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Supplier Selection Criteria- An Overview
A Major Project Report By IRSS-2012
Contents
1.1 INTRODUCTION
..................................................................................................................................
2
1.2 SELECTION OF CRITERIA IN RESEARCH
...............................................................................................
2
1.3 QUANTIFICATION OF CRITERIA FOR SUPPLIER SELECTION
..................................................................
3
1.4 SYSTEMS AT MAJOR MANUFACTURERS
.............................................................................................
6
1.4.1 BHEL- Bharat Heavy Electricals Limited
...............................................................................
6
1.4.2 ABB
........................................................................................................................................
11
1.4.3 VOLVO
..................................................................................................................................
12
1.4.4 ALCOA HOWMET
................................................................................................................
14
1.4.5 General Dynamics Land Systems
..........................................................................................
17
1.4.6 Ordnance Factories Board
(OFB).........................................................................................
18
1.4.7 RAIL COACH FACTORY - INDIAN RAILWAYS
..................................................................
21
1.4.8 COAL INDIA LIMITED
........................................................................................................
23
1.4.9 STEEL AUTHORITY OF INDIA LTD (SAIL)
........................................................................
26
1.4.10 LOCKHEED MARTIN AERONAUTICS
...........................................................................
29
1.4.11 UNITED TECHNOLOGIES CORPORATION
.................................................................
30
1.4.12 SCHAEFFLER TECHNOLOGIES AG & CO. KG
........................................................... 31
1.4.13 BUREAU OF INDIAN STANDARDS, IS 12040:2001
...................................................... 36
1.5 REFERENCES
....................................................................................................................................
40
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1.1 Introduction
The dynamics of market has forced all manufacturers to resort to
large scale outsourcing.
Traditional manufacturers have been forced to outsource major
activities. Selecting a
supplier is a very complex and risky process since the factors
responsible for selection are
difficult to be quantified. It is not possible to quantify all
factors and predicting suppliers
behaviour is quite difficult. For a public procurement agency it
is all the more difficult as
it has to maintain the image of a fair, transparent and just
decision maker. The
manufacturers and companies have evolved several methods for
supplier evaluation. Few
of the systems followed in major companies were analyzed for
finding patterns of
similarity and also their closeness to models in research.
Generally quality is considered
the most important criteria for selection of supplier. But
quality is not the factor which is
decisive, in most cases it is the purchase price. Thus an
integrated approach is must for
qualifying the suppliers. The paper has analyzed a few of the
major manufacturers
systems to get a fair idea of prevalent practices in industry.
The research done on this
topic of supplier selection has been compiled to find the gaps
and similarities. The aim of
the work is to reconcile the practice with research.
1.2 Selection of criteria in research
Bureau of Indian Standards has published a standard IS:
12040-2001 which provides the
broad guidelines for development of Vendor Rating System. The
standard stipulates
Quality, Price, Delivery, Service and System as five key factors
to work out rating
system.
Factors for supplier evaluation which have evolved over the
years have been compiled as
listed in Table I.
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Table I Factors/criteria for supplier selection
FACTOR/CRITERION
Quality systems in operation at the suppliers place/quality
philosophy
Financial capability of the supplier
Technological capability/R&D capability
Reputation for integrity/believability and honesty/Vendors
image
Existence of IT standards/communication system
Performance awards/performance history
Bidding procedural compliance
Profitability of suppliers
Breadth of product line/ability of a supplier to supply a number
of items
Suppliers proximity/geographic location
Management and organization
Contribution to productivity
Conflict resolution
FACTOR/CRITERION
Production facilities and capacity
Communication openness
Labour problems at the suppliers place
Business volume/amount of past business
Price
Quality/Reliability of the product
Ability to meet delivery promise/ Delivery lead time/ Consistent
Delivery
Management sensitivity to buyers requirements/ Attitude
After Sales Support/ Technical support available
Positive attitudes towards complaints
1.3 Quantification of criteria for supplier selection
The important point in the selection of criteria is that they it
must be possible to quantify
them and the data also be available. Each such criterion,
therefore has been analyzed
(Table II) for its feasibility to be included in the list of
selection criteria.
