Supplier Rating Systems what they are and why they’re important to you

Supplier Rating Systems – Everything you need to know

In All Sage Blog Posts, Process Improvement by Jamie Edwards

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It may be obvious that many businesses rely on the supplier chain in order to get a product from just an idea into a reality. What may not be obvious though, is that your company’s success could depend on something as simple as the quality of the suppliers. This has been an issue for Boeing in the past when the parts supplied for the 787 were not fit for purpose.

With that in mind, wouldn’t it be great if you could make sure that you had the best dream team of suppliers, each running at the top of their game?

Often suppliers have slogans which are used to bring to mind feelings of trust, security or quality. They may even publish quarterly reviews showing how they performed twice as efficient as last year. However, wouldn’t it be good if you could collect your own information on a supplier? Well, this is where Supplier Rating Systems come in handy.

What are supplier rating systems?

The question is though, just what are these Supplier rating systems? Sometimes referred to as Vendor Rating Systems, they are ways for your company to monitor and assess the performance of a supplier. When used effectively, any part of the supply chain can be measured.

So this means that rather than being told that your supplier has been performing brilliantly, you can use your own data to check their claims.

I’m sure you would have come into contact with a Supplier Rating System in one form or another. Maybe your mum’s birthday present did not match the heady expectations with which the ‘Woolly Jumper’ shop claimed. So you give the company a rating, perhaps even give feedback. Needless to say, you won’t be purchasing much from this supplier any time soon. As you may have guessed, you’ve just made an entry on your own Supplier Rating System.

This is a simplified idea of how it works, but the principle is the same.

How they are measured?

Using our example above, take a second to think about how you measured the success of the supplier?

Now you would have taken many things into consideration, the first things that sprang into my mind were:

Cost of the jumper

– Quality of the jumper

– Delivery costs

– Delivery time

If you have similar to above, then guess what? These are things measured by the Supplier Rating System! The only difference is that they are usually called K.P.I’s, or Key Performance Indicators.

The official definition of a KPI is “a business metric used to evaluate factors that are crucial to the success of an organisation.” Put into everyday terms, anything measured by a company that can.

The use of KPI’s is how we create our Supplier Rating System. The first step is to make a list of possible KPI’s relating to your business, from this you build a scorecard for your suppliers.

A scorecard is specific to each company’s needs, but there are websites such as bravosolution which give brilliant free guides on creating supplier scorecards. Now you have your KPI’s and your scorecard, you can begin to rate each and every supplier on the supply chain.

So why are they important to you?

Let’s address the looming question then, why is this important to me? To some, it may seem like a lot of effort to be rating, organising and arranging your suppliers into a league table. But trust me, in the long run, these systems really do pay off.

Having a Supplier Rating system in place will automatically highlight any suppliers not performing to the expected standard. It will also, more importantly, highlight those suppliers surpassing expectations. With this system, you will also benefit from having concrete information on suppliers performance that you can use to negotiate.

Some companies actually publish their rating table to their suppliers, which at first may seem unwise, but on closer inspection makes a great deal of sense. Publishing rating tables let’s each supplier see their performance in relation to one another. The idea is that this will encourage competition within the supply chain and therefore inspire them to increase performance. Smart move.

Conclusion

Having a Supplier Rating System in place allows you to get a clear understanding of every aspect of the Supplier Chain. It allows accurate monitoring of performance and gives an insight into any changes taking place whether for the good, the bad or the ugly.

In the next article of this series, I will be looking into the advantages of having a Supplier Rating Systems in greater detail and shedding more light on just how important they are.

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