VENDOR VENDOR APPRAISALAPPRAISAL

Typical cost structure of manufacturing companies….

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Material Cost- 60 to 70%

Personal Cost Other Costs

….with such high contribution, Material cost has a significant influence on business performance

However, material cost is not the only cost that companies incur while acquiring parts….

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….hence, sourcing strategically is the key to higher business performance

• Cost of Material….Invoice Cost

• Cost on Material….Acquisition Cost

Invoice Cost

AcquisitionCost

Quality

Inventory

Execution

Sources of competitive advantage….

Selecting & Retaining good vendors

Vendor relationship management

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….hence, it is imperative for companies to have a good vendor appraisal system.

Challenges for Vendor Appraisal….

Increasing Complexity of Technologies

Increasing Industry Dynamics

Thinner Margins

Mismatch between Demand & Supply

Rapid changes in Business Environment

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….a good vendor appraisal system needs to address the above challenges

Key Objectives…Vendor Appraisal

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Selection of Vendors

Performance monitoring

Supplier Upgradation

Business Decisions e.g. Share, Pricing

Trigger for corrective

action

Audit requirements (e.g. QS9000)

Motivating Vendors (creating

competition)

Vendor rewards

Vendor Vendor AppraisalAppraisal

Types of Appraisals Systems….

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Appraisal Appraisal for for

SelectionSelection

Continuous Continuous Performance Performance

AppraisalAppraisal

Appraisal for Selection…the need

Assessing vendor capabilities before deciding on Long-term/ Short-term sourcing strategies (focus on evaluating vendor structure)

Identifying gaps between Desired performance & Actual vendor performance

Comparing of two vendors

Understanding industry standards

Tracking new opportunities

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Elements of Appraisal for Selection….

Technology (Product & Process)

System (Manufacturing & Quality)

Current Performance

Management strength

Logistics

Operating Effectiveness

Financial Capabilities

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Example- Vendor Appraisal for Selection….

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Criteria Wgt Below Avg

Avg Above Avg

Product & Process Technology

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

30%

Manufacturing & Quality Systems

Equipment maintenance

Inventory control

House Keeping and Safety

Rework Rejection (internal and external)

Raw material & Bought out inspection

Performance Testing - Final

ISO/QS Certification

30%

Contd….

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Criteria Wgt Below Avg

Avg Above Avg

Tooling Capability

Tooling Design, Mfg & maintenance

Tool sourcing

5%

Logistics

Distance & Regional advantage

10%

Current Performance

Schedule adherence

Leverage opportunities Buyers experience

15%

Management strength

Continuous improvement- Product & Process

Ability to visualize &adapt to changing customer & market needs

Cost analysis & control

Financial strength

Customer based future plans

10%

Continuous Performance Appraisal …the need

Performance monitoring

Tracking progress

– Strategy Implementation

– Supplier Upgradation

Trigger corrective actions

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Elements of Continuous Performance Appraisal

Quality

Cost

Delivery

General management

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Objective- How capabilities are being maintained…

Example- Continuous Performance Appraisal

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Criteria Wgt

Quality Response to quality problems

Receiving rejection

Continuous improvement in quality

Warranty status

40%

Delivery Flexibility

Schedule adherence

Dispatch information

Follow-up required

40%

Financial Capability Current Price

Ability to make investments

10%

General Management Continuous improvement & Innovation

Attitude

Industrial relations

Ethical standards

Management control

10%

Supplier Performance – Possible Factors to Evaluate

Sourcing and the Management of Suppliers

Quality

Dealing with problems

Continuous improvement

Provision of spares

Responsiveness

Cost and price management

Communication

On-time delivery

IT systems

Provision of clarification

Management of contract change

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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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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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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Discuss

Devise effective vendor appraisal system to be used by Paul for ‘DimS’ product.

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