Development of vendor rating system for evaluation of logistics company

Abstract

Given the current dynamic business environment today, it is imperative to rate your vendors robustly. The vendor rating system is a key area that the management takes an interest in these days. The approaches followed vary with the firms as there is no one go-to-method to follow when one talks about rating their vendors. This rating also has to be periodic, so that the best performing vendors are praised, and the not so good performing vendors are given feedback as to where they are lacking, and what should they concentrate on in order to improve their performance. Traditionally, everything used to boil down to costs, and more often than not, the rating system used to be skewed to the cost component of the transaction. This kept on changing through the years with quality trumping the other criteria sometimes. Vendor rating and valuation is a multi-criteria decision-making problem, and different models have been formulated to tackle this problem. The traditional methods such as a weighted-cost method or using cost ration were highly subjective and depended a lot on the subjective judgements (Narsimhan, Talluri & Mendex, 2001) made by the evaluator. Even the Analytical Hierarchy Process (AHP) talks about subjective weightages given to the parameters depending on the expertise and experience of the purchasing manager & staff involved in the vendor evaluation. Hence, it becomes difficult to rate vendors objectively when such subjectivity is involved.