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Table II Feasibility of selection criteria
CRITERION FEASIBILITY
Quality systems in operation at the suppliers place/quality
philosophy
For existing suppliers, only certificate can be asked, cannot be
quantified. This will automatically reflect in the quality of
supply. But for assessing capability of potential supplier, this is
an important basis.
Financial capability of the supplier
For new bidders this can be factor, but no discrimination can be
done on this basis and it is difficult to assign ranking to a
prospective or current supplier. This can also have the effect of
restricting competition and allow only established players to
bid/supply. But even with this drawback, it is a very important
factor while determining potential suppliers.
Technological capability/R&D capability
For regular well established items, this may not be a important
criterion. Moreover, there is no scale possible for this subjective
opinion. This can have a similar effect as financial capability
criterion. When new suppliers are invited, this again is very
important. Independent expert opinion may be required for assigning
ranking/marks for this criterion.
Reputation for integrity/believability and honesty/Vendors
image
This is a very important. However, to assign ranking is a very
difficult problem. And in the present condition, the onus of
ranking the integrity lies with the purchasing organization. This
therefore, cannot form the part of selection criteria.
Existence of IT standards/communication system
This is an important for increasing the efficiency of the
supplier; however, the purchasing organization should be more
concerned about delivery and quality than the internal arrangements
of the supplier. The professionalism of the supplier is best
reflected in the ensuing supplies. This criterion also cannot be
quantified to a satisfactory level with reduced subjectivity. For
potential suppliers some credit has to be given for their
systems.
Performance awards/performance history
This is an important criterion, but is covered in quality of
product and delivery history. It can be a basis for a potential
supplier. Credit can be given for market reputation and delivery
performance for other supplies.
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Bidding procedural compliance
Without this in public procurement no supplier can qualify so it
is a redundant criterion in case of public procurement.
Profitability of suppliers
It may not be possible to assess this factor completely;
moreover the focus of organization is on quality and timely
delivery. If these are achieved this criteria becomes redundant. If
the supplier cannot breakeven then it may no longer supply and
which is surely a matter for concern. But in public procurement
quantifying is must which only can lead to objectivity, but for
this factor it will not be possible.
Breadth of product line/ability of a supplier to supply a number
of items
This item is not quantifiable. Since the aim is to reduce
subjectivity it will not qualify to be in the criteria list.
Moreover, when the judgement has to be on several items this will
play an important role but as long as the supplier is being
evaluated for a single item, it does not matter.
Suppliers proximity/geographic location
This is an important factor in reducing cost of transportation
and ease in case of crisis. But in a globalization era, this may
not be right way to assess suppliers.
Management and organization
Cannot be quantified
Contribution to productivity
This will automatically reflect in price of product and cannot
be quantified.
Conflict resolution This also cannot be quantified and any
opinion will be subject of dispute.
Production facilities and capacity
This is an important criterion for first time registration of
suppliers, once the track record of supply is there, it may not be
useful
Communication openness
Cannot be quantified
Labour problems at the suppliers place
Similarly, this criterion also cannot be quantified.
Business volume/amount of past business
This criterion is important for assessment of new suppliers.
Price This is a very important criterion and can be
quantified
Quality/Reliability of the product
This is a very important factor and methods to quantify this are
available.
Ability to meet delivery promise/ Delivery lead time/ Consistent
Delivery
This can be quantified and one of the most important criterion
for a supplier to qualify.
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Management sensitivity to buyers requirements/ Attitude
Difficult to quantify but is covered in warranty obligations
etc.
After Sales Support/ Technical support available
This is an important factor and can be quantified on basis of
history of problem resolution for old suppliers and industry
feedback for new suppliers.
