 Traditional
evaluation models
by Dr. Robert A. Kemp
Supplier
evaluation is a critically important element of our supply chain
management process. This
article, the second in a five-part series on the topic, identifies and
compares traditional models for evaluating suppliers. In the April/May issue, I urged you to do three things: 1)
evaluate your
existing supplier evaluation system;
2) determine the size of the supplier list and categorize them by the
A-B-C process; and, 3) examine your team process for evaluations. For those who did this, and for new readers, please keep these
three items in mind as you read this article.
In
the 1950s, members of the National Association of Purchasing Agents
(now the Institute of Supply Management) were concerned about supplier
evaluation. It
commissioned a team to address
the problem. The team
responded with a major report on the status of supplier evaluation. The report identified three models ranging from quite simple
to very complex. Fortunately
for us, the three models have stood the test of time. Each has spawned many adaptations over the
years. Now,
computer and Web-based communication techniques make it relatively
easy for us to
create even more complex models for the supplier evaluation process.
The
original models were: 1) the categorical model, 2) the weighted-point
model and 3) the cost ratio. The
names suggest a degree of
difference and complexity. For
example, the categorical model
asks us to select critical categories of supplier behavior and rate
suppliers on a simple scale that
can be totaled.
The
math and process of
the categorical model is quite elementary. Indeed, the
scoring process could be yes or no, or
satisfactory to unsatisfactory.
Even so, when a set of suppliers is evaluated using the same
categories and scoring process, we have a
system to compare them and
identify the preferred supplier in the group.
By
definition, the weighted-point model implies more sophistication. We have factors to be scored and weights that let us compare
the meaningfulness of the factors
and give importance to factors in comparison with the other factors. The evaluation team must agree
on the importance of factors and weights before it can evaluate
its suppliers.
Once
weights are agreed upon,
it is straightforward math to again calculate the numbers and identify
the preferred supplier in the group.
Just
by its name, the cost ratio model seems the most complex,
and it is. For
that reason, it has
never been widely used, and that
is unfortunate because it provides
a set of numbers that compare
suppliers by the costs they cause
for our operations. To
the extent that our systems can identify and measure the costs
attributable
to each supplier, this system also provides us a working model to
compare suppliers with the goal of selecting the lowest-cost supplier.
It
should be clear that getting to a measure based on cost is better than
one based on factors and even better than one that uses weights on
those factors. The cost
ratio method is more complex.
Due
to space limitations, my examples are quite simple and
consider only three or four factors for each model. You may tailor the number of factors to match the importance
of your supply decision.
This
article defined the
traditional process for supplier evaluation. We now have
very
complex Web-based commercial models available that provide
in-depth supplier information traceable over time. My
next article will look at these models and expand the analysis of
categories or factors for the evaluation process. As we do this work, remember that our goal is improved supplier
and supply chain performance.
Robert Kemp is a consultant, speaker
and the former president of the Institute for Supply Management. He
can be reached at kempr@mchsi.com.
This
article appeared in the June/July 2002 issue of MRO Today
magazine. Copyright 2002. Back
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