Evaluation and Selection of the Supplier

The purchase policy and procedure differ according to the type of items to be purchased. The evaluation and selection of the supplier differ accordingly. For the stores and supplies, the selection is more simplified. The selection of the supplier of the capital equipment requires distinct considerations. The evaluation and selection of the supplier of the critical items of high value requires detailed and exhaustive considerations. The bids are invited from the approved suppliers. The bid must specify the quantity description or specification of items to be purchased, required time of delivery, required point of delivery, mode of transport, mode of payment and of course price and all other special conditions having a bearing on the price.

Cost Factors:

1) Price
2) Transport cost – if not included in the bid, to be calculated by the buyer
3) Installation cost, if any
4) Tooling and other operation cost
5) Incidence of sales tax and excise duty
6) Terms of payment and cash discount
7) Price basis if multiple deliveries are involved
8) Price subject to acceptance within certain specified days
9) Price protection conditions such as fixed price, protection against reduction in price, price subject to escalation.


1) Routing; It is privilege of the owner of the goods
2) F O B terms are extremely important in determining (a) the point at which the title to the goods passes from the vendor to the buyer, and (b) the responsibility for the payment of freight charges

Design and Specification factors:

1) Specification compliance
2) Specification deviation
3) Specification advantages
4) Important dimensions
5) Weights

This should be considered in line with the demonstration of sample, experience of other users, reputation of the supplier, after sale service, availability of technical personnel, availability of parts etc.

Legal factors:

1) Warranty
2) Cancellation provision
3) Patent protection
4) Public liability and workmen’s compensation protection
5) Federal Law and reputation compliance.

Evaluation of the Supplier:

The suppliers are rated on the basis of their past performance with the company. Purchasing is a repetitive and continuous process. The supplier once selected should be continued or dropped is a matter of judgment. The evaluation of supplier or popularly known as “vendor rating” provides valuable information which helps in improving the quality of the decision.

In the vendor rating generally three basic aspects are considered – quality, service (i.e. timely delivery) 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 e.g. quality would be the main considerations in the manufacturing of the electrical equipment while price would be the prime consideration in a product having a tense competitive market. For a company procuring its requirements under the blanker contract with agreed price, the suppliers rating would be done on the basis of two variables only viz., quality and delivery.

The Development Project Committee of the National Association of Purchasing agents (USA) has suggested following three methods for evaluating the past performing of the supplier:

1) The categorical plan
2) The weighted point plan
3) The cost ratio plan.

The Categorical Method: 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 products and the list of factors for the evaluation purposes. The members of the buying staff are required staff required to assign the plus or minus notations against each factor. The periodic meetings, usually at the interval of one month, ar6e held by senior men 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.

This is a very simple and inexpensive method. However, it is not precise. Its quality heavily depends on the experience and ability of the buyer to judge the situation. As compared to other methods the degree of subjective judgments is very high as rating is based on personal whim and the vague impressions of the buyer. As the quantitative data supported by the profits do not exist, it is possible to institute any corrective action with the vendor. The rating is done on the basis of memory and thus it becomes only a routine exercise without any critical analysis.

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