Positive attitudes towards complaints
This can be factored in a common criterion service which
includes a few of the above mentioned criteria.
Based on past research, and evaluation of criteria applicable
and manageable in present
context, the four salient criteria which may be identified as
most relevant in supplier
evaluation and selection are,
a. Quality
b. Delivery
c . Price
d. Service
The principle to be adopted is You cant manage what you dont
measure.
1.4 Systems at Major Manufacturers
Few important and famous companies whose supplier evaluation and
rating system could
be found have been detailed to find out the which are the most
relevant and practical
criteria for supplier evaluation and selection.
1.4.1 BHEL- Bharat Heavy Electricals Limited
Bharat Heavy Electricals Limited (BHEL) is a Public Sector
Enterprise manufacturing
integrated power plant equipments It is based in New Delhi,
India. BHEL was established
in 1964, ushering in the indigenous Heavy Electrical Equipment
industry in India. It is
engaged in the design, engineering, manufacture, construction,
testing, commissioning
and servicing of a wide range of products and services for the
core sectors of the
economy, viz. Power, Transmission, Industry, Transportation,
Renewable Energy, Oil &
Gas and Defence. It has 15 manufacturing divisions, two repair
units, four regional
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offices, eight service centres, eight overseas offices and 15
regional centres and currently
operates at more than 150 project sites across India and abroad.
Most of its manufacturing
units and other entities have been accredited to Quality
Management Systems (ISO
9001:2008), Environmental Management Systems (ISO 14001:2004)
and Occupational
Health & Safety Management Systems (OHSAS 18001:2007).
It is the 7th largest power equipment manufacturer in the world.
It has a workforce of
about 50,000.
BHEL has a scientific method of Supplier Performance monitoring
and rating system.
Supplier Performance Rating (SPR):
Supplier performance is assessed with respect to the following
main factors and it is
calculated for each consignment/ purchase order:
Rating Weightage
Quality 60
Delivery 30
Service 10
Total 100
Quality Rating (QR) is given 60% weightage.
Quality rating is based on acceptable quantity of material
offered for inspection or
delivered by supplier
=(1 + 0.75 2 + 0 3) 60
where,
Q =Quantity inspected
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Q1 =Quantity accepted
Q2 =Quantity accepted with concession / deviation/
rectification
Q3 =Quantity rejected
The pre-inspection report (at suppliers works) includes the
quantity accepted after
rework in Q2 category.
Delivery Rating (DR) is given 30% weightage
Supplier is rated on delivery parameters as follows.
Adherence to P.O delivery date 30
One mark is deducted for each days delay.
Service Rating (SR) is given 10% weightage
Service Rating is given on the basis of the following
criteria.
SR
Cooperation and readiness to help in emergency, submission of
Support documents such as GA Drawings, TC,GC etc. as applicable,
submission of final technical documents, O&M Manuals and as
built drawings complete and in time.
5
Promptness in reply/attending quality problems at site/shop
5
Thus, the Supplier Performance Rating (SPR) = QR+DR+SR
The period for calculation of SPR is previous year plus elapsed
period of current year or
period for last three executed purchase orders whichever is
more.
There is a system of FEEDBACK FROM SHOP FLOOR at BHEL. If
non-
conformance/defects in components are noted while processing at
shop floor overall
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performance rating will be multiplied by demerit factor (DF).
The demerit factor is
calculated in the following manner:
DF
Components used after rectification 0.9
Components replaced by supplier 0.8
Supplier does not rectify/ replace/respond 0.0
Supplier Rating
Now based on total score the supplier performance is rated.
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Total Score Rating Action
98-100 A1 Supplier can be considered as Preferred Supplier for
self certification and long term contract.
90 to less than 98 A Supplier can be considered for self
certification 100% Quality Rating consistently.
Supplier can be considered for reduced witness points during
inspection. Supplier can be considered for long-term contracts.
