Supplier evaluation

1
CHAPTER 1
INTRODUCTION
1.1 Background of the study
Purchasing and suppliers are of major strategic importance to most companies today. This
is because a substantial amount of the resources used by a company are made available
through its suppliers. Purchasing from suppliers account for more than half of total costs
of operation for most companies, this position is normally higher when well analyzed
(Gadde and Hakansson 2001).Suppliers are important to buying firms not only in financial
terms, but in risk management and total cost of acquisition and ownership. To an
increasing extent, they provide customers with new technology. Suppliers’ performance
thus, considerably impacts on the efficiency and effectiveness of the customer firm and is
of vital importance.
To ensure that performance of vendors is adequate, a multitude of supplier evaluation
programs need to be developed. Some of these programs deal with efforts of ensuring that
purchasing function in accordance with company strategies and expectations in both the
short-run and long –run term development. In a survey carried out of Fortune in US of 500
companies, Krause and Ellram (1997) found that performance evaluation was deemed a
vital part of the supplier development Programs. Even those companies that had no
formalized development program regarding supplier Performance evaluation. Carr and
Pearson (1999) conducted a study of 739 firms in across industry and observed that firms
with strategic approach to purchasing were more involved in supplier evaluation than
other firms. It was shown also, that this strategic approach had a positive impact on buyer
seller relationship and finally supplier evaluation systems had positive effect on the

2
buying firms’ financial performance. Value chain analysis is a concept from business
management that was first described and popularized by Michael Porter in his 1985,
Competitive Advantage: Creating and Sustaining Superior Performance. He described the
activities of the value chain viz. Inbound Logistics, Operations, Outbound Logistics,
Marketing and Sales and Service and identified the support activities as follows: Firm
Infrastructure, Human Resources Management, Technology and Procurement.
Supplier evaluation is a term used in business and refers to the process of evaluating and
approving potential suppliers by quantitative assessment based on independent variables:
quality, environment, organizational culture, employee competence, financial ability,
production capacity and cost factors. The purpose of supplier evaluation is to ensure a
portfolio of best in class suppliers is available for use. Supplier evaluation is also a
process applied to current suppliers in order to measure and monitor their performance for
the purposes of reducing costs, mitigating risk and driving continuous improvement.
Supplier evaluation is a continual process within purchasing departments and forms part
of the pre-qualification step within the purchasing process; although in many
organizations it includes the participation and input of other departments and
stakeholders. Most experts or firms experienced in collecting supplier evaluation
information prefer doing so using five-step processes for determining which to approve.
Their processes often take the form of either a questionnaire or interview, sometimes even
a site visit, and include appraisals of various aspects of the supplier's business including
capacity, financials, quality assurance, organizational structure and processes and
performance. Based on the information obtained via the evaluation, a supplier is scored
and either approved or not approved as one from whom to procure materials or services.
In many organizations, there is an approved supplier list (ASL) to which a qualified

3
supplier is then added. If rejected the supplier is generally not made available to the
assessing company's procurement team. Once approved, a supplier may be reevaluated on
a periodic, often annual basis. The ongoing process is defined as supplier performance
management.
There are various benefits associated with an effective supplier evaluation process such as
mitigation against poor supplier performance or performance failures. The benefits
typically include sourcing from suppliers that provide high standards of product and
service levels whilst offering sufficient capacity and business stability. Supplier
evaluation can help customers and suppliers identify and remove hidden cost drivers in
the supply chain. The process of evaluating performance can motivate suppliers to
improve their performance.
Associated challenges with supplier evaluation include resource and cost commitments in
establishing and maintaining a robust and effective system, challenges with specifying
and gathering meaningful and relevant information, data integrity, scorecards that do not
get at the root causes of supplier problems, and subjective or inconsistent scoring which
may result in inaccurate assessment (Gordon 2008). Another challenge is making sure that
evaluation of current suppliers goes beyond measurement to actual performance
improvement by providing feedback to suppliers on their performance and working on
continuous improvement opportunities. Thus, management commitment to and support of
a supplier evaluation process is essential.
1.1.1 Company Profile
Jawalakhel Group of Industries (JGI) is a reputed manufacturing company thrives to
research, develop, manufacture and market quality alcoholic beverage in a responsible and
competitive manner through its continuous improvement and professionalism. Himalayan
Distillery Limited (HDL) was established in 24-07-1985A.D as a Private Company

4
registered under Company Act 2021, later on converted to Public Limited Company on
03-11-2000. The success that Himalayan Distillery has seen over a period of time explains
the company’s commitment towards winning –“The urge to do something better than
others”. The company’s trust with excellence comes from the rich legacy; it has inherited
from Jawalakhel Distillery Pvt. Ltd., its parent company and the largest player in Nepal’s
liquor market at that period of time. Himalayan Distillery is a culmination of a
perfectionist’s dream-Dream to build a distillery that will stand out against the rest in all
aspects. And this is what Himalayan Distillery Limited today is.
Himalayan Distillery offers wide varieties of best alcoholic products that come through its
Hi-tech processes. Himalayan Distillery has over 11.76 million liters of production
capacity (annually). It has been continuously engaging and persuading distributors,
wholesalers and retailers by offering lucrative offers from time to time. “Besides this,
Himalayan Distillery has been maintaining the international standards at the factory in
Birgunj by producing consistent quality products”.
Besides HDL, JGI comprises of Asian Distillery Pvt. Ltd. (ADPL), Vijay Distillery Pvt.
Ltd. (VDPL), Raj Brewery Pvt. Ltd. (RBPL) and Rolling River Distillers Pvt. Ltd.
(RRDPL).
1.2 Statement of the problem
Selecting the most appropriate source of supplies has long been regarded as one of
procurement’s most important functions (Ogden et al., 2008). Organizations are therefore
moving from the adversarial kind of transactions to the use of a few qualified suppliers
with close relationships, a trend attributed to: the customers’ demand for higher quality;
wider range of products; shorter time to market; and faster deliveries (Karlsson, et al.,
2011).

5
There are a few studies illustrating the actual occurrence of supplier evaluation. Simpson
et al. (2002) found that about half of the purchasing managers in a survey of 299 US firms
used formal supplier evaluation systems. Also in a large survey with purchasing managers
across the US on Purchasing Magazine showed that 61 % of the companies used formal
performance measurement systems in relation to their suppliers (Morgan 2000).
Pearson and Ellram (1995) compared small and large firms in electronics industry in a
national survey with regard to the utilization of supplier evaluation programs, the study
showed that large companies were more involved in formal reviews than were small firms,
of the large firms 58% made a formal review every year, or more frequently while the
corresponding figure for small companies was 33%. Some studies have analyzed functions
in the buying company that are involved in the evaluation of supplier performance.
Looking at the best practices articulated on most purchasing books they relate to contract
management, cost management in procurement and Evaluation of supplier performance
which lead to relationship management. Evaluation of Supplier Performance remain a
gray area with little light shed by regulators and firms seeing it as an extra mile hence
often ignored. This leads to the question that need be articulated with regards to the lack of
comprehensive picture of the importance of embracing Supplier Performance Evaluation
in procurement as a best practice and institutional purchasing settings can yield to the
company now and in the long run.
To date, research offers limited studies that focus on how an organization can take into
consideration the Supplier Performance evaluation issues in procurement practices and
internal structures. To my knowledge there seems to be a lack of research that attempts to
quantify the effect of supplier performance evaluation in day to day operation of Nepalese
organization.
The research study therefore focused on how JGI can incorporate Supplier Performance

6
Evaluation in its procurement processes and the study sought to answer the research
questions; What is supplier evaluation practices at JGI and what are outcomes of supplier
evaluation?
1.3 Rationale for Study
Supplier performance evaluation is the measurement of the results and effectiveness and
efficiency of goods and services supplied to a firm through the firm’s acquisition process
through the value chain processes. This process remain a gray area with little light shed by
regulators and firms seeing it as an extra mile hence, often ignored (Sheth and Sharma
1997). This leads to the question that need be articulated and solutions found. As regards,
supplier performance evaluation practices in the value chain; to date research offers
limited studies that focus on how an organization can take into consideration the supplier
performance evaluation issues in their supply chain and procurement practices
From the broad field of supply chain management, purposed study will only take into
consideration one specific branch: purchasing/procurement. There are various aspects to
measure and evaluate concerning the performance of purchasing and supply chain in
general, but the scope of the report aims to study the evaluation of supplier performance.
This evaluation occurs after the business is delivered by the suppliers, which is different
from a more common topic of choosing the right suppliers to start the business. Suppliers
considered in purposed report will current partners with JGI. Therefore purposed study
will help to investigate how supplier performance evaluation conducted on JGI and its
implication on overall group operation.

