If you are a manufacturer or someone working in the business world, then you know how complex it can be to choose vendors. It's crucial to make sure that you are selecting suppliers that are reliable and capable of providing quality products or services. That's where vendor rating comes into play. It provides an essential way for purchasers to evaluate potential vendors based on their performance history. The vendor rating system assesses a potential vendor's capabilities and determines their suitability for your needs.This blog post will explain vendor rating, its criteria, how to calculate vendor rating, eight techniques for supplier evaluation, types of vendor rating, tips to improve vendor performance, and what you should look for when assessing a vendor.Evaluate your vendor performance using our - Weighted Point Vendor Rating Calculator- Categorical Plan Calculator- Vendor Rating Cost Ratio CalculatorVideo IntroductionVendor Rating DefinitionVendor rating is when the suppliers are provided with a status or a title based on several factors. Vendors can earn a rating based on how reliable, punctual, and reasonably priced their goods are - not to mention the quality, of course!Ratings range from Good or Average all the way up to Best-in-Class – depending on performance and your company's overall criteria for success.Vendor Rating CriteriaWhen it comes to rating suppliers, there are key elements that buyers take into consideration.QualityThe quality of the products or goods the vendor supplies is the main factor. The vendor can maintain good quality by improving production and having quality planning in the supply chain. Quality factor consists following things.- The supplier should follow the terms and conditions mentioned in the purchase order.- The vendor's products or services must meet the specifications mentioned in the proposal and purchase order request.- The product failure rate should be within the appropriate limit.- The vendor should do proper repair or rework.- He should provide an adequate time duration for replacement.PriceA company always wants to get the materials at less expense to reduce its manufacturing cost to increase its profit. Hence the vendor needs to set a competitive price for his products. It includes the following things.- Stable price: The price of the product or service must be stable over time.- Accurate price: There should not be much difference between the purchase order and invoice prices.- Prior notice about price changes: They should inform about price changes in advance.- Billing: They must provide easily readable and understandable bills.Evaluate purchase order finance using our Purchase Order Financing Online Calculator.DeliveryThe supplier has to develop the ability to deliver the goods on a scheduled date. This factor consists following things.- Lead time: Lead time is between the actual delivery day and order placement day. The shortest lead time helps to get a good impression of the supplier. The vendor should deliver products on or before the promised date.- Quantity: They must deliver the correct amount of products as mentioned in the contract.- Packing and documentation: Packing of the products must be suitable, studied, and undamaged. The vendor should provide proper documents along with the delivered products.- Emergency delivery: The vendor must be able to deliver products in case of emergency requirements.You can calculate your vendors' delivery performance with the Delivery Performance Online Calculator.ServiceIt is one of the crucial criteria for the suppliers. They have to provide good service by providing an updated catalog, pricing, technical information, etc.- The vendor must have the ability to handle complaints effectively.- The vendor should provide technical support for installation, maintenance, and repair.- The supplier should support in the emergency condition of product failure or repair.- The supplier should find the solution to the problem on time.The supplier rating system is a by-product of the just-in-time approach. Just in time (JIT) is a lean manufacturing methodology designed to reduce the waste of time and resources by receiving goods only as needed. The JIT process was developed in Japan to maximize limited natural resources.One of the essential objectives of the supplier assessment system is that it helps buyers carefully choose suppliers for future transactions. The available data can also help to negotiate better and help the buyer with any information that might be useful during the process.Composite Vendor RatingComposite suppliers rating means rating vendors based on their product price, service, delivery performance, and quality of the product or services.Composite vendor rating procedureFollowing are the four primary rating criteria for composite rating.- Quality rating: Rate the quality of the product by considering two factors. They are quality acceptance and certification.