Vendor A Person Who Deals In Material Regularly Purchased By The Company There Are Various Sources From Which

Information On Suppliers Of Different Types Of Material Is Available IMPORTANT SOURCES: I. Trade Directories: There Are Several Trade Directories Available Both Indian & Foreign These Directories Give Information On The Addresses, Regional Office, Names, Types & Range Of Products And Addresses Of Dealers Or Agent
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Trade Journal: Many leading companies advertise in trade journal & these therefore constitute on important sources of information about suppliers. These journals also sometime carry articles on specific industries & such articles often contain valuable information on development in the industry, including product and technological improvement. A purchase department benefits considerably if it contributes to journal which contain information relating to material they usually need. Relevant information can be called out classified, updated and maintained in proper files Telephone Directories: Most Telephone Directories especially in the big cities in India contain a considerable number of pages of classified advertisement, alphabetically arranged, item wise or GroupWise e.g.: abrasive, air conditioners, diamonds, duplicators. These advertisements contain considerable information and are fast becoming a good source of information on suppliers. There is however one drawback here most of the advertisers may be local companies Suppliers Catalogue: Many manufacturers produce catalogue or pamphlet periodically giving details of the product they manufacture. These catalogues can be easily obtained on request and most of the suppliers would be only too good to send their catalogues to purchase department if they know their goods are likely to be purchased catalogues contain technical information, specification, performance, etc Trade Exhibitions & Fairs: Exhibitions and Fairs are useful places for obtaining information on new suppliers, new product or modification
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of old product. Exhibition of specialist product are often held e.g.: textile machinery, motors, etc. visiting exhibition often provide an excellent means of expanding a buyers knowledge of new products and new products
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Salesman: They are very good sources of information for possible sources of supply. Salesman is usually on the move and is trained to keep their eyes and ears open in regard to the development that take place around them. They are therefore not fully conversant with potentialities of their own product but are usually well acquainted with similar products in the market. Because of their specialized knowledge, salesman can suggest new application for their products which in some cases may eliminate the search for new vendors Company personal: Specialist Personnel in other department e.g.: engineering, sales, etc within the company are another good sources of potential information. Through their own professional association or social groups these personnel learn about new or good suppliers. People involved in R&D usually have valuable information of this nature. The buyer should be able to this source properly and this is best done by relationship he maintains with colleagues in other department while requesting them from time to time for any useful information they might be having for him Purchase Department of other companies: Exchange of information on mutual basis with the purchase department of other companies would be extremely beneficial not only in regard of new sourcing but in regard to suppliers evaluation and also prices Public Tenders: One of the most common & popular method of sourcing is by advertisement in the press. The buyer state the product he wants and gives such other information necessary e.g.: specification or item of purchase. Potential suppliers respond and send their quotation. Usually there are special tenders firms in which they have to furnish the information required by the buyers

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EVALUATION OF POTENTIAL SUPPLIERS: there are various factors that go up to make a right supplier and all these factors have to be evaluated
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with reference to the buyers need before a supplier is finally selected. Some of the consideration is as follows: 1. Internal facilities: The suppliers should have adequate facilities to be able to fulfill the requirement on time and produce the goods of the quality required. He should also have quality control and testing facilities and should also be experienced to take charge of the production 2. Financial stability and adequacy: The suppliers should have an appropriate financial status and should be stable. Also the suppliers reputation in the market and with the bankers should be a positive one 3 Outlook: He should have a modern outlook and should be interested in improving his product by using modern techniques like value analysis 4. Reputation: This reputation in the market with regard to quality. price, promises, etc . Also if he is competent and capable enough to sell his product in the market 5. After sales service. He should have maintenance engineers who provide service after the delivery of the order or the product 6. Location: The location of his factory and his sales representation 7. Industrial relation: The labor relation in the factory. One has to be careful in dealing with companies who have industrial strikes & frequent strikes as it affects the suppliers 8. Manufacturer or an agent: A purchaser must always be conscious of the fact that there are always possibilities of obtaining better sources of supply. Better sources means sources from where more competitive rates, better quality, better service etc can be obtained. Continuous efforts must therefore be made to seek and find out such better sources 9. One or more suppliers: If the entire supply is to be purchased from one source there is a like hood of getting greater quantity discount. If the suppliers are made than one there is greater degree of dependability in the matter of suppliers in the sense that if even one supplier fails to supply the material required for some reasons, production will not suffer

EVALUATION OF SUPPLIERS
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Survey stage: All possible sources are explored and their capabilities are evaluated on the basis of primeful information either supplied by the vendor himself or through advertisement catalogues, broachers etc. a list is drawn up of those who have to be investigated further Enquiry stage: A detailed analysis is made after obtaining as much relevant information as it is necessary. The vendors may be asked to furnish information in a standard enquiry form and this may be followed by a plant visit. Enquires may be used of his present customers regarding his performance Negotiation & selection: The enquiry stage may reveal that quite a few of those considered as the survey stage do not come up to expectation. those vendors who pass the enquiry stage may fruitfully be called in for negotiation to discuss business possibilities and classify various terms like credits, quantity, discount etc. finally a list of approved and selected vendors is drawn up Experience stage: At this stage the buyer evaluates the performance of the vendor. There is feeling in the minds of many people but the objective supplier evaluation is to be the good from the bad and throw out the bad. the objective into improve the performance of the vendors in the areas in which they are deficient such as quality , delivery time, after sales service, etc. it is the service as the annual appraisal of the employees of the company. The idea is to correct their faults and improve their performance. The evaluations are on especially two major terms