7
1.4 Objectives of the study
The main objectives of this study will be to find supplier evaluation process in JGI.
The specific objectives will be as follows:
 To identify the current practice of supplier performance evaluation in JGI.
 To identify the relevant supplier performance evaluation criteria in JGI.
 To develop a supplier performance evaluation system for JGI.
1.5 Significance of the study
Supplier performance evaluation is the backbone for best supplier selection. The proper
supplier performance evaluation system provides financial benefits to the organization in
indirect form. It will drive purchase department to know the status of various suppliers. It
will analyze the impact of various criteria of supplier evaluation in JGI.
Consequently, the study will help to achieve the following goals towards the improvement
of supplier evaluation system in JGI.
 It helps to know the status of various suppliers.
 It helps to identify the practice in JGI and recent practices in international market
regarding supplier performance evaluation system.
 It helps to develop improved supplier performance evaluation system for JGI.

8
CHAPTER 2
LITERATURE REVIEW
This chapter presents the literature concerning the supply evaluation. The review of
empirical studies from the research of different countries by focusing on the suppliers’
performance and evaluation of firms are presented and in relation with these, knowledge
gap from the existing literature are outlined.
2.1 Definitions
Lysons (2012, 611) simply defines performance measurement as “quantification or the
expression of a quality or attribute in numerical terms”, or in another definition of
measurement: “The systematic assignment of numerical values (quantitative) or verbal
descriptors (qualitative) to the characteristics of objects or individuals; designation of the
status of such characteristics”. Evaluation also means to acquire information to form
judgments for further decision making.
From Cousins et al. (2008, 144), to assess supplier performance, more subjective and
non-financial measures are considered, consisting of information sharing, responsiveness
in problem solving, collaboration level, supplier satisfaction, certified suppliers and
supply base characteristics. These activities are also closely associated with developing
supplier’s performance and capabilities, like recognition and awarding, training and
education, financial assistance and so on.
2.2 Drivers of Suppliers Performance Evaluation
There are a few studies illustrating the actual occurrence of supplier Performance
evaluation. Simpson et al. (2002) found that about half of the purchasing managers in a
survey of 299 US firms used formal supplier evaluation systems. Purchasing Magazine, in

9
a large survey with purchasing managers across the US, showed that 61 % of the
companies used formal Performance measurement systems in relation to their suppliers
(Morgan 2000).
The size of the firm play a big role as to if a firm will adopt the Supplier performance
evaluation, this is because the firm may not have a big supplier base which it aims to
reduce and also the spend analysis may not support this exercise. Pearson and Ellram
(1995) compared small and large firms in the electronics industry in a national survey with
regard to the utilization of supplier evaluation programs.
The study showed that large companies were more involved in formal reviews than were
small firms, of the large firms only 58% made a formal review every year, or at a more
frequent rate. The existence of Supply Chain and Procurement function in most firms is
limited to a large extent thus procuring of goods and services is carried out by other
functions of the firm and it is not clear which functions in the buying company is involved
in the evaluation of supplier performance.
2.3 Supplier Evaluation: Occurrence and Involvement
The benefits of supplier evaluation are expressed in various ways. Carr and Pearson
(1999:457) represent one common view when arguing that supplier evaluation provides
the buying firm with a better understanding of which suppliers are performing well and
which suppliers are not performing well.
This type of information might be used to identify suppliers that could benefit most from
supplier development efforts (Forker and Mendez 2001). Besides these expressions of
general benefits supplier evaluation is advocated from the perspective of the various
functions of the firm, some illustrative are found concerning product development (De
Toni and Nassimbeni 2000), logistics (Schmitz and Platts 2003), just-in-time

10
manufacturing (Willis and Huston 1989, De Toni and Nassimbeni 2000), and total quality
management (Giunipero and Brewer 1993).
2.4 Aspects of Supplier Performance Evaluation
Supplier performance evaluation can incorporate many aspects of the of assessments, this
will include but not limited to: Product and delivery assessment of the quality level, on-
time delivery, correct quantity, service level and price/cost of product, Capacity
assessment which evaluates the willingness to change product/services to meet changing
needs, flexible capacity and communication skills/systems, Information assessment where
willingness to share sensitive information and to participate in new product development.
The above criteria illustrate that performance can be evaluated in several dimensions. The
most common measurements including cost, delivery, and product quality, focus on the
output of the supplier. When companies have long-term „partnership‟ relationships with
suppliers though, output criteria need to be complemented with processual criteria and
structural criteria (Ellram 1990), evaluation with regard to processual criteria addresses
what the supplier does, rather than achieves, and typically includes whether employees
adhere to standard operating procedures or not.
Structural criteria relate to the potential performance and reflect what could be done by the
supplier in consideration of the resource body available, thereby including criteria such as
employee competence and equipment capability. Processual and structural criteria for
performance evaluation in general are suggested by Scott (1995) and can be traced further
back to Yuchtman and Seashore (1967), Supplier /Buyer Relationship, Lamming et al.
(1995) presents a relationship model and suggests criteria for the evaluation of the
supplier, the customer, and the relationship.
Research on supplier evaluation can be traced back to the early 1960s. One of the pioneers

11
to the field is Dickson (1966), and in his work he identified 23 supplier criteria used for
evaluating a supplier. Out of the 23 factors considered, Dickson concluded that quality,
de-livery, and performance history are the three most important criteria, ranked in the
second column in table 2.4. Dickson’s and the earlier work in this field can be
summarized in Weber et al. (1991)’s work from 1991. Based on a intensive review of 74
articles on supplier evaluation from 1966 to 1991, Weber et al. (1991) reported that
quality was considered to be the most important selection criterion, followed by delivery
performance and cost. The importance of all the mentioned criteria in these studies can be
found in table 2.1 summarized by (Chen, 2011),as well as the second column showing in
how many of the articles the referred criteria were mentioned.
In a more recent study, where Hu (2004) analyzed 24 papers published after 1991, he
discovered that price, quality, production capacity and delivery remain as the most
important criteria in supplier evaluation in the final stage of the purchasing process (Kuo
et al., 2010). However, with the increasing importance of strategic sourcing and
competition of a global environment, the approach to traditional criteria has been updated
to reflect the new requirements according to the role of suppliers in the supply chain
(Choy et al., 2005). Earlier studies consider criteria like price, quality and speed of
delivery most important, while current studies focus on suppliers’ technological capacity,
financing capability, after-sales service and strategic considerations (Dey et al., 2014).
Talluri and Narasimhan (2004); Dowlatshahi (2000) state that evaluating the supplier
strategically, requires attention to the supplier practice in terms of managerial, quality and
financial performance, as well as consideration to the supplier’s capabilities including co-
design capabilities, cost reduction capabilities, technical skills, etc.