75 to less than 90 B Supplier to be informed about deficiency
for immediate corrective and preventive action.
Supplier can be considered for long-term contracts.
60 to less than 75 C Supplier to be informed about deficiency
for immediate corrective and preventive action. Response to be
obtained from supplier. Necessary technical help may be provided to
the supplier.
Inspection stages may be reviewed for tightened inspection.
Enquiry to be sent only after approval at higher level.
Less than 60 D Supplier to be put under hold and informed.
In order to provide motivation to A1 and A category rating
supplier, BHEL has suggested
the following steps,
a) May be considered for self-certification
b) May be preferred for long term contracts
c) In tenders, where quantity is to be split amongst suppliers,
10% quantity may
be reserved for A1 category supplier in addition to normal
distribution of
remaining 90% quantity as per normal practice.
d) Appreciation/commendation in structured
get-together/suppliers meets.
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The feed back to the supplier is given annually in a prescribed
format. The system at
BHEL is very structured, and has transparency inbuilt. It is
done so as it is a Public
Sector Unit subjected to various statutory audits,
investigations etc.
1.4.2 ABB
ABB is a multinational corporation headquartered in Zurich,
Switzerland, operating in
robotics and mainly in the power and automation technology
areas. It ranked 143rd in
Forbes Ranking (2010). ABB is one of the largest engineering
companies as well as one
of the largest conglomerates in the world. ABB has operations in
around 100 countries,
with approximately 145,000 employees in June 2012, and reported
global revenue of $40
billion for 2011. The supplier evaluation at ABB has both formal
and informal methods.
Purchase items are classified according to Kraljics model. They
have a fairly simple
supplier qualification and assessment system.
Supplier Qualification Status
Suppliers can determine their potential qualification status by
looking at the Summary
Sheet of the Supplier Qualification Questionnaire. According to
the qualification level
achieved they can see below the actions that need to be
taken.
Rejected: Their score is under 20%: Their Company is too far
from ABB requirements.
If and when they have implemented corrective actions which
permit them to reach a score
of more than 20%, they can get in touch with ABB again.
Under Development: Their score is between 20% and 50%: they can
be part of the ABB
Supplier List, provided their Quality, Costs and Delivery (QCD)
performance is best in
class and they have a plan to reach 50% within one year.
Qualified: Their score is above 50%: they can be part of the ABB
Supplier List, provided
their Quality, Costs and Delivery (QCD) performance is best in
class. The decision to
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include a supplier on the ABB supplier list will be based on the
combination of the score
and the action plan to address weak areas.
Supplier Scorecard
Suppliers overall performance is measured on quality, on-time
delivery and cooperation.
The relative importance depends on division to division. In
general most important is on-
time delivery in which supplier receives 40-60% of the points,
quality as second most
important with 20-40% points and cooperation is last. The
suppliers objective is:
Measurement Suppliers Objective
On-Time Delivery 100% on-time
As-Received Quality Zero defects
1.4.3 VOLVO
The Volvo Group is one of the worlds leading manufacturers of
trucks, buses,
construction equipment and marine and industrial engines. The
Group also provides
complete solutions for financing and service. The Volvo Group,
which employs about
115,000 people, has production facilities in 19 countries and
sells its products in more
than 190 markets. In 2012 the Volvo Groups sales amounted to
about USD 45 billion.
The Volvo Group is a publicly-held company headquartered in
Gteborg, Sweden.
In their Supplier Quality Assurance Manual Edition 06-2010,
Volvo has stated their goal
as PREMIUM SUPPLIERS FOR PREMIUM BRAND, our effort is directed
towards
selecting the best suppliers based on capability and
performance. Once selected, our
goal is to work with these suppliers to develop a strong,
long-term, structured
relationship with them.
The objectives are well defined for the suppliers. The targets
are mentioned in the table
below:
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Measurement GENERAL TARGET
PPM- Rejected Part Per Million
(Safety critical characteristics excluded)
Explanation: The PPM value is defined as the number of rejected
parts divided by the total quantity delivered multiplied by
1000000.
