EVALUATION

C. EVALUATION AND SELECTION OF THE SUPPLIER

The purchase policy and procedure differ according to the type of items to be purchased. Hence,

evolution and selection of the supplier differ accordingly. In the ‘purchasing handbook’ edited by

Aljian, it has been described that the following variables to be considered while evaluating the

quotations of the suppliers:

1. Cost Factors

Price, transportation cost, installation cost if any, tooling and other operations cost, incidence of

sales tax and excise duty, terms of payment and cash discount are considered in cost factor.

2. Delivery

Routing and F.O.B. terms are important in determining the point at which the title to the goods

passes from vendor to the buyer and the responsibility for the payment of the payment charges.

3. Design and Specification Factors

Specification compliance, specification deviations, specification advantages, important dimensions

and weights are considered in line with the demonstration of sample, experience of other users,

after sale services etc.

4. Legal Factors

Legal factors include warranty, cancellation provision, patent protection, public liability, federal

laws and reputation compliance.

5. Vendor Rating

The evaluation of supplier or vendor rating provides valuable information which help in improving

the quality of the decision. In the vendor rating three basic aspects are considered namely quality,

service and price. How much weight should be given to each of these factors is a matter of

judgment and is decided according to the specific need of the organization. Quality would be the

main consideration in the manufacturing of the electrical equipments while price would be the

prime consideration in the product having a tense competitive market and for a company procuring

its requirements under the blanket contract with agreed price, the supplier rating would be done

on the basis of two variables namely quality and delivery.

The Development Project Committee of the National Association of Purchasing Agents

(U.S.A.) has suggested following methods for evaluating the performance of past suppliers.

1. The categorical plan: Under this method the members of the buying staff related with

the supplier like receiving section, quality control department, manufacturing department etc., are

required to assess the performance of each supplier. The rating sheets are provided with the record

of the supplier, their product and the list of factors for the evaluation purposes. The members of

the buying staff are required to assign the plus or minus notations against each factor. The periodic

meetings, usually at the interval of one month, are held by senior man of the buying staff to consider

the individual rating of each section. The consolidation of the individual rating is done on the basis

of the net plus value and accordingly, the suppliers are assigned the categories such as ‘preferred’,

‘neutral’ or ‘unsatisfactory’. Such ratings are used for the future guidance.

The evaluation of each supplier is made in accordance with the aforesaid factors and

weights and the composite weighted-points are ascertained for each suppliers—A, B and C—

are rated under this method. First of all the specific rating under each factor will be made and

then the consolidation of all the factors will be made for the purpose of judgment.

Quality rating: Percentage of quantity accepted among the total quantity is called quality

rating. In other words, the quality of the materials is judged on the basis of the degree of

acceptance and rejections. For the purpose of comparison, the percentage degree of acceptance

will be calculated in relation to the total lots received. Price rating is done on the basis of net

price charged by the supplier. Timely delivery rating will be done comparing with the average

delivery schedule of the supplier.

3. The cost-ratio plan: Under this method, the vendor rating is done on the basis of various

costs incurred for procuring the materials from various suppliers. The cost-ratios are ascertained

delivery etc. The cost-ratios are ascertained for the different rating variables such as quality,

price, timely delivery etc. The cost-ratio is calculated in percentage on the basis of total individual

cost and total value of purchases. At the end, all such cost-ratios will be adjusted with the quoted

price per unit. The plus cost-ratio will increase the unit price while the minus cost-ratio will

decrease the unit price. The net adjusted unit price will indicate the vendor rating. The vendor

with the lowest net adjusted unit price will be the best supplier and so on. Certain quality costs

can be inspection cost, cost of defectives, reworking costs and manufacturing losses on rejected

items etc. Certain delivery costs can be postage and telegrams, telephones and extra cost for

quick delivery etc.