1. VENDOR
APPRAISAL

2. Typical cost structure of manufacturing
companies….
Personal Cost Other Costs
Material Cost- 60 to 70%
….with such high contribution, Material cost has a significant influence on
business performance
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3. However, material cost is not the only cost that
companies incur while acquiring parts….
• Cost of Material….Invoice Cost
• Cost on Material….Acquisition Cost
Quality
Inventory Acquisition
Cost
Execution
Invoice
Cost
….hence, sourcing strategically is the key to higher business performance
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4. Sources of competitive advantage….
Selecting & Retaining good vendors
Vendor relationship management
….hence, it is imperative for companies to have a good vendor appraisal
system.
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5. Challenges for Vendor Appraisal….
Increasing Complexity of Technologies
Increasing Industry Dynamics
Thinner Margins
Mismatch between Demand & Supply
Rapid changes in Business Environment
….a good vendor appraisal system needs to address the above challenges
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6. Key Objectives…Vendor Appraisal
Motivating Business
Vendors Decisions e.g. Audit
(creating Share, Pricing requirements
competition) (e.g. QS9000)
Selection of Vendor Supplier
Vendors Upgradation
Appraisal
Performance Trigger for
monitoring corrective
Vendor
action
rewards
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7. Types of Appraisals Systems….
Appraisal Continuous
for Performance
Selection Appraisal
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8. Appraisal for Selection…the need
l Assessing vendor capabilities before deciding on
Long-term/ Short-term sourcing strategies (focus
on evaluating vendor structure)
n Identifying gaps between Desired performance &
Actual vendor performance
r Comparing of two vendors
Understanding industry standards
d Tracking new opportunities
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9. Elements of Appraisal for Selection….
Technology (Product & Process)
System (Manufacturing & Quality)
Current Performance
Management strength
Logistics
Operating Effectiveness
Financial Capabilities
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10. Example- Vendor Appraisal for Selection….
Criteria Wgt Below Avg Above
Avg Avg
Product & Process Technology 30%
Range of products available/Access
Access to emerging product technology across
the globe
Prototype making & testing facility & lead-time
Machining
Gear cutting
Finishing operation
Assembly
Manufacturing & Quality Systems 30%
Equipment maintenance
Inventory control
House Keeping and Safety
Rework Rejection (internal and external)
Raw material & Bought out inspection
Performance Testing - Final
ISO/QS Certification
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11. Contd….
Criteria Wgt Below Avg Above
Avg Avg
Tooling Capability 5%
Tooling Design, Mfg & maintenance
Tool sourcing
Logistics 10%
Distance & Regional advantage
Current Performance 15%
Schedule adherence
Leverage opportunities Buyers experience
Management strength 10%
Continuous improvement- Product & Process
Ability to visualize &adapt to changing
customer & market needs
Cost analysis & control
Financial strength
Customer based future plans
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12. Continuous Performance Appraisal …the need
Performance monitoring
Tracking progress
– Strategy Implementation
– Supplier Upgradation
Trigger corrective actions
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13. Elements of Continuous Performance Appraisal
Objective- How capabilities are being maintained…
Quality
Cost
Delivery
General management
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14. Example- Continuous Performance Appraisal
Criteria Wgt
Quality 40%
• Response to quality problems
• Receiving rejection
• Continuous improvement in quality
• Warranty status
Delivery 40%
Flexibility
Schedule adherence
Dispatch information
Follow-up required
Financial Capability 10%
Current Price
Ability to make investments
General Management 10%
Continuous improvement & Innovation
Attitude
Industrial relations
Ethical standards
Management control
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15. Sourcing and the Management of Suppliers
Supplier Performance –
Possible Factors to Evaluate
On-time delivery
Quality
Dealing with problems
Continuous improvement
Provision of spares
Responsiveness
Cost and price management
Communication
IT systems
Provision of clarification
Management of contract change

16. Developing Vendor Appraisal System….
Similar basic criteria
Different weights based on commodities
Three point- Five point system???
Issues in development
– How to develop – Benchmarking v/s Evolution
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17. Characteristics of a Good Vendor Appraisal
System….
Simple to use
User friendly (input of data & retrieval)
Robust & Fast
Comprehensive- Covers all areas
Versatile- Good in variety of situation
Real time
Clarity of understanding
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18. Key issues during implementation….
Harder issues
– System related constraints
– Data capture
– Cost
Softer issues
– People issue…additional load
– Why people should evaluate
– Who should evaluate
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19. D scuss
i
 Devise effective vendor appraisal system to
be used by Paul for ‘DimS’ product.
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