Factor affecting the selection of optimal suppliers or Vendor Ratings
Cost Criteria: The aim of this criterion is to identify vital element of cost associated with purchase. The most common cost related with a product is purchase price, transportation cost and taxes. Operational costs are also being considered during the supplier selection. The operational cost includes transaction processing; cost of rejects etc. but it requires more effort to estimate. Thus, cost is very important criterion for selection of right suppliers. The cost factor has been measured based on the importance of the following cost/price dimensions in supplier selection in telecommunication industry: raw material cost, cost due to delay, cost of inspection, after sales service, rework cost, engineering cost and labor cost. Profit maximization cannot be achieved without the cost minimization. The Factors (attributes) affecting this criterion include;
Price: The firm always requires the minimum price of the product to increase the profitability. The firm therefore must find a low-cost supply base where it can minimize manufacturing cost related to the production of the Product. Basically, price containment leads to supplier attractively.
Distribution Cost: This contains the lengthy distribution channel cost, transport expenses, inventory cost, handling and packaging Cost, damages during transportation and insurance costs. Since every business enterprise is out to procure at least cost possible, cost management brings a lot of business to suppliers who offer least cost, holding other factors constant.
Technical Capability: Suppliers’ need competent technical ability to provide high quality product or service, ensure future improvements in performance and promote successful development efforts. Especially, this is very important when the firm’s strategy included development of a new product or technology or access to proprietary technology. These technical criteria insist company to shift into the global market place. This factor has been measured on the basis of the importance of the following technical dimensions: compliance with quantity, compliance with due date, compliance with packaging standard, production planning systems of suppliers, and maintenance activities of suppliers, plant layout and material. The production facilities and ability of the supplier to increase its capacity should also be taken into account to Judge the best one. The potential production capability of each supplier should be analyzed to meet a specified Production plan and also to develop a new product according to the market demand.
Quality Assessment: Quality assessment is a key factor of suppliers by which they can improve and maintain quality and delivery performance. It is very important for the company and suppliers. Quality and availability of product depends on this criterion. This factor has been measured on the basis of the importance of the following quality dimensions: management commitment, product development of suppliers, process improvement of suppliers, quality planning and quality assurance in supply chain, quality assessment in production, inspection and experimentation and quality staff of supplier.The rejection rate of the product is defined in the terms of the number of parts rejected by the customers in fixed time period because of some quality problems. It also includes the defective parts detected in the incoming products. This encounters the issues like whether or not the frequent quality assessment of the parts has been done by the Supplier.
This factor has been measured on the basis of the importance of the following organizational dimensions: achievement of sales and marketing goals, financial performance, achievement of current organizational goals and strategy for technology age. Good suppliers should have high organizational power and advanced coordination skills.
Service Levels: The performance of the supplier in providing service to the manufacturer is the prime criteria to decide its Suitability for a particular product. The good service given by the supplier may help in increase the customer base and therefore, this criterion is important in global supplier selection. It is analyzed based on the following attributes:
Delivery: The ability of the supplier to follow the predefined delivery schedule is always the prime criteria for selection in this fast moving world. This means that suppliers who keep their promises are easier and profitable to work with.
Lead Time: This is the time between order and placement of material and the actual delivery. The shorter the lead time, the better the supplier. Every purchasing firm will be comfortable when the lead time is shortest possible. Long lead time has the impression that the specific supplier is less efficient or he just has more customers than he can serve thus delaying deliveries.
Ease of Communication: The ease of communication and negotiability with the suppliers decide the long-term relation between the Supplier and manufacturer. Since languages, business customs, ethics and communication devices vary from Country to country, good suppliers should be best communicators; good message in good time.
Supplier’s Profile: The performance and past history of the suppliers help in taking decisions for its selection. The components of a suppliers profile are summarized below:
Financial Status The financial status of the supplier can be analyzed by getting the information about the annual turnover of the Supplier and their financial structure based on the past history. The economic status of the supplier’s country may affect the currency exchange rate, local price control and so Forth. This can result in higher hidden costs for international sourcing and into during the supplier selection. A good supplier should have a good financial base so that incase of delayed payments, supply is not hindered.
Response of Customers: The response of the customers towards the supplier is one of the important factors to decide the performance of the supplier. Suppliers with good customer base should be preferred than the others. Customer numbers cannot lie, where the customers are, the deal is good.
Performance History: The performance history of the supplier should be analyzed carefully keeping in mind the competitive nature of the supplier, its past production schedule, response to market, and its ability to make commercial relations and business references. It is easy to get a profile of ageing supplier easier than new suppliers. Research shows that, old suppliers are more experienced and more stable in business.
Risk Factor Owing to a number of exogenous factors influencing international sourcing, global supplier selection is much riskier than its domestic counterpart. Consequently, the global supplier selection decision is most strongly affected by perceived risks. They can be stated as below:
Geographical Location: The location of the supplier and its physical and social status should be analyzed properly before selection of global partner. The home country of the supplier, the location of plant, the nature of natural calamities, and other factors should be checked before the selection because for long-term relation it may create problems in the supply of the goods.
Political Stability: The political status of the supplier’s country and its nature towards the business policies may affect the long-term relationship between the supplier and the manufacturer. The more stable government should be preferred. During change of political leadership, different foreign country’s policies may be changed. Accordingly and this may create big problems in further maintaining the relationship with suppliers. In this Connection, this must be analyzed in great precision with the help of the relevant experts.