Vendor rating system

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A study of Supplier selection process, its benefits and methods. to get an insights about vendor rating tools and its significance.

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  • used by the organizations to assess the performance of their vendors to ensure efficient and effective upstream supply chainas conformance to mutually agreed-upon requirements among the partner firms with the aim of improving the performance of the transactions taking place in the chain
  • 2. for outsourced products and services3. Vendor rating is a tool used in this regard for‘specifying’, ‘communicating’, and ‘dynamic monitoring of the fulfillment’ of customer’s expectations.
  • 1. When suppliers know what is expected of them and how they are evaluated, they can focus on developingpurchasing decision based on the lowest price may lead to more repairs and replacements, and in turn more overall cost of use of the product
  • Customers in the process of communicating their expectations to suppliers are using vendor questionnaire as a tool along with a visit to supplier’s plant by a team consisting of representatives from quality assurance, purchase, process planning, design, etc.Supplier or vendor rating system against the performance of similar suppliers serving the company
  • with a view to draw a comparative scale that can be used for vendor selection, distribution of requirements, management policy, quality inspection and developing long-term relationship
  • 3. These elements may complicate the computing of vendor rating, as it requires more and updated record keeping
  • if it is used in an atmosphere of interdependence between the vendor and the customer. . In industrial market, a supplier’s overall rating is a reflection of the buyer’s satisfaction with a supplier.
  • Vendor rating system

    1. 1. Vendor Rating: A Tool for Quality in Supply Chain Management Presenter: Chandrmouli Singh MBA (AB) II Year
    2. 2. Overview  Introduction  Objectives  Methods  Vendor rating: Industrial process  Observations  Deming’s fourth point  Conclusion  References
    3. 3. Introduction  Price was considered primary base for procurement decisions, and business contracts were awarded to the lowest bidder in 1980s  Vendor rating is a tool  Insures quality in the supply chain  Supplier quality management is essential for improved operational performance
    4. 4.  Origin: To improve the overall performance, many firms are focusing on their core competencies and outsourcing non-core activities Specifying Communicating Dynamic monitoring
    5. 5.  Increased outsourcing: increased the reliance of buyers on their suppliers  Need for effectively managing supplier performance capabilities  Strategy for improvement
    6. 6. Purchasing objectives Quality Place Quantity 7 Rights Service Source Time Price
    7. 7.  Capability and selection of vendor, report of the visiting team and analysis of vendor questionnaire is used  A tools for benchmarking their supplier’s performance
    8. 8. Objectives  The system for assessing the performance of one vendor in comparison with others  To reduce large amount of data into manageable information for decision making and to identify future trends
    9. 9. Functions  Provide objective, qualified measures of supplier’s performance  Aid in arriving at a balanced judgment of supplier’s performance for all categories of buyer needs  Provide both buyer and supplier with common factual information on overall performance  Minimize the risk of being stampeded by isolated instances of failure  Provide the supplier with a detailed and factual record of problems for corrective action
    10. 10.  Enhance the relationship between the customer and the supplier  Draw a comparative scale that can be used for vendor selection and distribution of the requirements  Update quality plan to most economic levels either by increasing or decreasing amount of inspection  Discontinue the vendor in case of consistently poor rating  Improve effectiveness of supply chain management
    11. 11. Methods  Categorical plan  Weighted point plan  Cost ratio plan
    12. 12. Vendor Rating: Industry Practices  Based on data provided by 33 organization  In sample 24 were using weighted plan and rest 9 were using categorical plan Comparison of Elements and their Weightages S. No. Element % Weightage – Industries % 30-40 No. of Organizati ons Using Element 24 35 0 Weightage – Authors (Range) 1. Quality 2. Cost 3. Delivery 4. Service 25-30 Range Mean 40-100 66.875 – Standard Deviation 19.77 – – 19 20-60 37.894 11.219 05 10-20 13.333 5.773
    13. 13. Weightages for Sub-Elements – Quality Sub-Elements (Quality) No. of Maximum Organizations Weight (%) Minimum Weight (%) Mean Standard Deviation Quantity accepted 19 1.00 1.00 1.0 0 Quantity accepted with deviation 10 0.75 0.25 0.6 0.184 Segregated and accepted quantity 6 0.95 0.75 0.8 0.077 Segregated, reworked and accepted quantity 10 1.00 0.25 0.6 0.200 Quantity rejected 12 0 0 0 0
    14. 14. Weightages for Sub-Elements – Delivery Sub-Elements (Delivery) No. of Organizations Maximum Weightage (%) On-time delivery 13 1 0.4 0.82 0.273 5 1 0.5 0.67 0.288 Quantity reliability Minimum Average Weightage (%) Standard Deviation
    15. 15. Observations  Five organizations have rated the vendors based on quality performance alone  Some of them have had mentioning of technology and innovation. It subtly stresses that companies are also assessing vendors based on technology transition to predecide further scope of work to be outsourced. One organization has also mentioned third party certification and Production Part Approval Process (PPAP).  Two organizations have awarded weightage criteria based on criticality of repair and rework (major/minor/critical), this is in line with IS: 12040-1987 guidelines  One organization adjusts the rating when the supplies are modified and are used for alternative applications  Two organizations have been assessing multiple item suppliers based on individual items rating leading to overall supplier rating
    16. 16.  Work stoppage incidents have been separately identified for rejected components and for delayed deliveries  Only one organization has considered line rejections  One organization has been calculating overall vendor rating by considering previous months performance  There is an isolated instance where there is a mention of cost of quality  There are also separate instances of considering customer disruptions and special status customer notification as a criterion for vendor rating  The 90% performance or rating levels can be reasonably assumed excellent
    17. 17. Deming’s fourth point  Stop awarding business based on price tag alone (Deming, 1986)  customer satisfaction is closely linked with consistently supplying quality as per schedule  Very few organizations have considered work stoppage incidents, service performance, line rejection, criticality of components and multiple component supplies  Electronic data processing systems may ease the work, but it also will be limited to the compatibility and capability to support the rating system
    18. 18. Conclusion  Vendor rating is an important defect prevention tool to be used on the upstream (supply side) supply chain  It should be developed logically to suit the organizational requirements  Companies should emphasize the importance of quality and delivery performance not only to their suppliers, but also to their (supplier’s) suppliers  Weightages recognized during study would help organizations to understand the explicit and implied requirements of their customers and decide the priorities to develop the strategies for improvement in their vendor rating
    19. 19. Reference Mandave, H. A., Khodke, P. M., (2010). Vendor Rating: A Tool for Quality in Supply Chain Management. The IUP Journal of Supply Chain Management, VII(3)
    20. 20. Thank you.... Welcome for your Queries
    21. 21. Weighted point plan Weightages Given by Authors (%) Vendor Rating Elements Juran and Gryna (1996) Feigenbaum (1991) Sinha et al. (1985) Quality 40 40 30 Cost 35 35 40 Service and Delivery 25 25 30

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