6/24/2015

8MajorRatingPlansareutilizedforVendorRating

8 Major Rating Plans are

utilized for Vendor Rating
byPragatiGhosh
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Afterthetrialordersareexecuted,itbecomesnecessaryforthebuyer
toratethevendorstoenablehimtodeterminehowheshouldapportion
hisrequirementsamongthevendors.
Inotherwords,thebasicresponsibilityofthematerialsmanagerisnot
onlytolocatethesourcesbutalsotopreservethemthroughcontinuous
rating.Avendorsperformanceinmeetingthequality,deliveryand
pricestandardssetbythebuyerhastobeassessedinasystematic
manner.

TechniquesofVendorRating:
Thepurchaseorganizationswatchhisenlistedsupplierscontinuously
andtakerequisitecorrectiveaction.Followingratingplansareutilized
forvendorrating:
(a)Categoricalplan
(b)Weightedpointplan
(c)Costratiomethod
(d)Eavastonsvendorselection
(e)Forceddecisionmatrix
(f)Servicecostratio
(g)Bellqualityratingsystem
(h)IBMqualityratingsystem.

(a)CategoricalPlan:
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Thecategoricalplanisasampleofallvendorratingschemes.Itrelies
heavilyonthejudgementandexperienceofthedecisionmaker.The
purchasermaintainsalistofhissuppliersandtheirproducts.The
vendorperformanceisreviewedperiodicallybyanevaluation
committeecomprisingofallrepresentatives.
Dependingupontheperformance,thevendorisgivenapluspoint,
neutralorminus.Theperformancetrendsoveraperiodoftimearebuilt
upandthevendorwithincreasingtrendofpluspointischosen.A
preponderanceofplusesorminusesneedsnotificationtosupplierwith
comments.
Onthebasisofexperienceandperiodicalmeetings,alistoffactorscan
beestablishedonthesuppliersperformanceineachareaandeach
factorisgivenagradingasnever,seldom,usual,always,etc.This
system,thoughnonquantitative,providesameansofsystematic
recordkeepingonperformancecriteria.

(b)WeightedPointPlan:
Quality,deliveryorserviceandpricearethethreemostimportant
attributesofagoodsupplier.Dependingupontheimportance,a
purchaserattachestoaparticularattributehefixesaweightageforit.
Thetotalweightagesarebeing100.Theweightages,forexample,of
theattributesareasfollows:
Quality60%
Delivery25%
Price15%
Thequalityrating(Table15.1),delivery(service)rating(Table15.2),
pricerating(Table15.3)andcompositerating(Table15.4)are
calculated.

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Theweightedpointplantechniqueenablesapurchasertoevaluatea
supplieronquantitativebasis.Thisplanismoreobjectivethan
categoricalplanandtheonlywaythesubjectivitycanenteriswhile
assigningtheweights.Properrecordshavetobekept.
Ifservicesofacomputerareavailable,thenthisplancanbeusedvery
successfully.Underthisplan,thesuppliercanbeclassifiedas
excellent,acceptable,averageandunacceptableiftheircomposite
ratingisover90%,between75%and90%,between60%to75%and
below60%.

(c)CostRatioMethod:
Thismethodrelatestoidentifiablepurchasingandreceivingcoststothe
valueofshipmentreceivedfromrespectivesuppliers.Thehigherthe
ratioofcoststoshipments,thelowertheratingappliedtothesupplier:
Quality,delivery,serviceandpricearetheusualcategoriestowhich
costsareallocated,aftersubdividingeachfactorintovariouselements.
Therespectivecostratiosaresuitablycombinedwiththevendors
quotedprice,todeterminethenetcost.Here,thevendorperformance
isreviewedperiodicallybyanevaluationcommitteecomprisingof
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representativesfromalldepartmentsinvolvedwithpurchasing.

(d)EavastonsVendorSelection:
Thesupplierspastperformanceisutilizedinthechoiceofvendorsand
thebasicstepsinthismethodareasfollows:(i)Thevendorsonthe
approvedlistarerankedonthebasisofthebuyerssubjective
evaluation,(ii)Thefirstsatisfactoryvendor,meetingorexceedingall
thestandards,(iii)Iftheappliedvendorsdonotfulfilltheminimum
standards,thentheminimumstandardmayberelaxedtillavendoris
chosen.Itpresupposesthatstandardsofacceptabilityforevery
criterionareformedtofitinordertotakedecisions.

(e)ForcedDecisionMatrix:
Theattributesofratinglikeprice,quality,service,reliabilityofthe
supplier,leadtimeofsupplyetc.areidentifiedfirst.Thenthese
factorsarecomparedbetweenthemselves,likequalityandprice.If
priceisconsideredmoreimportantthanqualitybytheevaluation
committee,thenaweightageofoneisgiventopriceandzeroto
quality.
Thequalityiscomparedwitheachoftheremainingfactorsandthe
relativeweightagesarerecordedintheformofatableormatrix.
Similarly,eachfactoriscomparedinturnwitheachoftheothersand
theirrelativeweightagesarerecorded.Weightagesgiventothe
differentattributesareaddedupforeachattributeanddividedbythe
totalnumberofcomparisonstogivetheattributeweightagecoefficient
foreachattribute.
Afterthis,thenextstepistocomparethesuppliersinpairsinrespectof
eachattribute,givingthesuperiorsupplieraweightageofoneandthe
other.Theseresultsaretabulatedandthesupplierweightageco
efficientisthusobtained.
Theabovetwotypesofcoefficientsarecombinedbymultiplyingfor
eachattributeandforeachsupplier.Thesearethenaddeduptogive
thetotalweightageandthisisrankedtotaketheappropriatedecisions
onthevendors.Theweightagecanbevariedandthematrixcanbe
suitablybuiltforalargenumberofsuppliersandevaluators.

