Vendor Rating: A Tool for Quality in Supply Chain Management

Presenter:

Chandrmouli Singh

MBA (AB) II Year

Overview

Introduction

Objectives

Methods

Vendor rating: Industrial process

Observations

Deming’s fourth point

Conclusion

References

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

Origin: To improve the overall performance, many firms are focusing on their core competencies and outsourcing non-core activities

Specifying Communicating Dynamic monitoring

Increased outsourcing: increased the reliance of buyers on their suppliers

Need for effectively managing supplier performance capabilities

Strategy for improvement

Purchasing objectives

7 Rights

Quality

Quantity

Time

PriceSource

Service

Place

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

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

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

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

Methods

Categorical plan

Weighted point plan

Cost ratio plan

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 –

Authors(Range)

% Weightage – Industries

No. of Organizations Using Element

Range Mean StandardDeviation

1. Quality 30-40 24 40-100 66.875 19.77

2. Cost 35 0 – – –

3. Delivery25-30

19 20-60 37.894 11.219

4. Service 05 10-20 13.333 5.773

Weightages for Sub-Elements – Quality

Sub-Elements (Quality)

No. ofOrganizations

MaximumWeight (%)

MinimumWeight (%)

MeanStandardDeviation

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

Weightages for Sub-Elements – Delivery

Sub-Elements(Delivery)

No. ofOrganizations

MaximumWeightage (%)

MinimumWeightage

(%)

Average StandardDeviation

On-time delivery 13 1 0.4 0.82 0.273

Quantity reliability 5 1 0.5 0.67 0.288

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 pre-decide 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

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

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

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

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)

Thank you....Welcome for your Queries

Weighted point plan

Vendor Rating Elements

Weightages Given by Authors (%)

Juran and Gryna (1996)

Feigenbaum (1991)

Sinha et al. (1985)

Quality 40 40 30

Cost 35 35 40

Service and Delivery

25 25 30