12
Table 2.1 Important Criteria
Evaluation criteria Reference quantity
Dickson importance
ranking Weber importance
Price 61 6 Very important
Deliver on time 44 2 Very important
Quality 40 1 Extremely important
Equipment and
capability 23 5 Very important
Geographic location 16 20 Important
Technical capability 15 7 Very important
Management and
organization 10 13 Important
Industrial reputation 8 11 Important
Financial situation 7 8 Very important
Historical performance 7 3 Very important
Maintenance service 7 15 Important
Service attitude 6 16 Important
Packing ability 3 18 Important
Production control
ability 3 14 Important
Training ability 2 22 Important
Procedure legality 2 9 Very important
Employment relations 2 19 Important
Communication
system 2 10 Very important
Mutual negotiation 2 23 Important
Previous image 2 17 Important
Business relations 1 12 Important
Previous sales 1 21 Important
Guarantee and
compensation 0 4 Very important
Source :Chen,2011

13
Many researchers have tried to combine the different criteria in to a smaller range of
dimensions, for example Kuo and Lin (2012) who used four dimensions; organization
structure and manufacturing capability, suppliers implementation capability, quality
system, and environmental issues. Huang and Keskar (2007) allocated the criteria into
seven categories, namely reliability, responsiveness, flexibility, cost/financial,
assets/infrastructure, safety and environment.
The indications from previous studies show that there is lack of consistency of criteria for
supplier evaluation. As Dey et al. (2014) emphasize, supplier evaluation criteria have a
strategic intent and for that reason need to be related to business processes and
stakeholders requirements. How to select a supplier is unique for every situation and there
is no single recipe that can be used for every selection problem. Based on the type of
industry the company participates in, type of product, strategy, customers and many other
variables, the set of criteria will vary. Despite these differences there are some major
criteria that are common in most of the research found. Cost and quality, along with on-
time delivery and flexibility have been the most dominant evaluation criteria in the
literature (Huang and Keskar, 2007). We will in the following sections go through some
of the most important criteria found during the review to give a more thorough
explanation of these important factors.
Costing Competitive
Literature in the late 1960s up to early 1980s showed heavy emphasis on cost, and price
was the primary factor affecting a purchaser’s decision of supplier (Weber et al., 1991).
Many studies have also revealed that price is one of the primary concerns of
manufacturers in supplier selection (Weber et al., 1991; Huang and Keskar, 2007; Hu,
2004). Indicators for cost performance of the supplier can e.g. be sales price or quantity

14
discounts (Chen, 2011). Even though the weighted importance has changed during the
years, cost is still an important criterion in supplier evaluation. As mentioned earlier, cost
of materials and equipment purchased can stand for over 50% of the product value;
making cost saving and profit generating one of the primary concerns of a purchaser.
Quality Performance
Quality is one of the most important, if not the most important criteria for supplier
evaluation and supplier selection (Dickson, 1966; Weber et al., 1991; Li et al., 2006;
Wu and Weng, 2010). In the customer demand for a product, quality is an indispensable
factor. From a customer’s point of view, low product quality reflects poorly on the seller,
not the suppliers. Companies therefore tend to push the quality demand up the supply
chain towards the suppliers. Hol- jevac (2008) defined quality as follows: Quality refers
to the ability of a product or service to consistently meet or exceed customer’s
expectations, quality means getting what you have paid for. The price of quality may be
more costly; however, cost related to inferior quality can cause more damage (Wu and
Weng, 2010).
Delivery Performance
Many researchers have stated that the delivery performance of suppliers is vital (Weber et
al., 1991; Hu, 2004). Lead-time and on-time delivery rate is some of the important
indicator of delivery (Chen, 2011). Many businesses strategies are predicated on
schedules, which in turn are based on receiving shipments at agreed-upon times. When
those shipments slip, the business can suffer and the setback can be particularly severe if
the supplier is negligent or late in reporting the problem. In other situations, shorter
delivery time can help reduce stock and enhance inventory turnover. This makes delivery

15
performance an important criterion when evaluating suppliers.
Flexible Capability
Firms are generally thought to respond to unpredictable environments through increased
flexibility (Krause et al., 2006; Lau and Wong, 2001). In the late 1990s, researchers
realized the importance of flexibility. Today flexibility continues to be a concern for
companies as they strive to meet the changing needs of their customers (Krause et al.,
2006). Flexibility refers, in principle, to handling changes efficiently, and a suppliers
flexible capability is about efficient handling of changes involving the whole order, e.g.
the ability to change production volumes rapidly, ability to set up for new products on
short notice, and ability to change/shorten de-livery time (Choi and Hartley, 1996; Chen,
2011). According to Nilsson (1995), with shorter product life cycles, faster changes in
market demands, and diversified consumer preferences, a flexible and quick response to
changes has become more important.
Corporate Social Responsibility
Another criterion that has received a lot of attention the past decades is Corporate Social
Responsibility (CSR). The modern corporation has to fulfill expectations of high ethical
standards and norms, and in addition prove itself as a dynamic company able to change.
CSR has now become a well-recognized phenomenon in organizations, and the most
common definition on CSR today is the European Commission’s version, which states
that CSR is
"A concept whereby companies integrate social and environmental concerns in their
business operations and in their interaction with their stakeholders on a voluntary basis"

16
Drivers for CSR are not only pressures from stakeholders, but there is also a growing
recognition that CSR can have a positive economic impact on the performance of firms
(Maon et al., 2009; Carroll, 1999). If a supplier doesn’t focus on CSR or behave ethical,
this will reflect poorly on the organization, making it an important factor to consider
(Huang and Keskar, 2007; Dey et al., 2014).
The literature on supplier evaluation criteria is rich, but the process of generating criteria
as well as evaluating the relevance of existing decision criteria in supplier selection has
not gained much attention in the SCM and purchasing literature. de Boer et al. (2001)
could only find one contribution to this, namely; Mandal and Deskmukh (1994) who
provided decision support for formulating criteria (de Boer et al., 2001).
2.5 Benefits of Evaluating Supplier Performance
In general, a well-balanced performance evaluation system can profit from various
operational aspects. Those are organizational decision making, communication including
internal and functional level, visibility of purchasing activities and departments, waste
identified and limited, and motivation for recognized staff. Furthermore, Simpson’s results
reflex the extensive degree of evaluation process with 41.7 percent agreement. (Cousins
2008, 147; Simpson 2002, 32)
Gordon (2008, 4-5) observes that the first advantage can be withdrawn from the concept
of supplier performance management is to concentrate the resources on value added
activities, and reduce the effort resolving problems induced from supplier performance,
such as late delivery, defects, competitiveness weakening, or excess inventory. The
second plus is a competitive advantages that companies can benefit from, including
competitive boost with low costs, responsiveness and high quality services and goods,
technology, reducing order cycle times, and aligning practices between firms and

