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What is Vendor Rating?

Procurement departments use Vendor Rating to monitor suppliers better in respect of agreements made in contracts. Vendor Rating is the process by means of which organisations evaluate their suppliers' performance in terms of delivery reliability, price reliability and services. Based on the results of Vendor Rating, supplier performance can be adjusted in a timely fashion so the relationship with the supplier can be improved or the decision can be made to terminate the contract and agree to a new contract with a different supplier.  

In this blog, Maarten de Ru, Director of Partners & Alliances at ISPnext, explains how Vendor Rating works, against which performance indicators you can evaluate suppliers, which steps apply, what the possible results are, and we give a number of examples from practice.

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Approach to Vendor Rating

''Vendor Rating must be carried out periodically to get the most complete and objective indication possible. For example, many organisations choose to conduct a Vendor Rating amongst employees every quarter to gain better insight into the performance of a specific supplier at periodic supplier consultations. Based on these results, contract performance can be adjusted, the decision can be taken to end the partnership with a supplier or negotiation can take place to achieve better value for money.''

Despite the fact that every organisation evaluates its suppliers against different performance factors, there is a step-by-step plan you can follow to apply Vendor Rating in your organisation:

  1. Decide which suppliers you are going to include in your Vendor Rating.
  2. Decide which performance factors you are going to evaluate suppliers against
  3. What results do you wish to achieve with Vendor Rating?
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''Vendor Rating must be carried out periodically to get the most complete and objective indication possible.''
Maarten de Ru, Director Partner & Alliances | ISPnext


Which suppliers am I going to include in my Vendor Rating? 

''When you consider that the average organisation easily works with 500 suppliers, you can imagine that it is not feasible to include all suppliers in a single Vendor Rating. Make a selection of the suppliers you want to include before you start evaluating your suppliers. You can do this based on different analyses. For example, the suppliers that could be worth including in a Vendor Rating are:

  • Suppliers with strategic products: these are products that are indispensable to your organisation and have a major influence on operating results. In addition, these products carry a high procurement risk, which means they are scarce products, or that they come from a politically unstable region, for example. Because these products are indispensable to the end production of your product or service, it is essential to include them in your Vendor Rating.
  • Suppliers that account for a high percentage of procurement turnover: these are the so-called ‘A-rated suppliers’. Ideally, 20% of suppliers are responsible for 80% of an organisation's procurement turnover. Like suppliers of strategic products, these suppliers are very important to your organisation. With Vendor Rating, you can monitor whether quality is sufficient, whether suppliers adhere to pricing agreements and what the experiences of employees are with this supplier.''

Decide which performance factors you are going to evaluate suppliers against

Maarten: ''When you start applying Vendor Rating, you evaluate suppliers against different indicators. For example, a supplier can be evaluated against quantitative and qualitative indicators. Information about pricing agreements, reliability of delivery, invoice to order matching, the so-called quantitative data is part of the Spend Analytics in combination with Contract Management. Together, this information gives an idea of the extent to which the supplier fulfils agreements. Certain ‘soft’ factors are based on the experiences and opinions of the employees who deal with the relevant supplier on a daily basis. You can collect information for this qualitative assessment by sharing surveys with employees in the organisation. Experience has shown that employees are more than willing to cooperate with such a survey. This gives a realistic idea of customer satisfaction with the supplier in question. Employees benefit from this immediately, because buyers adjust their procurement policy based on the survey results.''

In these surveys, you ask employees to use a score to rate suppliers on indicators such as:

  • Delivery time
  • Quality
  • Time taken to respond to queries
  • Communications
  • Invoicing
  • Solution-oriented approach

    Maarten says that repeating these surveys periodically, every quarter for example, gives a good indication of the supplier's performance over a longer period of time.

Results of Vendor Rating

Organisations have various objectives when they apply Vendor Rating. Ultimately, carrying out Vendor Rating periodically provides feedback from all parts of the organisation and an objective and complete indication of supplier performance.  The following results can therefore be achieved:

  • Better communication with suppliers;
  • A better relationship between client and supplier;
  • A performance-oriented client-supplier culture.

The ultimate goal for many procurement departments is to save on costs, guarantee delivery reliability and/or to achieve better contract agreements.  

  

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