(f)ServiceCostRatio:
Thereareotherintangibleaspectsofasuppliersservices.Theycan
onlybemeasuredsubjectively.Theprocedureisasfollows:
(i)ListingtheservicefactorslikeR&D,Labourstability,financial
stability,flexibilityinproductionforrushorders,etc.
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(ii)Assigningweightstoeachfactoraccordingtoitsimportancetothe
purchaser.
(iii)Settinganacceptablenorme.g.,outofatotalofa100service
points70maybeanacceptablenorm.
(iv)Ratingsuppliersforeachservicefactor.
(v)Determiningthepercentagebywhichthesupplierisoverorunder
theacceptablenorm.
(vi)Multiplyingthepercentageobtainedin(v)byvalueofpackage
percent.Forsophisticateditemsthevalueofpackagepercentmaybe
10%andforcommonBazzaritemsitmaybejust1%.
(vii)Thepercentagefigurearrivedatin(vi)isminusifthepercentagein
(v)isovertheacceptablenormandisplusifitisbelowtheacceptable
norm.
Thesampleprocedureofcalculatingtheservicecostratioisshownin
table15.5.

(g)BellQualityRatingSystem:
ThebellhelicoptercompanydevelopedaLotQualityIndex(LQI),which
giveanassessmentofalllotsreceivedagainstlotsrejected,by
dispositionandcategory,asthecompanyattachesgreaterimportance
toquality.TheLQIisgivenby:LQ1X/L,where
L=totalnumberoflotsreceivedduringtheperiod,x=(L1x1.00)+(L2
x2.10)+(L3x2.90)+(L4x3.10)
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+(L5x3.90)
L1=Numberoflotsacceptableasreceived
L2=Numberoflotsrejectedbysamplinginspectionbutlabelled.
L3=Numberoflotsrejectedanddispositioned,reworkatsuppliers
end.
L4=Numberoflotsrejectedanddispositioned,returnednotusableand
L5=NumberoflotsrejectedanddispositionedreworkatBellhelicopter
company.
Theweights1.00,2.10etc.weredeterminedatthecompanyaftera
carefulstudyofthecomplexityandnumberofoperationsrequiredto
haveausablelotfromaparticulardispositionedlot.Itisclearfromthe
aboveequation,thatthebestlotqualityindexfigureratesis1.0,the
worstis3.90.Theformulacanbemodifiedeasilytosuittheneedsofa
particularfirm.Thequalityratingcanbecombinedwithratingforother
parameters,todevelopsuitablevendorratingschemes.

(h)IBMQualityRatingSystem:
TheIBMratingsystemusesqualitycostsasthebasisforrating
suppliers.Theformulaforthevendorqualityratingis:
VGR=Desiredcostofinspection/Actualcostofinspectionx100
Thecostincurredininspectingacceptablematerialisthedesiredcost,
thecostofinspectingrejectedmaterialbeingexcludedfromit.The
actualcostofinspectionincludescostincurredininspectingacceptable
aswellasrejectedmaterialpluscostassociatedwithextrahandlingof
rejectedmaterial.
Inspectioncostisobtainedbymultiplyingtheactualtimespenton
inspectionbythestandardrate.Thematerialhandlingcostisfoundby
multiplyingthenumberofdocumentstoprocesstherejectedmaterial
byastandardcost.
Advantages:
TheIBMqualityratingsystemthefollowingadvantages:
(a)Factorsofcostusedarewellunderstoodbythesuppliers,
(b)Allratingfactorsarebroughtdowntocommonbasiccostsandcan
thereforebecombinedevenifthefactorsthemselvesaredifferent.

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(c)Someminordefectsareallowed,solongasthequality
requirementsareclearlymet.
(d)Itestablishesalongrangegoalofwhatagoodsuppliershould
supply.
(e)Nocomplicatedweightingfactorsarerequired.
(f)Whencentpercentinspectionisrequired,itprovidesforequitable
rating.
(g)Whencentpercentinspectionisrequired,itconsiderstheinspection
cost.
(h)Thesamedatacanbeusedtofindoutwhichsuppliers,costthe
companymoreandwhichitemsrequiremoreinspectiontime.Basedon
theinformation,inspectionmethodsmaybeimprovedandattentioncan
bedirectedtowardsthecostlysuppliers.
TheIBMsystemonqualityratingisuseful,whentherearealarge
numberofsuppliersvendingseveralproducts.Theinspection
informationisfeddirectlyintothecomputer(oraccountingmachine),
whichcomputestheratingsandsummarizestheinformationinvarious
ways,liketypeofdefects,partnumber,suppliercode,finalproductetc.
forfurtheranalysis.
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