6 Ways for SMEs to conduct Vendor Rating

Aug 12, 2021 in Purchase and Production



What does everyone mean by Supplier Relationship Management?

Supplier Relationship Management (SRM) is a well-organized strategy development method for choosing suppliers who are crucial for the company and implementing those different strategies to manage plus maintain good relationships with these vendors. So to work out the Supplier Relationship Management process, there are around 3 steps involved -

  1. Supplier Segmentation Procedure: In this step, businesses take the help of a tool or software to analyze the data related to a supplier. So to select vendors based on pre-defined criteria and put them in specific categories, analogous to the Supplier Rating process. Through this Segmentation, process companies differentiate their suppliers to identify opportunities and risks related to them.
  2. Strategy Development Procedure: In this step, organizations based on data-driven facts and reports devise action plans and strategies to interact with suppliers. It's done to maintain a positive relationship with vendors as they will help satisfy their businesses' requirements both in positive and critical times.
  3. Strategy Execution Procedure: In this last step, businesses execute all plans and strategies develop in earlier stages in the best possible way. To achieve the desired results and objectives for the company.

What does everyone mean by Supplier Rating?

Supplier Rating or Vendor Rating is a simple process of establishing performance categories for ranking the suppliers/vendors based on several factors such as their credibility, Delivery Time, Price, and the Quality of products they offer. Through the rating process, a collection of reliable data related to suppliers will be maintained. And it will help businesses analyze this data and make important decisions about choosing the right supplier for their particular requirements in different scenarios.

Why are both Supplier Rating and Supplier Relationship Management needed?

As we have explained about the concepts of the Supplier Rating and Supplier Relationship Management above. You all might have got an idea about Supplier Rating that it's an activity in the Supplier Relationship Management process. As it comes to the first stage of SRM, which is the Supplier Segmentation because it deals with supplier evaluation.

Supplier Rating ensures that suppliers provide their products as per set standards based on their previous dealings and buyers' requirements. Also, it helps through the supplier evaluation process to identify the weak areas of suppliers. Like where they lack in meeting your businesses' requirements. And through Supplier Rating, only a criterion is set based on which comparison between different suppliers can be performed. All these things contribute to providing a perfect data analysis for the owners and top management of any business. And they will use it to make the best decisions for their organization in selecting the suppliers on whom they can rely in critical times. So that is the reason why Supplier Rating is so necessary. And why it deserves the same level of importance as the Supplier Relationship Management concept.

Supplier Relationship Management helps in making strategies to exploit the supplier's capabilities in the best possible way. And it ensures that the supply chain continues without any difficulty and without bearing up any additional costs. Further, this relationship-building up process with vendors increases their response rate. Also, it provides visibility into future prices and hedges against price volatility. And that is why Supplier Relationship Management is necessary for businesses.

Techniques for setting up Supplier Rating standards.

Now let's end wait for you all as we have told you all about Supplier Rating and Supplier Relationship Management. What both mean, why both are important, and how they link to each other. The next thing you all want to know and why you came to this article is the various techniques for setting up the standards based on which Supplier Rating is done. So here are these specific techniques-

Managing inventory digitally

Supplier Rating Criteria

1. Weighted Point Plan -

It is a supplier selection approach that enables the purchaser to evaluate them. In this plan, the buyer assigns weights to each evaluation category (Quality, delivery, or service, and price) for each supplier, and a weighted sum for each of them is obtained. Then a comparison is made. The weights used should sum to 100% for all categories.

2. Cost Ratio Plan -

In this plan, the buyer calculates a cost ratio for each different supplier, and on that basis, the buyer ranks them. The ranking is done on various variables like quality, price, timely delivery. And on these data, calculation of cost ratio in percentage is done. Based on the total individual cost and the total value of the purchase.

3. Service Cost Ratio -

Many intangible aspects of a supplier's services are there for which subjectively measuring is done. So the things to consider for measuring supplier service capabilities are Labour stability, financial stability, flexibility in production for rush orders, research, and development (R&D). And based on these criteria weight, is assigned to them. Then the Weight Point Plans steps are followed similarly.

4. Forced Decision Matrix -

At first, in this plan, different attributes like the lead time of supply, vendor reliability, quality, service, and price get identified. Accordingly, a comparison between all these factors takes place. Then a weight to a particular attribute is given, and the other is set to zero. And then the evaluation of suppliers is done.

5. Eavastons's Vendor Selection -

In this plan, previous performances of the vendor are considered for choosing them. And the ranking process takes place based on the buyers' subjective evaluation.

6. Carter's 10 C's Model -

It is a criterion for assessing the suitability of a potential supplier. The buyer uses this as a checklist when deciding who to approach and who to avoid. The list includes factors competency, capacity, commitment, control, cash, cost, consistency, culture, cleanliness, communication.


After learning about the techniques of supplier rating standards, the other thing you all need to know is that manually Supplier Rating is not possible. What we mean to say is that a business performing all its core business activities on paper manually. It cannot implement this process in its organization. Because it requires a large amount of collection of data and proper analysis of it. And it is only possible when a business is digitalized.

For an enterprise to go digital involves the help of a software solution. And there are many solutions available in the market which can help businesses to go digital. But they should choose among the best option which satisfies all their needs. TranZact is one such tool that helps SMEs in digitizing them. TranZact is a digital transformation tool and platform for SMEs to digitize business processes right, from customer inquiry to dispatch. So TranZact team believes in a Freemium policy. As they want every Indian SME to use their software without worrying about silly amounts of money.

Read More about - Order Management: 3 Biggest Challenges SMEs faces


TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.