Selection of Suppliers

To select a supplier from the list of vendors, a purchasing manager develops a list of satisfactory suppliers and asks them for a quotation for materials. Once the quotations are obtained, the purchasing manager examines the cost of the items and the other aspects such as delivery charges, discount structure and supplementary charges like taxes payable. The selection is made after analyzing the ability of the vendor to deliver the items in the required quantity with the required quality and promptness of delivery (on the basis of past experience with vendors). Vendor rating is a useful method used by purchasing managers to select suppliers.

Vendor rating is a scientific ranking technique, under which purchasing manager's rate vendors according to their performance. To start with, the purchasing manager identifies the factors that are important for evaluating the vendors. Since the importance of each of these factors is not necessarily the same, weights are assigned to each of them.

Then each of the vendors is 'scored' on a scale (usually 0-10), with reference to the factors considered. Then the score of each factor is multiplied with the appropriate weight to obtain the weighted score. The weighted score of each factor is added to obtain the vendor score. The vendor score is calculated for all the vendors and the vendor who gets the highest score is selected. 

Suppose the purchasing manager of a firm considers the following as important factors to evaluate vendors' performance: quality, delivery, cost, reliability of service, and production capacity. The weights assigned are 8, 7, 5, 3, and 2 respectively. The scores given to a particular vendor are 6, 8, 5, 4, and 6 respectively.

So the vendor score is (8 × 6) + (7 × 8) + (5 × 5) + (3 × 4) + (2 × 6) = 153.

All the vendors are given the scores and vendor score is calculated for each vendor. Then the vendor whose score is the highest is selected.              

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