The concept of utilising a rating system for suppliers, which is usually referred to as Supplier Rating System (SRS) or even a vendor rating, is a way in which businesses can ensure that their suppliers are delivering and/or capable of delivering what is required and that quality assurance is built in as standard.
The system is used to measure performance of existing suppliers so that any poorly performing suppliers can be removed from being an approved supplier.

Components In A Supplier Rating System

Customers or clients tend to have different components built into any supplier rating assessment, according to what they value and what is important for them. The components can be either quantative or qualatative. However there are some common areas that usually form part of the system, these include:

Quality: Suppliers need to be able to provide quality, ensuring quality in all aspects of their supply etc. However, they should also be good at performing when things go wrong, or in other words, they need to be able to put things right. Suppliers tend to be very good at giving assurances that they always get things right, but in any business transaction, there will always be some margin for error.

Delivery: How do suppliers deliver? What flexibility do they have for delivering at short notice and how do they cope if you need a lot more supplies urgently? Can they be able to store goods if you suddenly have to reduce the number of items purchased?

Cost or Unit Price: How much does the supplier charge you? Whilst this is an important aspect of any supplier/customer relationship the other factors listed here are also vital and cost alone should not be the only deciding factor in establishing any supplier ranking.

Capability: How flexible is the supplier? Can they accommodate your needs on a long term basis? For example it is easy to meet one or two sudden changes in levels of demand, but if these changes happen regularly then are they still able to accommodate them?

Customer Care and Service Levels: Ranking suppliers in terms of how they ‘look after’ their customers is important, because any good relationship between a supplier and a customer needs to have some basis of trust and respect, so a section on service levels and customer care is perfectly standard practice.

How The System Works

In order for a SRS to be effective, it requires an objective and methodical approach, with each section given a weighting and scoring system. Each supplier is then marked according to the information that they provide. The scores are then ranked, so there will be a list of suppliers, with the highest-ranking suppliers at the top of this list.
The most effective systems are used periodically so that any ‘blips’ in performance can be identified at a regular basis and any badly performing suppliers will be removed from the approved suppliers list.

Performance And Quality

Using a Supplier Rating System really makes economic sense, because it is important for businesses to use only suppliers who are delivering what they want, how they want it, at the right price and who offer good levels of customer care. Suppliers who care about their customers, who also want to deliver the best possible standards of service and at the right price will also welcome the use of a SRS, because it gives them the opportunity to be able to show that they are performing well.
Using the SRS is therefore not a stick to beat suppliers with, but it is rather an objective way of ensuring that good suppliers are recognised and that only the best possible suppliers are being used.

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