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Suppliers are a critical part of your procurement strategy. 

They bring you the goods your company needs to keep operations running, but do you ever stop to think about what makes a difference between a regular supplier and one that brilliantly meets your requirements?

How can you know that your suppliers are delivering the results you expect? 

How can you determine which of your current suppliers offer you the highest profit? 

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Such important questions right?

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It's a good thing that you can answer that and more by using vendor rating techniques.

What's Vendor Rating?

You can understand vendor rating as a system that allows you to assess and compare suppliers based on certain criteria. 

Simply put, you should rate your suppliers if you are looking for ways to work with reliable suppliers, keep quality standards high, and optimize your whole procurement process.

Once you know how to quantify the levels of your suppliers' performance, you'll be able to not only identify vulnerabilities in your operations but also build real partnerships with the kind of suppliers that provide you with the most value 

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Is Vendor Rating Related to Supply Chain Management?

Of course, it's 

Vendor rating helps you to discover who are the right picks in your supply network, something that comes 100% useful to be sure that your suppliers are indeed matching your company's requirements. 

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Main Criteria for Vendor Rating 

Quality metrics 

Here's how it works: You buy something from a supplier because you need it either to develop your final product or to maintain your operations in good shape. 

Needless to say, you expect to receive what you paid for exactly as you ordered, so why not evaluate the quality of the goods delivered by your suppliers?

If your standards aren't met the stability of your operations could face some serious issues later on. 

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Financial stability 

After all, you are making a partnership with these people. Analyze carefully the financial stability of your potential and current suppliers. Are they in good financial health? What's their financial outlook for the long term?

Can they deliver you competitive prices without compromising quality?

Delivery time 

You know it

There's nothing more frustrating than making an important purchase only to learn that it'll take forever to arrive. 

Take your time on this so you can fully assess whether the supplier delivers on time or not 

Delays can pose a threat to your operations and the brand's reputation 

Customer service 

At the end of the day you're buying a service from the supplier so if you have a problem with your purchase it's normal to expect to receive full assistance from them.  The quicker they can help you, the simpler it will be to find a solution.

Compliance and risk management 

Compliance is a huge topic right now for procurement, making it very important to be sure that the suppliers working with your company respect not only legal regulations but also ethical standards.

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Methods for Vendor Rating 

Okay, we know about the basic criteria but how can you actually start rating your suppliers?

Qualitative assessment 

Just like with any other qualitative evaluation, you'll have to rely on subjective analysis, information gathered from your stakeholders via surveys or interviews. 

For example, you could interview key members of your procurement team to gauge how the communication with your suppliers is going. 

Quantitative measurement

Things are a bit different here, as you'll be working on numerical data, like delivery times, defect rates, and cost efficiency. For instance, you could track how many of the deliveries respected the timeframe agreed over a six-month period to reveal patterns in reliability. 

Composite vendor rating

This approach combines the two aforementioned techniques, qualitative and quantitative. Using this option gives you a more integrated view of your results.

Think about it, you could put a number on your supplier's performance while keeping in mind the feedback you've gathered from your team or customers.

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So Vendor Rating is Important for Procurement?

Absolutely 

They provide your company with a structured framework for selecting suppliers, and keep an eye on performance, thus increasing accountability. With a good vendor rating system you can prioritize high-performing suppliers, negotiate better terms, and allocate resources efficiently.

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How to Implement a Vendor Rating System?

Define your goals

Identify what you aim to achieve with the vendor rating system, ask relevant questions to understand what could be improved.

Select the right criteria

Choose metrics aligned with your objectives, such as quality, cost, and reliability. Or perhaps something more specific like ESG compliance levels.

Collect data

The best way to carry out a solid analysis begins with data. Gather accurate and up-to-date data from performance reports, financial records, and customer feedback. You can use procurement software for this stage.

Develop a rating scale

Follow the methodologies we’ve reviewed create your own scale depending on what’s important for your goals , like numerical ratings or descriptive categories, to evaluate performance.

Analyze and compare

You got the information? Great now it’s time to compile and analyze the results to identify top performers and areas for improvement.

Provide feedback

Share results with your suppliers  highlighting strengths and suggesting areas that might need some additional work.

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