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1: Quality: This is judged by the rejection of the material supplied by the vendors. If the rejection is high it means the vendors is not good enough. rejection often entail a lot of production problems for the buyers company especially If the material is a high value item where usually buffer stocks are low and purchase is strictly in accordance with actual stage . Production stoppages may occur with its attendant consequences
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2 Deliveries: If the delivery is not according to schedule similar problem are above can arise e.g.: the buyers production unit might be working on a tight inventory There is various ways in which suppliers can be evaluated: 1. Categorical method: This not a quantitve or a very scientific method. This method depends heavily on the experience and ability of the buyers and the change is therefore made that the evaluation can be very subjective. The buyer makes out a list of all factors which he consider necessary for evaluation and at periodic interval say once a quarter he makes out a performance report. they buyer may also seek the help of others concerned with the vendor supplies such as stores, production or quality control department in order to determine the grading to be given . A performance standard may be decided upon: 80 point and above out of 100 is excellent 70-80 points is very good 60-70 points is good 50-60 points is satisfactory 40-50 points is average Below 40 points is poor Though this method is subjective it has several merits. One is that the benefit the buyer, in order to arrive at a judgment would perform to keep a match and record the performance with the vendors. It is a very expensive method and detailed performance record need not be maintained 2. Weighted-Point Method: here the evaluation criteria are quantified on a point rating basis for the quality of goods received, the promptness of deliveries made and the quality of the service vendered by the vendor. These can be given points as: Quality : 50 points Delivery: 30 points Price: 20 points There can be any number of factors and each can be given a weighted rating in accordance with their relative importance as determined by the buyer. However the total of all these points should be 100 and a grading similar to the categorical plan be prescribed.
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In this method each performance is quantified based on actual performance e.g.: take the quality aspect let us say that of 160 lots received during the year 16 lots were rejected in account of poor quality The rating would be: Number of lots accepted X 50 Number of lots received = 144 X 50 160 = 45 For delivery rating, this can be evaluated as: Number of lots delivered on time lots delivered For price a similar method of calculation: Least offer received Offer Such a rating can be used for any number of factors considered as important with respect to the vendor 3. COST-RATIO METHOD : This method is a bit complicated for it involves an intricate systems of determining the actual costs incurring on purchasing, follow-up transportation, packaging, duties receiving, etc and determining the unit cost incurred by the buyer on the material when actually received , the higher this cost the lower the suppliers comparative rating. The cost to be allotted depends on the products the usual factors are quality, delivery, service and price. Cost relating to quality may include factors visit, approval of samples, inspections, rejections of incoming material, losses arising in production like reordering cost, rejections, etc. besides the usual purchase cost e.g.: telephones, telegrams, etc. X 20 Suppliers X 30 Number of

e.g.: the cost relating to quality works out to Rs. 2000 and we have purchased Rs. 2 lakhs worth of a particular material per year the quality cost rating is : 2000:200000 i.e. = 1% Similarly if the cost on delivery is Rs. 1000 the delivery cost ratios is: 1000:200000 i.e. = 0.5% The three methods of evaluation described above are intended to enable a buyer to exercise better judgments over retaining his vendors. The buyers experience would ultimately count Case study: Vendor Development

Analysis of the case: RRG Agrawal, purchase manager of TSL Home Appliances Company, faced a critical negotiation situation. The company needs major motor and rotor assemblies for a low-priced hand blender, designed and engineered to increase market share and sales revenue of the company. Quality, reliability and safety are the basic requirements, but at the same time lowest cost tops the priority list. Not even a single rupee should be wasted. There should be a minimum of overhead. In fact, materials, design and engineering department has developed a cost sheet for the vendors. The estimated costs are as under: Material Labour Overhead & profit for Vendors TOTAL Rs 75 Rs 75 Rs 70 Rs 220

RRG Agrawal was instructed by the company to adhere to the costs indicated on the cost sheet which they had developed. At the same time the sales department was bubbling with enthusiasm due to flowing of positive feedback and extremely good response from market research studies. Following is the sales target of TSL Appliances ltd. SALES TARGET
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1st year 2nd year 3rd year 4th year

50,000 units 1,00,000 units 2,50,000 units 2,00,000 unit

The company found the sales forecast good enough and decided to make the hand blender very attractive. It made a limited tender enquiry with three suppliers to review the design and specifications and ask the vendors to submit a proposal for the supply of 50,000 units. Mr. S. Nandre of BCD Co. made a quotation of Rs. 245 per head. He sated that tooling cost would be higher. If a three year contract for a 400,000 units is given, BCD will spread tooling costs and bring the price down to Rs. 229. Mr. Vinod Rao of LMK Co. was another vendor. He offered 100% return policy on rejections and good quality product at Rs. 225. Mr. Rao said that any product lower this price would be useless and he is afraid that the market would not accept the product. Mr. Anshul Gupta of RST Co. was not able to quote because of the interference from the design and engineering department of TSL home appliances. The company did not cooperate in providing the detailed drawings and estimates needed by him to make any kind of estimate. PROBLEM IN THE CASE Mr. RRG Agrawal informed the three vendors that the company would evaluate their proposals and write to them soon. Then, he made a summary of the proposals and presented it to the director G.R. Sharma. Mr. Sharma stated the fact that they were not in a position to pay more than Rs. 220 per unit. If the price is more than Rs.220, the project would be abandoned and Mr. Agrawal would be held responsible for the failure.

SOLUTION OF THE CASE TSL Company could rethink in terms of re-quotation with relaxation in design/engineering/packaging or other norms. BCD Company can reduce its quotation price by Rs. 11. Another step could be to increase the contracted units from 400,000 to 500,000 units. Then the overhead and fixed cost would spread over more units. Moreover, RST Company should be asked to quote after pacifying the disagreements between the buyer and the vendor. Moreover if TSL Home Appliances would co-operate in providing the drawings and estimates needed by the RST Company it would be possible for them to provide a better product at the lowest possible cost.