18. Source Selection, Performance Rating, and Development

This chapter focuses on the selection, appraisal, and development of source of supplies (vendor). A world-class performance requires a world-class vendor to support the supply function. An enlightened, dependable, and ethical vendor is a great asset. The attributes of a good vendor are price, quality, lead time, delivery schedule, after-sales service, and attitude during emergencies. A proactive search for good vendors is facilitated with the power of web. Other clients of the vendor also give a good idea of vendor’s capability. Decision-matrix framework is a good and simple quantitative methodology to evaluate candidate vendors. A thorough, complete, and unambiguous statement of purchase order can prevent many problems later on. In fuzzy environment due to informational vagueness, more advanced methods of vendor evaluation such as fuzzy AHP, fuzzy goal programming, etc., can be attempted. Perceived fairness and objectivity on the part of buyer is important touchstone of good vendor relationship management. An objective, measurable, multi-criteria, periodic, and transparent vendor rating will enhance the vendor’s confidence in the buyer and will motivate positive performance while discouraging poor performance. A good vendor rating plan must be developed preferably by involving vendors to periodically evaluate their supply performance. SMART (specific, measurable, achievable, relevant, time based) performance criteria may be developed and synthesized into a composite score. A more elaborate vendor rating plan may use analytic hierarchy process (AHP). Consistently outstanding performers may be given special privilege of being put on “vendor certification plan.” Vendor development (VD) involves creating a dedicated group at the buyer’s plant to proactively nurture existing vendors to improve their quality, cost, lead times, process capability, supply chain, etc., so that they continuously improve their performance.