104vendor appraisal
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VENDOR VENDOR APPRAISALAPPRAISAL
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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
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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
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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.
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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
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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
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Types of Appraisals Systems….
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Appraisal Appraisal for for
SelectionSelection
Continuous Continuous Performance Performance
AppraisalAppraisal
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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%
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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%
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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…
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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%
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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
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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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