Definition of Vendor rating

Vendor RatingVendor rating is a process where the suppliers are provided a status or a title based on several factors such as credibility, deliver time, price, quality of the goods supplied and or a set of such mixed variables. The ratings are based on the vendor’s performance and can have several levels from good, average to best or anything that the firm decides on. This system is a by-product of the just-in-time approach. One of the important objective of this system is that it helps the buyers to carefully choose the suppliers for future transactions. The available data can also help to negotiate better and help the buyer with any information that might be useful during the process.

Advantages:

  1. It helps the buyer to understand the vendor from every important aspect and will help in knowing if the vendor is suitable to deal with or not. It does not plainly deal with prejudices and word-of-mouth. It is more dependent on data.
  2. It helps the buyers to strike the right kind of communication required.
  3. Ensuring constant standard of vendor performance with updated reviews of their performance.

Disadvantages:

  1. The vendor might feel insecure as all their details are out in the open and anybody can access it including other vendors.
  2. It standardises the whole group of buyers in one slot and does not consider the inexperience of new start-ups.

Methods used for vendor rating:

  • Categorical plan: managers from various verticals make a list of factors which are crucial for a vendor to own based on their personal experiences and vendors are compared based on the same.
  • Weighted point plan: factors are categorised and weight is assigned to each factor based on vendor performance.
  • Cost ratio plan: here the ratios are computed for various rating variables and the same are compared to provide a rating.

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