10 PPM
QPM- Quality Performance Measurement
Calculated at Supplier manufacturing Parma level
Explanation: Compound quality grading from 0 point (Outstanding)
to 100 (worst case)
30
Fault Frequency
Explanation: The number of Warranty Claims per vehicle within
the first 12 months of use (after zero Km/miles)
0 % for safety features
Unless otherwise specified in the technical specifications,
fault frequency targets shall be:
Below 0.0005% for fasteners ,brackets and similar parts
Below 0.005% for othercomponents
Service campaign
Explanation: The number of vehicle recalled after zero KM/miles
due to a reliability/warranty problem
0
Safety recall
Explanation; The number of trucks recalled after zero km/miles
due to a safety problem
0
This is a MUST (non-negotiable)
Delivery precision
Explanation: A percentage: The quantity of parts delivered on
time divided by the total delivered.
98% as minimum requirement.
100% For delivery in sequence.
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For managing performance, the following performance parameters
are monitored,
Quality Performance Measurement Level, Field Failure, Delivery
Precision, Rejected
Parts Per Million Level, Breakdown Failure, Unplanned Stop,
Production Feedback,
Warranty Claims and Safety Problem.
The scorecard for suppliers is used for monitoring the quality
trends and acts as alert for
low performing supplier. A low performing supplier (LPS) is
identified and quality
improvement activities are initiated. There is a unique system
of exit criteria of a four
stage performance improvement elevation process.
1.4.4 ALCOA HOWMET
Headquartered in Cleveland, Ohio, Alcoa Howmet is a world leader
in the investment
casting of superalloys, aluminum and titanium primarily for jet
aircraft engines and
airframes as well as Industrial Gas Turbine (IGT) engine
components. Alcoa Howmet
also provides hot isostatic pressing, precision machining and
protective coating services.
An important supplier of superalloy metals, titanium ingots,
ceramic products and
advanced tooling, Alcoa Howmet conducts extensive research to
aid development of its
material, product and process technologies.
Alcoa Howmet and affiliates operate 27 manufacturing facilities
in the United States,
Canada, France, the United Kingdom and Japan.
Howmet uses a computer database to evaluate suppliers
performance in the areas of:
Quality
Delivery
Service
Total Cost
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A combination of data from each category determines total
overall performance. The
Supplier Price Index (SPI) factors rework and other quality and
delivery issues to
calculate the real cost of a purchase to Howmet. The information
is used for negotiating
contracts and awarding new business.
The company has the following Performance Categories for
suppliers
Preferred
Suppliers that sustain composite performance levels of 94% to
100% will receive
preference for new and follow-on business.
Certified
Suppliers that sustain composite performance levels of 90% to
93.9% will be awarded
business based on the suppliers ability to provide products,
materials or services in
accordance with the Supplier Certification Control plan.
Acceptable
Suppliers that sustain composite performance levels of 75% to
89.9% will be awarded
business before those in lesser performance categories.
Marginal
Suppliers that sustain composite performance levels of 65% to
74.9% will be awarded
business that has not already gone to preferred and acceptable
suppliers.
Measurement Criteria
Quality = 55% of Performance Measurement
Formula
(Receipt Rejected / Total Monthly Receipts) (Reason Code weight
+ Point of Location
weight / Total Monthly Receipts) = Point Loss
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The result is subtracted from the available suppliers quality
percentage points.
Quality ratings for high volume components are different, for a
specific month the
following formula is used, based on parts per million (PPM):
PPM Criteria Quality Performance Measurement Score
000-800 100 Points
800-1600 95 Points
1600-1800 90 Points
1800-2400 85 Points
2400 or greater 0 Points
Delivery = 35% of Performance Measurement
Suppliers are penalized for deviations in delivery dates and
quantities. Within 6-day
delivery window, 100 points are credited and late beyond 5 days
as 0.
