Page 107 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes 7.2.6 Frequency of Assessment

Supplier evaluation methods are usually time consuming, so they are not performed frequently.
In practice, many firms report supplier performance on a monthly or quarterly basis. In fact,
some firms evaluate suppliers only once a year. However, frequent meetings with suppliers
facilitate the prevention of inefficient practices at an early stage and encourage continuous
improvement of suppliers. These assessments, however, are mutually beneficial only if both
parties are willing to cooperate and provide the necessary inputs.

7.2.7 How Measurements are Used

The information gained from supplier evaluation is valuable only when both buyer and supplier
use it to improve their partnership. Supplier measurement systems are most commonly used
for the following purposes: (1) Track performance of supplier; (2) identify supplier improvement
opportunities; (3) develop supplier; (4) benchmark suppliers against best practices.

Self Assessment

Fill in the blanks:
6. Vendor rating is the outcome of a formal vendor …………………. system.

7. The vendor rating may take the form of a ………………….. ranking from poor to excellent.
8. The …………… system must be introduced to the supplying firm through some sort of
formal education process.

9. The categorical system is the most ……………… technique.
7.3 Vendors Development

It has to do with creating or making new vendors land not referring out or the already established
ones in the market). This is a continual and an important activity of the purchasing manager.
Traditionally, one of the reasons for developing new vendors is to build more competition in
the supply market (eliminating monopoly or oligopoly). The company can then buy a material
from a number of sources. Another traditional reason for such multiple source buying (and
therefore also for vendor development) is to spread the risk of non-availability or shortage of
input materials over a number or suppliers. In case, one of the supplier’s employees go on strike
(or if there is an explosion or fire in the supplying company) the other suppliers can be relied
upon to compensate for the shortage. Therefore, in traditional organizations, which most Indian
organizations are spreading risk over a number of suppliers is the main motive behind vendor
development.
However, international standards are premised on the thinking that single source buying
provides some advantages which multiple source buying does not. One of the obvious advantages
of single source buying is that of close rapport between the two companies and the loyalty
established with the supplier. This goodwill might yield benefits in a number of ways in times
of difficulties or crisis for the buying company. Also, the supplying company might even do
some information gathering work for the buying company and therefore, keep it appraised of
the recent market trends (what may be termed as “intelligence” information). Reliability, lack
of uncertainty, quick and faithful response to the needs and, therefore, a general improvement
in quality and reduction in inventory and purchase related costs are the long-term benefits for
both organizations.

102 LOVELY PROFESSIONAL UNIVERSITY