VENDORS Evaluation and Selection

By

Shashank Soni

13MT07IND016

Importance of Supplier Selection Supplier Selection Process Benefits of Supplier Selection Process Supplier Evaluation Criterias Supplier Evaluation Methods

EXAMPLE PROBLEM CONCLUSION

One of the most impor tant processes per formed in organizations today is the evaluation, selection and continuous measurement of suppliers.

Selecting a vendor is now as impor tant a process as developing new products.

Supplier selection process is a multi-criteria problem, which includes both qualitative and quantitative factors.

Relatively small cost reductions gained in the acquisition of materials can have a greater impact on profits.

A sound supplier selection decision today can reduce a host of problems tomorrow

Steps in Supplier Selection Process

Evaluating Needs and Defining Objectives Gathering a Limited Pool of Vendors Interviewing with Vendors Selecting and Applying the Method

What need you are looking to satisfy?Increase product quality

Which evaluation categories you will use? What are your business, technical and usability requirements? What are the must requirements?

Max price, min performance, etc How will you score the requirements?

Evaluating all potential vendors takes much time

Basic screening and elimination due to lack of must requirements

One by one interview with vendors Gap analysis between your requirements,

objectives and vendor properties Scoring each criteria

Helping minimize subjectivity in judgment and make it possible to consider all relevant criteria in assessing suppliers.

Providing feedback from all areas in one package. Facilitating better communication with vendors. Providing overall control of the vendor base. Requiring specific action to correct identified

performance weaknesses. Developing a performance-based culture.

The evaluation criterias are fundamental to choose the best supplier. They are specific to each firm, because they vary according to the needs.

The criteria exposed are the most common ones.

Six categories of criteria selected

The six classes for the suppliers’evaluationMeasurement:

FINANCIAL HEALTH EXPERTISE OPERATIONAL PERFORMANCE METRICS BUSINESS PROCESSES & PRACTICES ENABLING BEHAVIORS OR CULTURAL

FACTORS RISK FACTORS

Select one among various methods THE CATEGORICAL METHOD THE WEIGHTED POINT METHOD THE COST-RATIO METHOD

Calculate overall vendor score using selected method

Select the vendor with best score

Basically, it is a procedure whereby the buyer relies on a historical record of supplier performance.

Initially, a list of evaluation criteria is identified.

The buyer then assigns a grade to each supplier, for each criterion, based on past experience.

A simple marking system of plus, minus, and neutral grades may be used.

Evaluation lists are often provided to other departments involved, such as quality control, engineering, production, and receiving

Vendors with composite high or low ratings are noted, and future supply decisions are influenced by them.

Although this system is non-quantitative, it is a means of keeping systematic records of performance.

It is also inexpensive and requires a minimum of performance data.

However, the process relies heavily on the memory and judgment of the individuals providing the ratings, and the ratings may become routinely performed without much critical thought

Weighted-point method quantifies the evaluation criteria.

A number of evaluation factors can be included, and their relative weights can be expressed in numerical terms so that a composite performance index can be determined and supplier comparisons made.

For example, following evaluation criteria have been chosen: quality of shipments, accuracy of delivery, and price.

Assuming that quality and delivery are the most significant, a point rating system such as the following might be used: quality, 40 points; delivery, 40 points, and price, 20

points.

The cost-ratio method relates all identifiable purchasing costs to the value of the shipments received from the respective suppliers.

The higher the ratio of costs to shipments, the lower the rating for that supplier.

What cost categories are used depends on the products involved.

Quality, delivery, service, and price are the overall categories, and respective costs are accumulated for each.

For example, costs associated with quality normally include

the costs of unusual visits to a vendor's plants, unusual inspection costs of incoming shipments, and all costs associated with defective products,

including rejected parts and the resulting manufacturing losses.

This study was conducted by a light engineering industry X on pressure die-casting ancillaries supplying common parts situated near the location of X. The study aimed to find the best out of the four vendors

K, L, M and N.. Criteria for evaluation were cost, quality, schedule adherence, system adaptability and general cooperation

weight Supplier k Supplier l Supplier m Supplier n

Quality 0.35 3 4 2 1

Price 0.15 1 2 4 3

Service 0.25 2 1 3 4

delivery 0.25 4 2 1 3

Similarly…

Supplier k 2.7

Supplier l 2.45

Supplier m 2.3

Supplier n 2.55

Result – According to the previous results, the higher weight belongs to supplier k,and is judge to be the best overall

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