17
suppliers. Afterwards, firms can identify supplier’s capacity in innovation and improve
their key relationships. Also confirmed by Simpson et al. (2002, 29-30), the supplier
verse buyer relationship can gain the utmost benefit from the evaluation system. As a
result, the firm can identify its top best vendors for long-term development, as well as, the
communication among the channel can be improved by supportive information flow. That
can help the vendors obtain a better understanding of buyers’ demand and needs, knowing
which specific dimensions to improve. All in all, upgraded supplier’s performance is
parallel with firms’ overall objectives.
An interesting report from Aberdeen Group (2002) collected the figures for significant
difference in average improvement of supplier performance from a system with supplier
performance management program verse non-program system. There are noticeable gaps
in the percentage of improvement in quality aspect: 21 percent with SPM program verse
contrast 5 percent of those without the system. Meanwhile, there are similar big gaps,
about two times in categories of price and on-time delivery; in sequent 23 percent verse 13
percent and 23 percent verse 11 percent. However, service is the sector where there is least
amount of difference in supplier performance between the use of the SPM program and no
program.
At the same time, from a different angle, manufacturers can benefit to a greater extent
than non-manufacturing firms, 28.2 percent compared with 25.4 percent. This can be the
reason for the aggressive involvement with huge supply base of manufacturing en-
terprises, where there are good returns in supplier performance improvement.
2.6 Supplier /Vendor Rating
“A Supplier rating system (sometimes called vendor rating) complements the evaluation
and accreditation system in that it measures the performance of approved suppliers on an

18
ongoing basis and supplier’s meaningful feedback in order to improve performance.”
(Roylance, 2008)
The purpose of the supplier rating system is to measure and report performance of
approved suppliers in order to improve their performance. Such variables as delivery,
quality, and price are commonly used for this purpose. The rating can be subjective and
quantitative. Quantitative measures are usually easy to define and track in comparison to
subjective a measure since the real data on actual performance already exists.
Nevertheless, this type of rating has the following disadvantages:
The cost of collecting data might be high, ratings are not necessarily always scientifically
accurate, sometimes supplier performance is affected by outside factors and the subjective
rating is considered difficult as it relies on the expertise of the individuals who judge
supplier performance. All subjective appraisals can be lost once the buyer decides to leave
(Lysons and Gillingham, 2003, 339).
The activity of comparison of a supplier’s performance with a performance on a previous
order or another supplier’s performance is also known as vendor rating. The aim of vendor
rating system is to give suppliers different types of status according to their performance
level. The process of vendor rating begins with the identification of strategically matching
suppliers. The next step is to determine the critical factors that will be used for measuring
supplier performance. The variables are considered critical if they can add value by
decreasing the costs or improving customer service, or the combination of both. After the
variables are determined, each supplier is judged on each factor. The ranking could be
numeric or a Likert-scale. Each rating criterion should be weighted according to the
importance of the overall vendor rating (eNotes community, 2013). The rating system can
be effective only if it is consistent, measurable and objective. Last but not least, the rating
system must be open to all.

19
A buyer has to be ready to discuss with a supplier the reasons behind his evaluation. The
results have to be reported and discussed on a regular face-to face basis, usually every
three months. In some cases a meeting has to be arranged immediately and in some cases
only two meetings in a year is enough. A buyer and a supplier have to work together in
order to eliminate any defects that have been revealed during the process of evaluation.
For new suppliers it is good to organize reporting meetings every month. The next action
that plays an important role in supplier evaluation process is to recognize and point out the
achievements of the best suppliers in the portfolio. The award may be represented by three
types of certificate: gold, silver and bronze. New suppliers may be nominated for a “best
new supplier of the year” award certificate (Roylance 2008).
2.7 Rating Measurement Criteria
According to Roylance (2008) any rating system is based on three essential dimensions:
price, quality and service. The maximum score is 100 points and they can be allocated in
different ways depending on a product group. The reason is that for some products quality
is much more important than the price and vice versa.
Examples of the criteria commonly used in supplier rating are presented below.
Price- Competitive pricing, the prices should be comparable to other suppliers of similar
products.
Price stability- Prices should be stable over time.
Advanced notice of price changes- The supplier should inform in advance about price
changes.
Discounts and payment terms offered.
Quality, Durability, Reliability and Service.

20
On-time delivery- whether the products/services are delivered on the promised date.
Complaint handling-The vendor should respond in a timely manner to any complaint.
Compliance with purchase order-The supplier should fulfill purchased order requirements
and conditions.
Technical support-In addition to technical documentation a supplier should also provide
maintenance, repair and installation services.
Emergency support- The emergency support for replacement or repair of defective
products should be provided.
Responsiveness-The supplier should respond in a timely manner.
Communication efficiency- Are the communication methods efficient enough?
Based on the information provided in the article of eNotes community (eNotes
community2013), delivery is the fourth independent factor to measure. It may include the
following measurement criteria:
Time- Does the actual delivery date correspond to the promised one?
Quantity- The supplier should deliver the right products in the right quantity.
Lead time- The average delivery time should be comparable to other vendors supplying
similar products.
Packaging- Is the packaging is suitable, undamaged, properly marked?
Documentation- The documents such as packing lists and invoices should contain correct
material codes and purchase order numbers.
Emergency delivery- Does the supplier provide emergency delivery?
Furthermore, in comparison to Roylance, who sees on-time delivery as a part of quality
dimension, other authors such as Lysons and Gillingham (2003), Handfield et al.(2009)
also point out delivery performance as an independent, fourth factor to measure. The real
test of the success of supplier rating is the reality of satisfactory performance by the

21
supplier. The actual performances are monitored and decisions on future business are
based on these assessments. Generally, there is an element of subjective appraisal by the
buyer, but there are rating systems that attempt to rectify the failings of subjective rating.
Systems tend to involve three basic considerations in a good purchase which are Quality,
Delivery and Price.
The purpose of a vendor rating is therefore to evaluate the performance of the vendor in
respect of one or more of the factors, price, quality, delivery and service of an actual
supplier. To provide the buyer with objective information in which judgments relating to
source selection can be based. To enable the buyer to provide the supplier with an
indication of his or he performance rating and where improvements, if any, are required.
2.8 Challenges in Supplier Evaluations
Brown (1996) and Monczka et al. (2005) found out that these were common problems
associated with Supplier evaluations.
 Too Much Data and Wrong Data
Data used was too much or the wrong data was used in the evaluation. When too much
data is used, users can focus on data that is less critical or important for a company.
Wrong data could be used and may instead of improving the performance will rather
create a conflict with other measures. Brown (1996) and Monczka et al. (2005)
 Lack of Detail
When a buying company has very little data the data can become meaningless and a
company cannot use the data for decision making purposes.

22
 Measures are Short Term Focused
Often smaller and medium size companies are using performance measures that are short-
term focused such as financial or operating data. Using only short-term measures will
result in short-term focus throughout the supply chain which can have negative impact on
the company performance. Brown (1996) and Monczka et al. (2005).The performance data
to be considered for evaluation should be carefully selected. For the purpose of the
evaluation, the criteria should be in quantifiable or measurable terms.
 Lack of Competence
Appraisers who are not competent enough for such tasks end up not exercising due
diligence in supplier evaluations in so doing the process is not well managed. Top
management should choose the appraisers or the evaluators carefully. They should have
the required expertise and the knowledge to decide the criteria accurately. They should
have the experience and the necessary training to carry out the appraisal process
objectively.
 Errors in Rating and Evaluation
Many errors based on the personal bias like stereotyping, halo effect (i.e. one trait
influencing the evaluator’s rating for all other traits) etc. may creep in the appraisal
process. Therefore the rater should exercise objectivity and fairness in evaluating and
rating the performance of the suppliers.
2.9 Concluding remark
William Ho (2010) has published an article “Multi-criterion decision making approach in
supplier evaluation and selection” on European Journal of Operational Research Vol.202

