Vendor performance is usually measured by a series of agreed and
contractual Key Performance Indicators (KPIs) that are most relevant
and suited to the industry. This prevents any obscurity and means that
everyone involved knows what's expected from each party.
Managing and optimizing supplier performance is both critical and challenging.
Price isn’t everything. Your suppliers may be invoicing you within the agreed
pricing, but if the service isn’t up to the mark or if the goods are substandard, you
are not going to hit the savings target.
Supplier performance management provides in-depth visibility into the risk a
supplier may pose so you can put measures in place to reduce or eliminate that risk
as it relates to your supply chain.
Most companies rely on timely delivery, price reduction and service quality
offered by their suppliers in order to gain more profit. As a result, the successful
management of supplier performance directly affects the quality of the whole
supply chain. That’s why it’s essential to establish an efficient mechanism to
enhance it, accelerate its improvement, and ensure the quality of services and/or
products.
Benefits in Supplier
Performance Management
By measuring and monitoring supplier performance on an ongoing basis,
companies can realize some significant benefits.
Companies can avoid costly and potentially devastating supply disruptions.
Companies can reduce overall risk to other adverse scenarios like defects,
environmental problems, or safety issues with a supplier’s process,
materials, or products.
Companies that implement successful supplier performance management
programs will be better able to spot problems early and begin to implement
corrective actions before the problem becomes a big headache or hits the
bottom line.
These benefits are easily quantifiable. If a company knows that there are usually
100 supply disruptions during a year and each disruption costs an average of
$100,000 dollars, the monetary benefit of preventing even some of these
disruptions would be in the millions each year.
, Measuring Supplier Performance Management
Supplier performance management is usually managed with a series of key
performance indicators (KPIs). These KPIs are agreed upon and set forth in
the contract between buyer and seller. Most management solutions use dashboards
or balanced scorecards to measure supplier performance.
Common KPIs used include:
Payment terms
Prices
Quality of products
Frequency of price changes
Delivery lead times
Vendor financial stability
Competitiveness with other vendors
Communication lag times
Breakages
Under and over deliveries
The KPIs you choose should be suited to your industry and the ones that are most
relevant to you.
With the balanced scorecard method, your organization looks at a number of
weighted metrics across four areas:
Delivery
Quality
Relationship
Cost management
Each organization has different ideas as to how much weight to place on each
element. You can examine the metrics individually or as a group to provide a full
view of the supplier.
, Vendor Selection Process
UNIT 8 VENDOR SELECTION PROCESS
Structure
8.0 Objectives
8.1 Introduction
8.2 Vendor Selection Process
8.3 Factors Influencing Vendor Selection
8.4 Steps in Vendor Selection
8.5 Phases for Selection of Vendor
8.6 Vendor Evaluation Parameters
8.7 Let US Sum Up
8.8 Key Words
8.9 Answers to Check Your Progress
8.10 Terminal Questions
8.0 OBJECTIVES
After studying this unit, you should be able to:
describe the process in selecting a Vendor;
discuss the factors influencing Vendor selection;
explain the process of Vendor selection;
discuss the phases for selection of Vendor; and
analyse the Vendor evaluation parameters.
8.1 INTRODUCTION
.
The old mantra of „Right Product, Right Place, and Right Time‟ remains true
today but to this we should add „Right Supplier‟ – the supply relationship is
becoming increasingly critical in the delivery of the right product. In the
purchasing process, as a Buyer/ Merchandiser, one has many responsibilities and
tasks, but the most important aspect of purchasing is selecting the correct Vendor
or Supplier. As Companies are forced to improve their own products and services,
Vendors are pressured to upgrade their performance on quality, service and price.
In this unit, you will learn about the process of Vendor selection and the different
steps involved therein. You will further learn about the factors that are taken into
97
contractual Key Performance Indicators (KPIs) that are most relevant
and suited to the industry. This prevents any obscurity and means that
everyone involved knows what's expected from each party.
Managing and optimizing supplier performance is both critical and challenging.
Price isn’t everything. Your suppliers may be invoicing you within the agreed
pricing, but if the service isn’t up to the mark or if the goods are substandard, you
are not going to hit the savings target.
Supplier performance management provides in-depth visibility into the risk a
supplier may pose so you can put measures in place to reduce or eliminate that risk
as it relates to your supply chain.
Most companies rely on timely delivery, price reduction and service quality
offered by their suppliers in order to gain more profit. As a result, the successful
management of supplier performance directly affects the quality of the whole
supply chain. That’s why it’s essential to establish an efficient mechanism to
enhance it, accelerate its improvement, and ensure the quality of services and/or
products.
Benefits in Supplier
Performance Management
By measuring and monitoring supplier performance on an ongoing basis,
companies can realize some significant benefits.
Companies can avoid costly and potentially devastating supply disruptions.
Companies can reduce overall risk to other adverse scenarios like defects,
environmental problems, or safety issues with a supplier’s process,
materials, or products.
Companies that implement successful supplier performance management
programs will be better able to spot problems early and begin to implement
corrective actions before the problem becomes a big headache or hits the
bottom line.
These benefits are easily quantifiable. If a company knows that there are usually
100 supply disruptions during a year and each disruption costs an average of
$100,000 dollars, the monetary benefit of preventing even some of these
disruptions would be in the millions each year.
, Measuring Supplier Performance Management
Supplier performance management is usually managed with a series of key
performance indicators (KPIs). These KPIs are agreed upon and set forth in
the contract between buyer and seller. Most management solutions use dashboards
or balanced scorecards to measure supplier performance.
Common KPIs used include:
Payment terms
Prices
Quality of products
Frequency of price changes
Delivery lead times
Vendor financial stability
Competitiveness with other vendors
Communication lag times
Breakages
Under and over deliveries
The KPIs you choose should be suited to your industry and the ones that are most
relevant to you.
With the balanced scorecard method, your organization looks at a number of
weighted metrics across four areas:
Delivery
Quality
Relationship
Cost management
Each organization has different ideas as to how much weight to place on each
element. You can examine the metrics individually or as a group to provide a full
view of the supplier.
, Vendor Selection Process
UNIT 8 VENDOR SELECTION PROCESS
Structure
8.0 Objectives
8.1 Introduction
8.2 Vendor Selection Process
8.3 Factors Influencing Vendor Selection
8.4 Steps in Vendor Selection
8.5 Phases for Selection of Vendor
8.6 Vendor Evaluation Parameters
8.7 Let US Sum Up
8.8 Key Words
8.9 Answers to Check Your Progress
8.10 Terminal Questions
8.0 OBJECTIVES
After studying this unit, you should be able to:
describe the process in selecting a Vendor;
discuss the factors influencing Vendor selection;
explain the process of Vendor selection;
discuss the phases for selection of Vendor; and
analyse the Vendor evaluation parameters.
8.1 INTRODUCTION
.
The old mantra of „Right Product, Right Place, and Right Time‟ remains true
today but to this we should add „Right Supplier‟ – the supply relationship is
becoming increasingly critical in the delivery of the right product. In the
purchasing process, as a Buyer/ Merchandiser, one has many responsibilities and
tasks, but the most important aspect of purchasing is selecting the correct Vendor
or Supplier. As Companies are forced to improve their own products and services,
Vendors are pressured to upgrade their performance on quality, service and price.
In this unit, you will learn about the process of Vendor selection and the different
steps involved therein. You will further learn about the factors that are taken into
97