Service = 10% of Performance Measurement
The service rating reflects a few factors: like how well the
suppliers carry out the
purchase order; their support systems and ethical conduct.
Rating Service Performance Level Credit (% Points)
Good Competent, meets expectations 90.0 100.0
Acceptable Tolerable but below expectations 80.0 89.9
Unacceptable Results are not adequate 70.0 79.9
Rating Ethics Performance Level Credit (% Points)
Acceptable Has an Ethics program 100.0
Unacceptable Does not have an Ethics program 0.0
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1.4.5 General Dynamics Land Systems
General Dynamics is a market leader in business aviation; combat
vehicles, weapons
systems and munitions; shipbuilding and marine systems; and
mission-critical
information systems and technology. It has integrated more than
60 businesses, including
six in 2011. The gross revenue was approximately $32 billion in
2011 and the workforce
is about 95,000 employees. The company is organized into four
business groups:
Aerospace, Combat Systems, Information Systems and Technology
and Marine Systems.
General Dynamic Land Systems is one of its divisions. It rates
suppliers in relation to
various performance factors. The company strives to identify
problem areas and work
with the supply base to improve their performance ratings with
the various General
Dynamics Land Systems locations. The Monthly Supplier
Performance Report includes
the following performance ratings.
Metric Definition Goal Weight Factor
Performance Ranges
Red Yellow Green
Delivery 100% of score based on:
On-Time Delivery of Shipments to the Promise Date /Need by
Date
100% 40% 95%
Quality 100% of score based on;
Quality Acceptance Percentage of parts Received
100% 30% 98% 98%-99.9%
100%
Financial stability
100% of score based on:
Current Dun and Bradstreet (D&B)
Supplier Evaluation of Risk (SER) Score
SER of 1, 2 or 3 = 100%
SER of 4, 5,or 6 = 75%
SER of 7 or 8 = 25%
SER of 9 = 0%
100% 10%
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Compliance 50% of score based on:
Supplier adherence to iSupplier Activity Requirements
50% of Score based on:
Supplier adherence to Barcode Requirements
100% 20% 0% 50% 100%
Overall Combination of Delivery, Quality , Financial Stability,
and Compliance
100% 100% 93.5%
The key attributes of performance are
1. Delivery
2. Cost
3. Quality
They have a structured supplier development process.
1.4.6 Ordnance Factories Board (OFB)
Ordnance Factories Board (OFB), consisting of the Indian
Ordnance Factories is an
industrial setup functioning under the Department of Defence
Production, Ministry of
Defence, Government of India. It is engaged in production,
testing, logistics, research,
development and marketing of a comprehensive product range in
the areas of land, air
and sea systems. The Headquarter is at Kolkata, it consists of
forty-one Factories, nine
Training Institutes, three Regional Marketing Centres and four
Regional Controllerates of
Safety. OFB is the world's largest government operated
production organization. It has a
total workforce of about 164,000. Its total sales were at $2.6
billion.
OFB has issued a detailed procedure for vendor registration and
monitoring called
VENDOR REGISTRATION SOP Ver 2.2. The suppliers are short-listed
by a Capacity
Verification Team. The performance of successful established
suppliers is monitored
regularly against every completed order based on Vendor Rating
System. Following
parameters are used for Vendor Rating System:
1. Quality Rating
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2. Delivery Rating
3. Price Rating
4. Service Rating.
There are formulae suggested for the different parameters.
QUALITY RATING
= {(1 + (0.7 2) + (0.3 3) + (0 4)}/
where
Q1 = Quantity Accepted Conforming to Specification,
Q2 = Quantity accepted with deviation
Q3 = Quantity accepted after rectification
Q4 = Quantity rejected and
Q = Total quantity offered for inspection (Q1 + Q2 + Q3 + Q4
)
DELIVERY RATING
= ( / ) + { /} { /} 0.5
where
Qa = Quantity Supplied on Time,
Qc = Quantity Ordered,
Qb = Quantity supplied late beyond delivery period
Tc = Delivery period as per supply order in days,
Ta = Total Time taken to complete the supplies, including late
deliveries in
number of days.