23
(16-24).He has focused his study to tackle the problem of various decision making
approaches. He reviewed the literature of the multi-criteria decision making approaches
for supplier evaluation and selection, based on related articles appearing in the
international journals from 2000 to 2008.Finally he concluded that the multi-criteria
decision making approaches are better than the traditional cost- based approach, but also
aids the researchers and decision makers in applying the approaches effectively.
Yuh-Jen Chen (2011) has conducted a research on “Structured methodology for supplier
selection and evaluation in supply chain”. The main aim of this research was to
demonstrate strategic supplier performance evaluation of a UK- based manufacturing
organization using an integrated analytical framework. He concluded that developing long
term relationship with strategic suppliers was common in today's industry. However,
monitoring suppliers' performance all through the contractual period is important in order
to ensure overall supply chain performance. Therefore, client organizations need to
measure suppliers' performance dynamically and inform them on improvement measures.
Patil A.A. (2016) has conducted a research on “A Review of Supplier Evaluation and
Selection Approaches in Supply Chain of Construction Industry”. The main aim of the
work is to understand the supply chain management in construction industry and various
suppler evaluation approaches used in construction industry. He suggests that instead of
using single criteria multi-criteria approaches should be used. The multi- criteria decision
making approaches are not only better than the traditional cost-based approach, but also
aid the researchers and decision makers in applying the approaches effectively. The paper
concluded that strategic supplier performance evaluation impact on overall performance of
organization.

24
Hence at last we can conclude that cost, quality, service and delivery are not only the
major important criteria for supplier evaluation besides these other multi criteria are also
important.

25
CHAPTER 3
RESEARCH METHODOLOGY
This chapter describes the research procedure that is followed to carry out this study. It
consists of five sections. The first section is research design followed by the section two
which is type of data. In the third section, sample selection methods are presented. The
subsequent section presents and discusses method of data analysis.
3.1 Researchdesign
Research design provides the framework for the study, guidelines for the collection and
analysis of data. It can be compared with the blue map of a house. The basic elements of a
research design are: problem, the methodology, data collection, data analysis and report
writing. Research design is an analytical as well as descriptive approach to achieve the
objective. Thus, research design is a plan to obtain the answer of research question
through analysis of data.
The purposed study is mainly focus on qualitative aspects of the problem. This type of
research design gave chance to collect primary data from organization by survey method.
The researcher will interact with the staff of JGI which makes it possible to understand the
dynamic factors of research by having firsthand experience. Other advantage is chance of
experiencing the culture of organization in practice rather than getting it from the
secondary sources. It tried to find the evidences which helped to understand the problem
in-depth and find out the possible solutions.

26
3.2 Population and samples
All the units of JGI will the population of the purposed study. Decision making personal
of the JGI corporate office and all units will be taken as sample. The sample will
comprises of 10 decision making person of JGI families related to procurement function,
as only five strategic business unit are operating under this group. The purposed study
with this sample size will be able to explain the framework of the existing practice and
that will help to develop better evaluation system.
3.3 Sources of data
There are two main sources of collecting the data i.e. Primary and secondary source.
3.3.1 Primary sources of data
The data which is originally collected for an investigation by an investigator or research
organization is known as Primary data. Such data will be collected for the first time and
are original in character. Observations, interviews and questionnaires method was used to
collect primary data.
3.3.1.1 Observations
Part of the research was done by means of observations of what procurement personnel
were doing in their office. The observation was accompanied with conversation with the
senior and assistant procurement personnel. This observation gave opportunity to
physically observe the procurement section. In fact field survey helped to get firsthand
experience of the culture and practice in JGI.

27
3.3.1.2 Interviews
The interviews are the important method to collect the real data and information on spot.
The interviewees selected were ten procurement personnel who were working at different
unit of JGI. The interviews were not structured. Basically, I asked them about the
procurement practices and difficulties arise during procurement. The interviews notes
were taken by pen and paper. They did not allow me to record conversation in my cell
phone. Facial expression of the interviewees had also been noted while interviewing
which helped to capture the emotions of the subject about the topic of research.
3.3.1.3 Questionnaire
Besides interviews and observation, the respondents were also given a set of questionnaire
containing 13 set of questions. They did not want to disclose their identity while
answering the questions.
3.3.2 Secondary sources of data
The data which is not originally collected but obtained from published and unpublished
sources of data is called secondary data. In most cases, the researcher has to depend upon
the data observed by others. In other words, some of the information was taken from the
past thesis, project works, newspaper, magazines and some others have taken from the
internet sites.
Therefore, in this research study both primary and secondary data sources were utilized.

28
3.4 Method of analysis
In order to analyze the data, a very simple data analysis tool i.e. percentage, pie chart will
used. The figure obtained from questionnaires will tabulate and represented in pie chart.
The tabulated data will be processed in MS-word and then transferred to MS-Excel to
represent in pie chart with percentage. The primary data will be analyzed with the
reference of secondary data as necessary.
Further the evaluation of existing suppliers performance evaluation will be done using the
following formula given below:
Quality Rating %=
(B*100+C*50+D*70+E*50)/
A
Service Rating
%=(F/A*30)+(G/A*40)+(I/H*30)+(J/
H*15)
Delivery
Rating %
=(K/A)*100
Total supplies received (A)
No. of supplies with correct invoices
/documents (F)
No. of
supplies
received on
time (K)
Supplies Accepted as is
(Good) (B)
No. of supplies received with
Certificate of Analysis (G)
Supplies accepted with major
deviation (C)
No. of times vendor was contacted (by
mail or phone) (Don’t put zero) (H)
Supplies accepted with minor
deviation (D) No. of times responded within 24 Hrs (I)
Supplies accepted after
rework / segregation / sorting
(E)
No. of times responded after 24 but
within 48 Hrs (J)
Overall Vendor Rating (%)=Quality Rating*50+Service Rating*20+Delivery Rating
*30

29
3.5 Limitations of the study
Studies of this nature depending on interview and documents will prone to the biases of
the interviewees and authors. However personal experience of the researcher as a career of
operational officer in one of the unit of JGI and experience gathered will overcome the
limitations to some extent. Most of the data of the study base on information obtained
from small sample of 10 decisions making personal. Endeavors have been made to make
the data as accurate as possible, 100% accuracy cannot be claimed because of following
reason.
 Limited sample size.
 High turnover rate of the employee in JGI. Therefore, the strength of purchasing
personnel varies from time to time, which may cause variation in data.
 Some of the interviewees may not provide all the facts about the group practices.

30
CHAPTER 4
ANALYSIS OF DATA AND DISCUSSION
This chapter presents an analyzed and discussed results obtained from the questionnaire
survey and interviews within the scope of the study with other relevant information
received and considering the underlined objectives of the study. Using simple excel
operation, the data was represented in tables. 13 questionnaires were administered.
4.1 Analysis of results from interviews
Upon interviewing of Key procurement personnel who had remarkable experience in
supplier evaluation they gave an insight of a technique they used in supplier evaluation
which provides important information to purchasing as well as to supply chain colleagues
relevant to manage supplier performance and initiate countermeasures. The first step of
evaluation is the identification of criteria which potential supplier will be evaluated upon.
The key performance indicators or criteria that were normally used for the evaluation are
cost, quality and timeliness of delivery.
4.1.1 Quality: - of the delivered goods which could be measured by the product quality of
each delivery as well as by the availability of certificates which should assure a certain
standard of production process including quality. Quality management departments are
able to evaluate the quality of goods by sample tests. Production inspections are also
conducted at the supplier’s site to assure the buying organization that quality guidelines
were being followed in producing the goods.
4.1.2 Cost:-or price performance measure refers to the direct monetary terms associated
with suppliers which can be measured in two ways: First by comparison with other

31
suppliers of the same commodity who are on buyer’s supply base to ascertain which
supplier was enabling the buyer achieve value for money taking also quality into
consideration or second by price increase/decrease provided by the supplier due to
deflations or inflations. Another strategic aspect is payment terms which are important
especially for liquidity of the buyer. The supplier was also appraised by whether it
considers high value commodities purchase by the buyer with long-term payment terms in
combination with discounts. Importantly, Logistics that is transportation of the goods were
also considered in the cost.
4.1.3 Timeliness of Delivery: - Lead times are time taken from order of the product by
user departments to the time suppliers deliver the goods. Interviewees also indicated that
suppliers who delivered earlier were ranked higher than those who delivered late.
After assessment of these criteria as against the individual suppliers the categorical
method of ranking was used to rank the suppliers by specifying levels of ‘good’,
‘normal’ or ‘poor’ to come up with the best performing supplier. Upon interview another
interviewee said that in their outfit what they did was to evaluate with laid down criteria,
most commonly used were cost, quality, service and time. Those suppliers who did not
meet the criteria are black listed in order not to do any businesses with them in future.
They did not consider developing on the suppliers who did not perform.