- Quality acceptance means material purchased by the vendor should pass the first inspection level only so that we can consider that the quality of the product is good.- The material should have some quality certification like ISO(International Organization for Standardization) certification, IRS, ABS, DQA(WP), and DQA(N).- Price rating: Compare the price of the present vendor with other vendors and compare the material's current worth with the material's average cost for a chosen period.- Delivery rating: Rate the delivery performance of the vendor by comparing the actual delivery date with the predetermined delivery date.- Service rating: Rate the service based on the support provided by the vendor during post and pre-purchase orders and consider the warranty period.This way, do the composite rating by rating all the above factors and choose the best vendor for your business.Benefits of Vendor AssessmentThe following are significant benefits.- It helps the buyer understand the vendor in every critical aspect, and it helps to know whether the vendor is suitable to deal with. It does not deal with prejudices and word-of-mouth. It is more dependent on data.- It helps the buyers to strike the right kind of communication required.- It ensures a consistent vendor performance standard with updated performance reviews.- It helps the buyer identify areas of weakness in the vendor's performance and allows the buyer to take corrective actions.Disadvantages of Vendor RatingRating your vendor helps you to enhance your supply chain. But its significant disadvantage is losing trust. When you evaluate and rate your vendor, they might feel you do not trust them.It may impact your relationship with your vendor/supplier. However practical supplier evaluation helps the supplier to perform well.Supplier Evaluation or Vendor Rating Techniques- Categorical plan: Managers from various verticals list crucial factors for a vendor and assign performance ratings to each vendor in categorical terms such as "good", "neutral", and "poor". They give ratings based on their personal experiences, and vendors are compared based on the same.- Weighted point plan: Factors are categorized, and weight is assigned to each factor based on vendor performance.- Cost ratio plan: Supplier rating is based on different costs incurred for procuring the materials from other suppliers. The cost ratios are ascertained for the various rating variables such as quality, price, and timely delivery. The cost ratio is calculated in percentages based on the total individual cost and the total value of the purchase.- Eavastons's vendor selection: Previous vendor performances are considered for choosing them.- Forced decision matrix: The attributes of rating like quality, service, price, reliability of the vendor, and lead time of supply are identified first. Then these factors are compared between themselves. If something is more important, it will be assigned with one's weight, and the other will be zero for evaluation.- Service cost ratio: Subjectively measuring other intangible aspects of a supplier's services. Aspects to consider could be labor stability, financial stability, flexibility in production for rush orders, research, and development (R&D).- Bell quality rating system: This is developed by the Bell helicopter company Lot Quality Index(LQI). It assesses lots received against lots rejected. X/L gives LQI. Where, L = total number of lots received during the period, X = (L1 x 1.00) + (L2 x 2.10) + (L3 x 2.90) + (L4 x 3.10)+ (L5 x 3.90)- L1 = number of lots acceptable as received.- L2 = number of lots rejected by sampling inspection but labeled.- L3 = number of lots rejected and dispositioned, rework at supplier's end.- L4 = number of lots rejected and dispositioned, returned, not usable.- L5 = number of lots rejected and dispositioned rework at Bell Helicopter Company.- This formula can be modified easily to suit the needs of a particular company.- The IBM quality rating system: It uses quality costs as the basis for rating vendors. The formula is VGR= ((Desired cost of inspection)/(Actual cost of inspection)) x 100Types of Vendor RatingGenerally, there are three types of supplier evaluation.Evaluation with the help of recordsIn this type, you can use documents such as financial reports, logbooks, and journals to collect information about the supplier. Then, depending on the evaluation result, you can choose a suitable vendor for your business.After the event evaluationYou must find answers to questions like what happened. How did it happen? How did it fail? This data helps you to evaluate the vendor.Before the event evaluationIn this type, collect the historical data of the vendor to find his capabilities.Vendor or Supplier Selection ProcessNo matter which business you run, the vendor plays a vital role in your company. So, how do you select a good vendor or supplier?You can select a good vendor by evaluating the vendor. Below is the vendor evaluation process.