PRICE RATING
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= /
where,
PL = Lowest price quoted by any Supplier against that tender
PQ = Price quoted by the Supplier.
SERVICE RATING
The Index/Score for performance with respect to service is
determined jointly by the
production/user and the materials management department. They
use the service rating
break-up as per IS 12040:2001,
PARAMETER MAXIMUM SCORE
Co-cooperativeness and readiness to help in emergencies 30
Readiness to replace rejected material 20
Providing support documents in time 10
Promptness in reply 10
Co-operation in delivering and implementing measures or
avoiding recurrence of defects/complaints
30
TOTAL 100
COMPOSITE INDEX FOR PERFORMANCE OR OVERALL RATING.
= + + +
where,
A, B, C, D are the weightage for parameters of quality,
delivery, price and service
respectively. The values of which are given in succeeding
paragraph.
In case an established source fails to secure any order in the
last three years, it shall
continue to be an established supplier subject to its renewal of
registration.
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Following weightage factor have been suggested for different
parameters,
Weightage for Quality - 60%
Weightage for Delivery - 25%
Weightage for Price - 10%
Weightage for Service - 05%
The overall rating of selected established suppliers is worked
out using the above
formulae against the orders placed on the firm. The firms
getting average overall rating
of less than 70% against orders completed in last three years
shall not be considered for
issue of LTE thereafter for a period of one year. After the
reinstatement, their rating will
be monitored afresh as above. Second such occasion of rating
falling below 70% will
permanently disqualify a firm from the status of established
suppliers.
OFB has a system for INSPECTION CATEGORIZATION of firms,
Self-Certification
category inspection status is be awarded to Firms securing more
than 95% vendor rating
apart from other requirements mentioned in SOP for input
material Inspection. This
categorization is valid for a period of one year. After the
expiry of validity period it is
reviewed again.
For Inspection at Firm premises category inspection status, Firm
should secure more
than 85% marks in vendor rating apart from other requirements
mentioned in SOP for
input material Inspection. Inspection on receipt category
inspection shall be applied to
the firms securing 70% to 85% marks in vendor rating apart from
other requirements
mentioned in SOP for input material Inspection.
1.4.7 RAIL COACH FACTORY - INDIAN RAILWAYS
Established in 1986, Rail Coach Factory (RCF) is a coach
manufacturing unit of Indian
Railways. It has manufactured around 16000 passenger coaches of
51 different types
including Self Propelled passenger vehicles which constitute
over 35% of the total
population of coaches on Indian Railways. It is located in near
Jalandhar, Punjab, India.
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The overall SUPPLIER RATING (Sr) has been defined as
= 0.6 + 0.4
Where Sr = Suppliers rating for a Purchase Order.
Dr = Delivery rating and Qr = Quality rating.
Delivery rating (Dr) is computed for each Purchase Order as
under:
= + (1
)
where, Q = Qty ordered.
T = Promised delivery time
Qt = Qty supplied in time
Qd = Qty delayed
Td = time delay for quantity delayed.
K = Constant with value as 2.
Quality rating (Qr) is computed for each PO as under:
= /
where, Qs= Total quantity supplied/ offered for inspection =
(Qa+Qrr+Qcr)
Qa = Quantity accepted
Qrr = Quantity rejected during RITES(Third Party) inspection
Qcr = Quantity rejected during consignee inspection
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Some other conditions have also been specified by RCF,
1. If quantity accepted is < 50% of the PO quantity and
original Delivery Period has
expired, then Quality Rating (Qr) is taken as zero for that
PO.
2. When a lot is accepted with improvement advice to the vendor,
Qr for that lot is
considered as 75% only.