32
4.2 Analysis of results from questionnaires
4.2.1 Organizational evaluation of suppliers
Respondents were asked to indicate whether they do or do not evaluate suppliers. From
Table 4.1 it was noted that out of the total respondents 10 representing 100% of valid
percentage indicated that supplier evaluations were conducted in their organization. This
means that the study topic is relevant.
Table 4.1 Organizational Evaluation of Suppliers
Response Frequency Valid Percentage
Yes 10 100%
No 0 0%
Total 10 100%
Source: Researcher, 2017
4.2.2 Training on Supplier Evaluation
Table 4.2 sought to know the status of respondents whether they were trained or not on
supplier evaluation. Out of the 10 respondents who answered the questionnaires 3
indicated that they had taken training on supplier evaluation representing valid
percentage of 30% and may have better knowledge on supplier evaluation, 7 indicated
that they had not taken formal training on supplier evaluation representing valid
percentage of 70%. The idea here is that formal training on supplier evaluation is likely
to have a direct influence on effective supplier evaluations and therefore based on Table
4.2 majority of the respondent are not trained on supplier evaluation. This may led to
improper result of supplier evaluations. Thus best performer may rate as worse performer
and vice versa.

33
Table 4.2 Training on Supplier Evaluation
Yes 3 30%
No 7 70%
Total 10 100%
4.2.3 Experience in Procurement Function
Table 4.3, sought to establish the experience of the respondents in the Procurement sector.
Out of the 10 respondents who answered the questionnaires 3 indicated that they had been
in the procurement sector just below 5 years representing a valid percentage of 30% and
may have insignificant experience, 5 indicated 6 to 10 years representing 50% whiles the
remaining 2 indicated more than 10 years representing 20%. The experience of the
respondents in the context of this research is determined as the number of years of practice
and active involvement in the procurement sector. The idea here is that a person’s years of
experience is likely to have a direct influence on his knowledge on supplier evaluations
effectively and therefore based on Table 4.3 those who responded to the survey are
sufficiently experienced in the procurement section to provide credible data.
Table 4.3 Experience in Procurement Function
1-5 Years 3 30%
5-10 Years 5 50%
More than 10 Years 2 20%
Total 10 100%

34
4.2.4 Supplier Evaluation Period
All the responded evaluate their suppliers with majority of them having done it for 1 to
2 years as Table 4.4 shows. Hence supplier evaluation is a new concept in JGI.
Table 4.4 Supplier Evaluation Period
1-2 Years 6 60%
2-5 Years 3 30%
More than 5 Years 1 10%
Total 10 100%
4.2.5 Frequency of supplier evaluation
It was necessary to inquire from respondents, about frequency of supplier evaluation.
According to table 4.5 from the total respondents 6 representing 60% indicated that they
used to evaluate supplier on annual basis, 3 representing 30% indicated that they used to
evaluate supplier on half annual basis and only 10% indicated that they used to evaluate
supplier on quarter basis. This indicates the result of supplier evaluation using this
frequency may lead to misreporting to management.

35
Table 4.5 Frequency of supplier evaluation
Response Frequency Percentage
Quarterly 1 10%
Half annually 3 30%
Annually 6 60%
Total 10 100%
4.2.6 Cost only criteria for supplier evaluation
It was necessary to inquire from respondents, were they consider cost only as evaluation
criteria. According to table 4.6 from the total respondents 10 representing 100%
indicated that cost only was not criteria for evaluation. This indicates other criteria
besides cost are also use in practice to evaluate supplier.
Table 4.6 cost only criteria for supplier evaluation
Yes 0 0%
No 10 100%
Total 10 100%
4.2.7 Quality, Important Parameter of Supplier Evaluation
All the responded agree quality as an important parameter of supplier evaluation as
Table 4.7 shows. Hence quality is second important parameter of supplier evaluation
for each and every organization and none can avoid this parameter from supplier
performance evaluation.

36
Table 4.7 Quality, important parameter of supplier evaluation
Yes 10 100%
No 0 0%
Total 10 100%
4.2.8 Service, Important Parameter of Supplier Evaluation
Respondents were asked to indicate whether service is an important parameter of
supplier evaluation or not. From Table 4.8 it was noted that out of the total respondents 8
representing 80% of valid percentage indicated service as an important parameter of
supplier evaluation. This means that service provided by supplier has vital importance to
the buyer.
Table 4.8 Service, Important Parameter of Supplier Evaluation
Yes 8 80%
No 2 20%
Total 10 100%
4.2.9 Delivery, Important Parameter of Supplier Evaluation
Respondents were asked to indicate whether delivery is an important parameter of
supplier evaluation or not. From Table 4.9 it was noted that out of the total respondents 9
representing 90% of valid percentage indicated delivery as an important parameter of
supplier evaluation. This means that delivery is cannot be avoided from supplier

37
performance evaluation and has vital importance.
Table 4.9 Delivery, important parameter of supplier evaluation
Yes 9 90%
No 1 10%
Total 10 100%
4.2.10 Parameter rating on supplier valuation
Respondent were again asked to rate the four main parameter of supplier performance
evaluation on percentage basis. Table 4.10 and figure 4.1, sought to rate the parameter of
supplier performance evaluation. The average of rate given by all respondents is
calculated and presented on table. From table 4.10 it was noted that price is the first
important parameter representing 50% weightage followed by quality representing 25%
weightage, delivery representing 15% weightage and service representing 10%
weightage. Based on this result, a formula for supplier evaluation can be developed. But
during interview all respondent stated that they first choose supplier based on quoted
price, place an order, receive items and evaluate supplier on the basis of quality, delivery
and service provided by supplier. Hence it is best to develop overall vendor rating
formula based on quality, delivery and service.
Let, P = Overall vendor rating in percentage
Q = quality rating of items from supplier
T = delivery rating of items from supplier
S = service rating of supplier

38
Then, based on table 4.10,
P = Q ∗
0.25
0.50
∗ 100 + T ∗
0.15
0.50
∗ 100 + S ∗
0.10
0.50
∗ 100
Upon simplification, we get
P = Q ∗ 50 + T ∗ 30 + S ∗ 20 …………………..(Equation 1)
Table 4.10 Parameter rating on supplier evaluation
Parameter Average percentage
Price 50
Quality 25
Service 10
Delivery 15
Total 100
50%
25%
10%
15%
Figure 4.1 Parameter Rating on
Supplier Evaluation
Price
Quality
Service
Delivery

