Vendor rating is a process where the suppliers are provided a status or a title based on several factors such as credibility, delivery time, price, quality of the goods supplied and or a set of such mixed variables. The ratings are based on the vendor’s performance and can have several levels from good, average to best or anything that the firm decides on. This system is a by-product of the just-in-time approach. One of the important objectives of this system is that it helps the buyers to carefully choose the suppliers for future transactions. The available data can also help to negotiate better and help the buyer with any information that might be useful during the process.

Advantages

  • It helps the buyer to understand the vendor from every important aspect and will help in knowing if the vendor is suitable to deal with or not. It does not plainly deal with prejudices and word-of-mouth. It is more dependent on data.
  • It helps the buyers to strike the right kind of communication required.
  • Ensuring a constant standard of vendor performance with updated reviews of their performance.

Disadvantages

  • Categorical plan: managers from various verticals make a list of factors which are crucial for a vendor to own based on their personal experiences and vendors are compared based on the same.
  • Weighted point plan: factors are categorized and weight is assigned to each factor based on vendor performance.
  • Cost ratio plan, here the ratios are computed for various rating variables and the same are compared to provide a rating.

Get more definitions about Vendor rating and other ERP related terms here.