INDUSTRIAL MARKETING

VENDOR ANALYSIS

Vendor analysis
Supplier-Extension of buyer's manufacturing or operating capacity without ownership and control rights Should meet specifications, delivery and price Delay in delivery and development adds to the cost Buyer expects supplier to meet standards of performance If buyer's requirements are available commercially or require standard proprietory products-He requires commodities and not capacities. Capabilities-Unique requirements Special design, performance, reliability features Expensive toolings Extended periods ,of preparation
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High set up costs Large quantities over extended period Evaluating vendor capabilities 1. Technical and Production capability Excellence and extensiveness of design and development engineering Production engineering Know how, sophistication for consistency in quality Production capability-Efficiency and completeness of manufacturing facilities, practical know how (subcontracting and procurement) It involves-On sight inspection of facilities ( Purchase, production engineering and sales)

Trained mind and experience Condition of plant Standard and special equipments used Adequacy of inventories Orderly conduct of process Quality control procedures Products manufactured

2.Financial capability
Credit standing Cash flow Equity Working capital Capability and ease for borrowing for additional investment

Financial ratios ( Liquidity ) Good profit record Net worth ( Raise fund easily) Volume of sales and growth plans Refusal to divulge information 3.Management capabilities Ability for planning, organising , integrating and controlling its resources-Man, material, time, cost, quality

Identify-Key management people, Titles, Responsibility,

Experience, Education Planning, scheduling, Inventory control system, information of machines Customers on list
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VENDOR RATING SYSTEM IS:12040-1987

Quality of product depends upon the quality of bought out materials/items Essential to procure material only from those vendors who have demonstrated their capability to supply the material of Desired quality and quantity Acceptable cost Time schedule Vendors need to be classified on scientific basis-Quality, price, delivery and service

Vendor rating system is a system of assessing the performance of a vendor in comparision of other vendors with a view to drawing up a comparative scale that can be used to arrive at a.Assess and select a vendor from group of vendors b.To continue or discontinue the vendor
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c.Area of competence e.g. Forging, machining d. Decide business share

Objectives
Vendor appraisal Trend in vendor rating for further action Vendor selection Rating acts as a guide for future comparative vendor selection Management policy Procurement policy Inspection Skip test, self certification

Development of long term relationship

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Vendor rating System It comprises of *Vendor rating *Assessment of new vendor *Vendor preferences

*Reward system
Vendor rating Based on *Quality *Price *Delivery *Service
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1.Quality rating (Qr) Qr= ( Q1+X1*Q2+X2*Q3 )/ Q* 100 Q1=Quantity accepted; Q2= Quantity accepted on deviation Q3=Quantity accepted after rectification Q=Total quantity supplied (=Q1+Q2+Q3+Q4 ) Q4=Quantity rejected X1=Demerit factor ( <1 ) for deviation X2=Demerit factor ( <1 ) for rectification

2.Price rating
Pr=PL /P* 100 PL = Lowest price P= Price quoted by vendor being rated Inclusion of life cycle cost-Operating cost, maintenance cost, disposal cost over useful life

Pr

Lowest of estimated life cycle cost per year ------------------------------------------------------------ X100 Estimated life cycle cost per year of vendor being rated

Life cycle cost= Initial cost+ support cost 3.Delivery rating

Q1 T Dr= --------x ----------------Q T*p + 1.5T1*q Q=Quantity promised to be supplied within stipulated delivery period Q1=Actual quantity supplied within stipulated delivery period' T=Promised delivery time for full consignment T1 =Actual delivery time for full consignment p=Q1/Q q=1-p

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Example Suppose a vendor has promised to supply 500 items in 15 days. He supplied 400 items in 15 days and all the 500 items in 20 days Q1=400,Q=500,T=15, T1=20 p=Q1/Q= 400/500 = 0.8; 400 Dr = ---------- X 500 q= 1-p =1- 0.8 = 0.2 15 ---------------------------------------- X 100 (15 x 0.8) + (1.5x 20 x 0.2 )

= 66.67 %
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4. Service rating ( Sr ) To be assigned by purchase department Service factor * Max score

* *

Cooperativeness and readiness to help S1 in emergencies *Readiness to replace rejected material S2 Providing support documents in time S3 Promptness in reply S4 *Cooperation in delivering and implementing S5 measures or avoiding reccurence of defects / complaints Total

100

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Composite vendor rating w1*Qr+ w2*Dr +w3* Pr +w4* Sr VR = -------------------------------------------------100 Rating Weightage Rating Weightage Quality Qr w1 Price Pr w3 Delivery Dr w2 Service Sr w4 Weightage decided by the management on experience and judgement Rating could be for one consignment or for a period of time

Vendor

Vendor

Rating
>=90 80-90

Class

Rating
60-80 <60

Class
C D
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A
B

Assessment of new vendors *New vendors assessed by V R committee *Vendor capacity reports are sent to vendor committee *Procurement department to carefully scrutinize vendor * capacity report. Ask clarification, if required. *Vendor committee representative will visit vendors to * verify and obtain information relevant to the product *for which vendor is to be assessed *Vendor capacity and vendor appraisal report put up to V R committee, who will select the vendor Vendor preferences

Class A vendors
*Establish long term relationships *As far as possible, use A class vendors for new products *Whenever choice between two A class vendors, use price *as a guide
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*If choice between A & B class vendor, and price of A is high, limited order to B class vendor *If choice between A & C, choose A even if A's price is high Class B and Class C Vendors *Sometimes, compulsorily, one has to deal with B & C. Provide help to enable them to come up to A through technical competence. *When choice between B & C, preference to B provided price difference is not substantial

Class D Vendors
Don't deal with them as far as possible Single source of supply If class A-Make efforts to prevent drying up the source or fall on quality rating If B or C -Efforts to achieve higher rating. Continuous efforts to develop alternate source for competition and Forcemajeure

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Vendor Awards General Security of present order level Trophies, certificates

Awards
Vendor of the month Vendor of the year Certification Certified vendors Skip lot Self certification

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