39
4.2.11 Sub-parameter rating on supplier evaluation
Respondent were again asked to rate the different sub- parameter related to quality,
service and delivery as per their organizational practices. The result of response is shown
in table 4.11. Based upon the result researcher try to develop formula to calculate quality
rating (Q), service rating(S) and delivery rating (T) with respect to corresponding sub-
parameter.
A. Formula for Quality (Q) Rating (%)
Let,
A = Total supply received
B = Supplies accepted as is good
C = Supplies accepted with major deviation
D = Supplies accepted with minor deviation
E = Supplies accepted after rework / segregation / sorting
Then,
Q =
B ∗ 100 + C ∗ 50 + D ∗ 70 + E ∗ 50
A
B. Formula for Service (S) Rating (%)
F = No. of supplies with correct invoices /documents
G = No. of supplies received with Certificate of Analysis
H = No. of times vendor was contacted
I = No. of times responded within 24 Hrs
J = No. of times responded after 24 but within 48 Hrs

40
Then,
S =
F ∗ 30 + G ∗ 40
A
+
I ∗ 30 + J ∗ 15
H
C. Formula for Delivery (T) Rating (%)
Let,
K = No. of supplies received on time
Then,
T =
K
A
∗ 100
Hence a formula for supplier evaluation has been developed from the response of
respondent. Anyone can evaluate supplier by putting values of Q, S and T on equation1.
Table 4.11 Sub-parameter rating on supplier evaluation
Sub-Parameter Average weightage
Supplies Accepted as is Good 100
Supplies accepted with major deviation 50
Supplies accepted with minor deviation 70
Supplies accepted after rework / segregation / sorting 50
No. of supplies with correct invoices /documents 30
No. of supplies received with Certificate of Analysis 40
No. of times responded within 24 Hrs 30
No. of times responded after 24 but within 48 Hrs 15
No. of supplies received on time 100

41
4.2.12 Supplier evaluation criteria
Many criteria can be used to evaluate suppliers. These include: the financial stability of
the supplier, quality issues, environmental friendliness of the supplier, supplier’s
organizational culture, price factors, production capacity of the supplier, employee
capabilities of the supplier preference and reservation, delivery and service. The
respondents were asked to indicate to what extent they used the criteria on a five point
scale. Where, 1=very small extent, 2= small extent, 3= moderate extent, 4= great extent
and 5= very great extent. The results are as in Table 4.12.
Table 4.12 Supplier evaluation criteria
Supplier
evaluation
criteria
Very
great
extent
Great
extent
Moderat
e extent
Small
extent
Very
small
extent Mean
Standard
Deviation
Financial Stability
of the supplier 4 4 2 0 0 4.20 2.113
Quality issues 5 4 1 0 0 4.40 2.266
Environmental
friendliness of the
supplier 2 6 2 0 0 4.00 2.314
Supplier’s
Organizational
Culture 0 4 3 1 2 2.90 1.949
Price Factors 6 4 0 0 0 4.60 2.499
Production
Capacity of the
supplier 3 5 2 0 0 4.10 2.165
Employee
Capabilities of the
supplier 4 4 1 1 0 4.10 2.060
Preference and
Reservation 1 2 3 2 2 2.80 1.706
Service 5 2 2 1 0 4.10 2.060
Delivery 5 3 1 1 0 4.20 2.113
Table 4.12 shows how respondent respond upon different criteria of supplier evaluation
to find out relevant criteria for JGI. As per respondent response, they consider pricing to

42
a great extent with a mean of 4.6, closely followed by quality issues, delivery, financial
stability, service, production capacity and employee capability of supplier. The worst
mean is for supplier organization culture and for preservation and reservation. Thus we
can say that besides cost, quality, delivery and service other criteria like financial
stability, production capacity, employee capability, environmental friendliness are
relevant for supplier evaluation in case of JGI. The standard deviations are smaller to
mean supplier evaluation is practiced.
4.2.13 Satisfaction level with current evaluation practices
Respondent were asked to indicate whether they satisfied with current evaluation
practices or not. Table 4.13 and figure 4.2 show the result of response. From Table 4.13
it was noted that out of the total respondents 6 representing 60% of valid percentage
indicated that they were not satisfied with current supplier evaluations practices. Only 4
respondents representing 40% of valid percentage indicated that they were satisfied. This
means that current evaluation practices require to review and latest development on
evaluation practices require to follow.
Table 4.13 Satisfaction level with current evaluation practices
Yes 4 40%
No 6 60%
Total 10 100%

43
40%
60%
Figure 4.2 Satisfaction Level with Current
Evaluation Practices
Yes
No

44
CHAPTER 5
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
The preceding chapter presented the results of the findings and discussions of the results by
supporting with empirical literature. This chapter sum up the study bring into its
conclusion. Accordingly, the first section is the summary part that presents the brief
overview of the report which is followed by the conclusion part which discusses the main
finding of the study and recommendation part. In the last part of the study direction for
future research is highlighted.
5.1 Summary
Supplier evaluation is a management activity whose primary aim is acquiring information
to analyze and to manage supplier relationships and supply situations. The process entails
the simultaneous consideration of a number of critical supplier performance features that
include price, delivery lead-times, and quality. The importance of supplier selection is
evident from its impact on firm performance and more specifically on final product
attributes such as cost, design, manufacturability, quality, and so forth.
Due to the high costs involved in the appraisal processes appraisal should be used in the
following situations: purchase of strategic high profit, high risk items, where potential
suppliers do not hold accreditation, purchase of non-standard items, expenditure on capital
items, global sourcing, outsourcing, placing of construction and similar contracts, when
entering into JIT arrangements among others. Suppliers may be evaluated in many ways:
financial ability, quality, production facilities, environmental issues, supplier’s
organizational culture, cost factors production capacity and employee capabilities among

45
others. But cost, quality, delivery and service are main criteria for supplier evaluation.
The aim of the study was to find supplier evaluation process in JGI. In order to meet aim of
study basic research was conducted by using descriptive study design. The 10 procurement
personnel from JGI were taken as sample. Observation, interview and questionnaire were
done to carry out the research. The respondents were given questionnaire having 13
questions. The table and figures have been made on the basis of data of response. The
analysis of data has been done by percentage method.
5.2 Conclusions
From the research it was found out that JGI’S procurement units evaluated their existing
suppliers using a simple technique of identifying the criteria or key performance indicators
for the process. A number of suppliers are all evaluated transparently based on the same
criteria. From the results the suppliers are ranked as good, very good or poor according to
the categorical method.
Results of this study found that currently used criteria were cost, quality, time and service
and have been found to be inadequate. Factors such as financial stability, production
capacity, employee capability, and environmental friendliness consideration are also
important dimensions in the supplier performance evaluation process.
During the research few strengths and weaknesses were identified;
5.2.1 Weaknesses inSupplier Performance Evaluations
Transparency: -It was realized that there was no transparency in the quotation raising
procedures in so doing one particular supplier was selected every time and on that basis

46
supplier could not be compared to others for performance. During the performance
measurement some suppliers were favored.
No short courses or training: -findings also revealed that JGI did not encourage their staff
to go on short courses/ training in supplier evaluation hence they were not well versed in
the process.
Poor institutional structures: -It was also found out that institutional structures were not
strong enough in the delivery of their functions in so doing correct measures and
procedures were not being followed leading to non-transparency in evaluation processes.
Infrequency of evaluations: -The study also revealed that Supplier evaluation methods
were usually known to be time consuming, so they are not performed frequently. It was
found that majority of suppliers evaluation was conducted only once a year. This
prevented JGI from knowing the performance of their suppliers or worse whether they
were achieving value for money or not. Infrequent appraisals did not facilitate the
prevention of inefficient practices at an early stage and did not encourage continuous
improvement of suppliers.
Approaches towards supplier performance evaluations:-It was found out that JGI did
not have approaches to supplier performance evaluation such as; Desktop research which
used published or unpublished information already in existence and was particularly
applicable to product and financial appraisals, it included financials of the company,