- First, set performance criteria for the vendor. For example, consider your vendor's qualities, the vendor's financial condition, complaint history, quality management system, production process, and product quality. Based on these things, you can establish the performance of the vendor.- List out the vendors who meet your criteria. Now choose your vendor from that list by considering his services.- Keep on evaluating vendors quarterly/ yearly. Periodically do the audit to monitor the vendor.- Depending on the resources available, assign a person or a team to assess the vendor frequently.- Consider the type of relationship that the vendor has with you while selecting your vendor or supplier.Vendor Rating Example Let us rate two companies, A and B.Factors considered are quality, price, and delivery.Weights for each of the above factors. That is- Quality - 60%- Price - 20%- Delivery - 20%If we multiply each factor's values by their weights, we can derive ratings and compare which is better.Company A inputs:Total quantity supplied: 10 units, total quantity accepted: 8 units, price per unit: $10, Delay in delivery 20% time delay.Quality rating = (8/10)X100 = 80%Price rating = (Price Ratio Lowest / Simpler Price) x 100 = (10/10)X100 = 100%Delivery rating = 100 - 20 = 80%weighted vendor rating of company A = (80X60+100X20+80X20) = 84Company B inputs: Total quantity supplied: 20 units, total quantity accepted: 18 units, price per unit: $16, Delay in delivery 10% delay. Quality rating = (18/20)X100 = 90%Price rating = (Price Ratio Lowest / Simpler Price) x 100 = (10/16)X100 = 62.5%Delivery rating = 100 - 10 = 90%weighted supplier rating of company B= (90X60+62.5X20+90X20) = 84.5Though the price per unit of Company B is more than Company A, Company B still wins because of its overall rating.Gartner Vendor RatingGartner vendor rating is a method that provides the best content to the customer to evaluate vendors or providers for mutual benefits.It considers things like,- Product/Service offered by the vendor- Support provided by the vendor- The pricing structure of the product or services- Technology- Strategy- Corporate ViabilityIt rates the vendor from weak to strong.- Strong: Vendors with the best focus, quality products or services, and a good market position will come under this category. The customer feels comfortable and shows interest in continuing the relationship with the vendor. They consider this provider as the best choice for new investments.- Positive: Vendors with good focus and quality products/services will come under the positive category. Customers can continue working with vendors for planning investments.- Variable: Average vendors will come under this category. The customer should consider the maturity of the vendor and the short-term &long-term effects of the relationship.- Caution: Poor service providers will come under this type. The customer should understand the limitations of the vendor and eventually plan based on risk and future business effects.- Weak: Vendors with inferior performance will come under this category. Customers should consider this vendor only for planned investment and eventually arrange another vendor.Types of VendorTo choose a good vendor for your business, check out the type of vendor in the market. We can differentiate the vendors depending on their experience and dependence shown in the below image.You need to think about the experience and knowledge of the vendor when deciding to work with them.10 C's of Supplier Evaluation10C’s of supplier evaluation is defined by Dr. Carter, who is the DOSS consultant. In 1995, he wrote an article in the Journal of Purchasing and Supply Management. In that, he defined 7C’s of vendor evaluation and added three more C’s later.According to Carter, an organization must consider these 10 C’s while rating or evaluating its vendors.They are:- Competency - How competitive is the supplier? - Capacity - How capable is the supplier of fulfilling requirements?- Commitment - Is the vendor committed to supplying expected quality products or services?- Control - Does the supplier have control over policies and procedures?- Cash - What is the financial status of the supplier? Are they able to supply raw materials on time?- Cost - What is the cost offered by the supplier for their products? Is it worth it?- Consistency - Is the supplier able to provide quality products or services consistently?- Culture - What is the business culture of the supplier? Is that culture match your culture?- Clean - Does the vendor follow sustainable practices and green management rules? Is the vendor's business ethical?- Communication - What is the communication process? What is the response time?How do you Improve your Vendor's Performance?Here is a list of tips to encourage and improve supplier performance ratings. Read the full article
