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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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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)
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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
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