47
reports, references, strikes etc. They also did not undertake field research especially when
evaluating suppliers of high risk/high value products and when long-term, collaborative
relationships were under consideration.
Criteria category used: - It was also evident that the criteria used could be subjective or
objective. It has been known in practice that significant numbers of criteria are subjective.
The subjective criteria were found to be the ones that we cannot represent in a quantitative
way. Such as the decision desire of business expressed by a supplier is a subjective
criterion.
It was also found that both subjective and objective criteria were not considered in some
cases. In addition to the subjective criteria, the objective criterions which we can measure
are to be considered. An objective criterion is a criterion which we can measure by
concrete quantitative dimension like cost. Assessing only objective or only subjective
criteria could lead to skewed results. It is necessary to take account of both which in some
cases were not.
Bias or favoritism: - The report also found out that weightings and the actual scores given
to suppliers could be influenced by a biased buyer. This raises the issue of transparency
again since other suppliers on the evaluation list would not have been treated fairly.
Debriefing: -It was found out that after supplier evaluations those suppliers deemed to be
non-performing were not briefed and in so doing suppliers could not know how they faired
and work on developing themselves. JGI fails to feedback the results of the evaluation to

48
the suppliers in order to allow them to implement changes in their operations.
Errors in evaluation: -The research also revealed that errors came up in the evaluation
process by mistake or through the participation of a non-competent member of the
evaluation board. This went a long way to give skewed results at the end of the process.
Non-selection of proper evaluation criteria: It was also found out that proper evaluation
criteria were not selected. There were no careful selection of criteria relevant to the
evaluation hence the ultimate goal of the evaluation was always defeated.
Lack of competence: -The study revealed also that there was incompetence of evaluators
due to the fact that they were not well trained in the process or they were not of requisite
qualification relevant to the evaluations. Such evaluator did not undertake the process in
an ethical manner defeating the goal of the entire process.
5.2.2 Strengths in supplier performance evaluations
Supplier weaknesses identification: -It was realized that any short comings or
weaknesses in a particular supplier’s performance could be identified. Hence for long
term relationship of both parties weaknesses could be addressed and developed upon for
the benefit of both buyer and supplier.
Buyer supplier relationship improvement:- It was again found out that supplier
evaluation improves buyer supplier relationship in the long term as it will build trust to

49
engage in business with a well performing supplier for many years since the supplier will
be on an approved list or supplier base categorized under high performance levels. It also
helps to remove or reduce emotive issues such as personal relationships between buyer and
supplier.
Subjective and objective criteria: - The study also revealed that the use of both
objective and subjective measurements will give an overall picture of the supplier's
performance.
Encouragement for local suppliers: - The study also pointed out that by measuring
supplier performance, an organization can end up understanding if local suppliers are
capable of performing well enough to outperform offshore or foreign suppliers.
Mitigate risk: - Findings also point out that supplier performance evaluation can help
reduce business risk, particularly organizations increasing dependence on its key suppliers.
Risks can be financial and increase with geographic distance.
Tracks Supplier performance: - It was also found out from the study that supplier
evaluation help track suppliers’ performance whether they are performing or
underperforming and could form a bases of an investigation why suppliers are not
performing to required levels and thereby making strategic decisions to that effect.
Identifies supplier improvement opportunities:- Findings also pointed out that effective

50
evaluation can be used as the basis for continuous improvement. The goal of supplier
performance evaluation should be supplier performance improvement. While simply
measuring performance has a positive effect, supplier evaluation can be most effective
when it leads to continuous improvement activities and actual supplier performance
improvement.
Develops supplier: - It was also found that supplier performance evaluation help
suppliers to develop themselves knowing their weaknesses and their strengths in order to
make improvements on them. It encourages them to work hard in order to get themselves
enlisted on an approved supplier base of an organization.
Benchmarks suppliers against best practices: -Finally it was found out that
organizations can use the evaluation to check whether suppliers are conforming to key
benchmarks in terms of best practices required.
5.3 Recommendations
For JGI to perform effective supplier appraisals the following recommendations are
suggested.
Proper review of weighting for criteria: - JGI must review properly the weightings which
are to be applied to the performance appraisal criteria. It must reflect the needs (and
perhaps changing needs) of the organization. That is to say if the organization uses Just-In-
Time techniques, then delivery will probably require a higher weighting than, say, price or

51
other criteria.
Involvement of suppliers:-JGI may if necessary invite suppliers to make useful additions
to the criteria list. As it will help the supplier to improve his/ her performance if he/she is
aware of what criteria is being appraised and thus what is important to the purchaser.
Supplier rewards: - JGI should set up recognition and rewarding system. In this way,
there is visual and loud acknowledgement of outstanding supplier performance.
Recognition and reward can be in the form of annual supplier awards or letters of praise
from the CEOs of JGI.
Short courses/Training: - JGI should encourage professionals in their outfit responsible
for appraisals to attend short courses or training in supplier appraisals. Consequently, JGI
Board could organize workshops or seminars to educate professionals on the necessities of
appraising suppliers in order for organizations to conduct appraisals in their outfit. This
will build their confidence and gain competence in conducting appraisals in a professional
and ethical manner. This will also help rid off little errors made in the processes.
Debriefing or Feedback: -JGI must give feedback on the outcome of the appraisal process
to suppliers to enable them to identify their shortcomings and mistakes so that they can
develop on them which will go a long way to enable them to improve. In so doing a
supplier who did not fair well in an appraisal will confidently attain high performance level
in the next appraisal. This will enable suppliers to have a good understanding of buyer’s

52
needs and can improve their performance on specific dimensions, especially those of most
importance to the buyer. Increased performance on the part of the supplier will assist the
firm in its overall business objectives.
Bias/favoritism: - Outside investigators must be appointed to take part in appraisal
processes to ensure that there is no bias or favoritism by any member of the appraisal team.
There must also be an audit system to check the entire process to ensure that the whole
process was transparent.
Consideration of Multi criteria:- JGI instead of focusing mainly on cost, time, service
and quality as performance appraisal criteria must also consider a multi criteria involving
various other important areas such as, production capacity, human resource, production
facilities, past performance, previous experience etc. that is it is also necessary to consider
the type and amount of input resources (i.e., practices relating to the technical, managerial,
and operational capabilities) while also considering both objective and subjective
measurements that will give an overall picture of the supplier's performance.
Frequency of assessment: - Organizations must also be encouraged to conduct appraisals
frequently to keep track of supplier performance and identify suppliers who need to be
developed to ensure continuous improvement of the supplier.
Appraisal team: -JGI must set up team of competent personnel who are well versed in the
performance measurement such as purchasing or procurement officers. It is also very

53
important to include the user department in the team as they play an important role in usage
of goods procured and could really monitor such criteria as quality in the appraisal process.
Reinforcement of Institutional structures: - It is important to reinforce institutional
structures to encourage transparency in appraisal processes to discourage bias, favoritism
or corruption.
5.4 Direction for further research
Future researchers are advised to visit entire unit of JGI as possible. It would be more
rational to research especially on entire supplier appraisal process as it involves various
stages from identification of supplier to evaluation of supplier. It is also important to visit
all procurement personnel of JGI to make research more rational and would explore the
reality from inside.

Supplier evaluation

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Supplier evaluation

Similar to Supplier evaluation (20)

Recently uploaded

Recently uploaded (20)

Supplier evaluation