Professional Documents
Culture Documents
AGENDA
Importance of Vendor Selection Vendor Selection Process Vendor Evaluation Criterias Vendor Evaluation Methods
VENDOR DEFINITION
A third party that performs functions on your companys behalf or provides services to your company. Some examples include:
Core Processing Information and Transaction Processing Security Monitoring System Development and Maintenance Print and Reprographics Strategic Alliances Internet Services
3
One of the most important processes performed in organizations today is the evaluation, selection and continuous measurement of Vendors. Selecting a vendor is now as important a process as developing new products.
Vendor selection process is a multi-criteria problem, which includes both qualitative and quantitative factors. Purchasing commands a significant position in most organizations since purchased parts, components, and supplies typically represent 40 to 60 percent of the sales of its end products. Thus relatively small cost reductions gained in the acquisition of materials can have a greater impact on profits. Vendors have a large and direct impact on the cost, quality,technology, and time-to-market of new products.
Organizations ability to produce a quality product at a reasonable cost and in a timely manner is heavily influenced by its Vendorscapabilities. Vendor selection is one of the key issues of SCM because the cost of raw materials and component parts constitutes the main cost of a product Management.
Which evaluation categories you will use? What are your business, technical and usability requirements? What are the must requirements?
y
OUTCOME: list of requirements, objective and criterias to evaluate the vendors and the way to score different criterias
Calculate overall vendor score using selected method Select the vendor with best score
The evaluation criterias are fundamental to choose the best Vendor. They are specific to each firm, because they vary according to the needs.
FINANCIAL HEALTH EXPERTISE OPERATIONAL PERFORMANCE METRICS BUSINESS PROCESSES & PRACTICES ENABLING BEHAVIORS OR CULTURAL FACTORS RISK FACTORS
FINANCIAL HEALTH
In order to evaluate if a potential Vendor is in good financial position, a buyer can use indicators such as:
y y y y y y
EXPERTISE
The purchasing department of the firm should choose its Vendors according to its capabilities:
y y y y y
Network capabilities Quality and production capabilities (dedicated level?) Technical level compared to sector average Spread of technical creation Investment in R&D
OPERATIONAL PERFORMANCE
There are a large number of criteria in this category, such as:
y y y y y y y y
On-time delivery Lead time Responsiveness Inventory management and control: reorder management, forecasting capabilities Order acceptance, processing & fulfillement Customer service Preventive maintenance Hours of operators training in Total Quality Control (TQC) or JIT
RISK FACTORS
A Vendors risks are risks for the buyer. Indeed, if a Vendor takes too much risk, it can have a great impact on his customer. Risk factors can be uncovered in the previous criteria exposed, but also in criteria such as: trade relations, currency exchange, insurance, legislations.
Basically, it is a procedure whereby the buyer relies on a historical record of supplier performance. Initially, a list of evaluation criteria is identified. The buyer then assigns a grade to each supplier, for each criterion, based on past experience. A simple marking system of plus, minus, and neutral grades may be used. Evaluation lists are often provided to other departments involved, such as quality control, engineering, production, and receiving.
21
Vendors with composite high or low ratings are noted, and future supply decisions are influenced by them. Although this system is non-quantitative, it is a means of keeping systematic records of performance. It is also inexpensive and requires a minimum of performance data. However, the process relies heavily on the memory and judgment of the individuals providing the ratings, and the ratings may become routinely performed without much critical thought.
22
Weighted-point method quantifies the evaluation criteria. A number of evaluation factors can be included, and their relative weights can be expressed in numerical terms so that a composite performance index can be determined and supplier comparisons made. For example, following evaluation criteria have been chosen: quality of shipments, accuracy of delivery, and price. Assuming that quality and delivery are the most significant, a point rating system such as the following might be used: y quality, 40 points; delivery, 40 points, and price, 20 points.
23
(A) %40 36 32 28
(A+B+C) Total 76 72 78
24
The advantage of the weighted-point plan is that a number of evaluation factors can be used with relative weights corresponding to the needs of the firm, thereby minimizing subjective evaluation. If this individually assigned plan is used in conjunction with the categorical method, suppliers can be evaluated on a quantifiable basis and many of the intangible aspects of service can still be considered.
25
The cost-ratio method relates all identifiable purchasing costs to the value of the shipments received from the respective suppliers. The higher the ratio of costs to shipments, the lower the rating for that supplier. What cost categories are used depends on the products involved. Quality, delivery, service, and price are the overall categories, and respective costs are accumulated for each.
26
27
For Complex Decisions raher than Correct Decision Mathematics and Human Psychology Government, Business, Industry, Healthcare, and Education. Decomposition of a problem into a hierarchy Evaluation of various elements comparing them to one another in pairs A numerical weight or priority is derived for each element of the hierarchy Thomas L. Saaty
Objective
y
Selecting a car Style, Reliability, Fuel-economy Civic, Saturn , Ford Escort, Mazda
Criteria
y
Alternatives
y
HIERARCHICAL TREE
Selecting a New Car
Style
- Civic - Saturn - Escort - Mazda
Reliability
- Civic - Saturn - Escort - Mazda
Fuel Economy
- Civic - Saturn - Escort - Mazda
RANKING OF CRITERIA
Weights? AHP
y
Selecti ew 1.0
St l .3196
li ilit .5584
l c .1220
RANKING ALTERNATIVES
Style Civic Saturn Escort M Mazda Civic 1/1 4/1 1/4 6/1 Saturn 1/4 1/1 1/4 4/1 Escort 4/1 4/1 1/1 5/1 Mazdta 1/6 1/4 1/5 1/1
Reliability Civic Civic Saturn Escort Mazda 1/1 1/2 2/1 1/5 1/1
Mazda 1/1
1/1
.2570
Miles/gallon Normalized
Fuel Economy (quantitative information) Civic Saturn Escort Mazda 34 27 24 28 113 .3010 .2390 .2120 .2480 1.0
Selecti ew 1.0
St le .3196
el c .1220
RANKING OF ALTERNATIVES
Style Reliability Fuel Economy .3196 * .5584 .1220 = .3060 .2720 .0940 .3280
THANK YOU