3. When a rejected lot is used in distress, the use is condoned
by the competent
authority, but such a lot is assigned zero quality rating
(Qr).
4. En-route detachment of a coach from a train due to failure of
a component/
assembly is a serious failure. If it happens within the warranty
period, a severe
penalty is imposed by way of reduction in quality rating of the
vendor for that
group of items. The overall supplier rating (Sr) is reduced by
15% for every
instance reported during the period of review.
5. In case of delays in executing warranty claims, the Quality
rating is reduced with
the following scheme.
Days taken to attend the failure
11-20 21-30 31-40 41-50 51-60 >60
Reduction in Qr 5 10 20 40 60 100
6. For two consecutive rejections of the same item at consignees
end, a vendor is
delisted for that item/group of items. However in case there are
three or less
approved vendors left (Part-I and Part-II combined), for that
item/ group of items,
he can be considered for retention as a Part-II vendor only.
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Page 36 of 42
1.4.13 BUREAU OF INDIAN STANDARDS, IS 12040:2001
The Bureau of Indian Standards, New Delhi has issued a
comprehensive standard IS
12040:2001 on Guidelines for development of Supplier Rating
System. The purpose
was to give guidelines to organizations in India on methodology
for supplier rating.
The overall supplier rating system comprises of
1. Supplier rating
2. Supplier grading
3. Supplier preferences
4. Rewards system
As per the standards, the suppliers can be rated based on any or
all of the following
factors:
a) Quality
b) Delivery
c) Price
d) Service
e) System
For Quality Rating, a standard formula has been devised; it also
defines Quality rating for
variable parameter of the product. It has also given table of
the calculated values of
tolerance for various clauses.
For Price Rating (), the formula is,
=
100
Where,
PL = lowest of the price quoted by suppliers
PU = highest price quoted
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Page 37 of 42
P = price quoted by the supplier being rated
The standard also defines rating using life cycle costs.
The delivery rating () for a consignment depends upon the
quantity supplied within
delivery time and some other factors, the standard has
defined.
=1
1 + 1 (1
1 )
Where,
Q = quantity agreed to be supplied within the stipulated
delivery time
Q1 = actual quantity supplied
T = agreed delivery time for full consignment
T1 = actual delivery time for full consignment
The Service rating has been recommended based on following
parameters,
Cooperativeness and readiness in help in emergencies S1
Readiness to replace rejected material S2
Providing support documents in time S3
Cooperation in delivering and implementing measures or
avoiding recurrence of defects/complaints S4
The System Rating is based on several criteria which are
judgement based, and the
standard mentions the ISO 9004 to be referred for guidance.
The composite supplier rating is obtained by giving weightages
for the individual ratings.
Rating Weightage
Quality, QR W1
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Page 38 of 42
Delivery, DR W2
Price, PR W3
Service, SR W4
System, SY W5
Total 100
=1 + 2+ 3+ 4+ 5
100
The standard has mentioned that weights of the factors are to be
decided by the
management based on experience and opinion. It may be based on
criticality of the
product with respect to quality and delivery. It has recommended
that W5 may be kept 30.
It has also given a table indicating weights of individual
factors based on criticality.
The standard has illustrated a classification scheme.
Rating Class Remarks
Above 90 A Efforts must be made for long term relationship.
75-90 B If price of A is higher then, limited order on B must be
given
50-75 C This class must be provided help to upgrade.
Upto 50 D Not to be considered.
The standard also emphasizes the role of reward systems. It has
also published annexure
as proforma for supplier capability report and appraisal
report.
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Page 39 of 42
The study of various systems at national and international
companies brings out the fact
that criteria for supplier evaluation are more or less common.
Some companies have
exhaustive and very scientific methods to assess the
performance. They have formal
feedback systems also. The four factors namely, quality,
delivery, price and service are
the criteria for assessing supplier performance by all
organizations.
-
Page 40 of 42
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Dec 2013
Vadodara