…. Personal Cost Other Costs Material Cost- 60 to 70% ….with such high contribution, Material cost has a significant influence on business performance 2
  3. 3. However, material cost is not the only cost that companies incur while acquiring parts…. • Cost of Material….Invoice Cost • Cost on Material….Acquisition Cost Quality Inventory Acquisition Cost Execution Invoice Cost ….hence, sourcing strategically is the key to higher business performance 3
  4. 4. Sources of competitive advantage…. Selecting & Retaining good vendors Vendor relationship management ….hence, it is imperative for companies to have a good vendor appraisal system. 4
  5. 5. Challenges for Vendor Appraisal…. Increasing Complexity of Technologies Increasing Industry Dynamics Thinner Margins Mismatch between Demand & Supply Rapid changes in Business Environment ….a good vendor appraisal system needs to address the above challenges 5
  6. 6. Key Objectives…Vendor Appraisal Motivating Business Vendors Decisions e.g. Audit (creating Share, Pricing requirements competition) (e.g. QS9000) Selection of Vendor Supplier Vendors Upgradation Appraisal Performance Trigger for monitoring corrective Vendor action rewards 6
  7. 7. Types of Appraisals Systems…. Appraisal Continuous for Performance Selection Appraisal 7
  8. 8. Appraisal for Selection…the need l Assessing vendor capabilities before deciding on Long-term/ Short-term sourcing strategies (focus on evaluating vendor structure) n Identifying gaps between Desired performance & Actual vendor performance r Comparing of two vendors Understanding industry standards d Tracking new opportunities 8
  9. 9. Elements of Appraisal for Selection…. Technology (Product & Process) System (Manufacturing & Quality) Current Performance Management strength Logistics Operating Effectiveness Financial Capabilities 9
  10. 10. Example- Vendor Appraisal for Selection…. Criteria Wgt Below Avg Above Avg Avg Product & Process Technology 30% Range of products available/Access Access to emerging product technology across the globe Prototype making & testing facility & lead-time Machining Gear cutting Finishing operation Assembly Manufacturing & Quality Systems 30% Equipment maintenance Inventory control House Keeping and Safety Rework Rejection (internal and external) Raw material & Bought out inspection Performance Testing - Final ISO/QS Certification 10
  11. 11. Contd…. Criteria Wgt Below Avg Above Avg Avg Tooling Capability 5% Tooling Design, Mfg & maintenance Tool sourcing Logistics 10% Distance & Regional advantage Current Performance 15% Schedule adherence Leverage opportunities Buyers experience Management strength 10% Continuous improvement- Product & Process Ability to visualize &adapt to changing customer & market needs Cost analysis & control Financial strength Customer based future plans 11
  12. 12. Continuous Performance Appraisal …the need Performance monitoring Tracking progress – Strategy Implementation – Supplier Upgradation Trigger corrective actions 12
  13. 13. Elements of Continuous Performance Appraisal Objective- How capabilities are being maintained… Quality Cost Delivery General management 13
  14. 14. Example- Continuous Performance Appraisal Criteria Wgt Quality 40% • Response to quality problems • Receiving rejection • Continuous improvement in quality • Warranty status Delivery 40% Flexibility Schedule adherence Dispatch information Follow-up required Financial Capability 10% Current Price Ability to make investments General Management 10% Continuous improvement & Innovation Attitude Industrial relations Ethical standards Management control 14
  15. 15. Sourcing and the Management of Suppliers Supplier Performance – Possible Factors to Evaluate On-time delivery Quality Dealing with problems Continuous improvement Provision of spares Responsiveness Cost and price management Communication IT systems Provision of clarification Management of contract change
  16. 16. Developing Vendor Appraisal System…. Similar basic criteria Different weights based on commodities Three point- Five point system??? Issues in development – How to develop – Benchmarking v/s Evolution 16
  17. 17. Characteristics of a Good Vendor Appraisal System…. Simple to use User friendly (input of data & retrieval) Robust & Fast Comprehensive- Covers all areas Versatile- Good in variety of situation Real time Clarity of understanding 17
  18. 18. Key issues during implementation…. Harder issues – System related constraints – Data capture – Cost Softer issues – People issue…additional load – Why people should evaluate – Who should evaluate 18
  19. 19. D scuss i  Devise effective vendor appraisal system to be used by Paul for ‘DimS’ product. 19