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

Dynamic
Specifying Communicating
monitoring
 Increased outsourcing: increased the reliance of buyers on
their suppliers

 Need for effectively managing supplier performance

capabilities

 Strategy for improvement

Purchasing objectives

Quality

Place Quantity

7
Rights
Service Time

Source Price
 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

Element % Weightage – Industries
S. No. %
Weightage – No. of
Range Mean Standard
Organizati Deviation
Authors
(Range) ons Using
Element
1. Quality 30-40 24 40-100 66.875 19.77

2. Cost 35 0 – – –

3. Delivery 19 20-60 37.894 11.219

25-30
4. Service 05 10-20 13.333 5.773
 Weightages for Sub-Elements – Quality

No. of Maximum Minimum Standard

Sub-Elements Mean
Organizations Weight (%) Weight (%) Deviation
(Quality)
Quantity accepted 19 1.00 1.00 1.0 0

Quantity accepted with 10 0.75 0.25 0.6 0.184

deviation

Segregated and accepted 6 0.95 0.75 0.8 0.077

quantity

Segregated,
reworked and 10 1.00 0.25 0.6 0.200
accepted quantity

Quantity rejected 12 0 0 0 0
 Weightages for Sub-Elements – Delivery

Sub-Elements No. of Maximum Minimum Average Standard

(Delivery) Organizations Weightage (%) Weightage (%) Deviation

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 Weightages Given by Authors (%)
Elements

Juran and Gryna Feigenbaum Sinha et al. (1985)

(1996) (1991)

Quality 40 40 30

Cost 35 35 40

Service and 25 25 30
Delivery