# How to rank suppliers?

#### Thanh Cao

##### Registered
My company has 5 suppliers engaged in manufacturing semi-finished mechanical products and 4 coating suppliers.
At the end of production, I would like to rank my suppliers.
Now I have data on actual delivery time compared to the contract (D), quality inspection results (Q), product cost (C).
But, I don't know the standard or the template or the method for scoring the above criteria to quantify the results.
The result I want is in the form of s score (for example, supplier A gets 80/100 points, supplier B gets 75/100 points...) for easy ranking and comparison.

#### Ed Panek

##### QA RA Small Med Dev Company
Super Moderator
Not all suppliers are created equal and they should have varying rankings based on risk. If they are of equal risk a simple mathematical A X B X C system would work. Like JQ asks above me, Why do you want to rank them?

#### Tagin

Trusted Information Resource
My company has 5 suppliers engaged in manufacturing semi-finished mechanical products and 4 coating suppliers.
At the end of production, I would like to rank my suppliers.
Now I have data on actual delivery time compared to the contract (D), quality inspection results (Q), product cost (C).
But, I don't know the standard or the template or the method for scoring the above criteria to quantify the results.
The result I want is in the form of s score (for example, supplier A gets 80/100 points, supplier B gets 75/100 points...) for easy ranking and comparison.

1) You need to determine which criteria are most important, second importance, etc.

2) I am against the idea of combining into a single score. I know it is common, but it is mathematically incorrect because it treats the ratings numbers, which are ordinal values, as if they were cardinal values by performing add/divide/average operations on them. Ordinal values are just rankings, not size values. You could use green/yellow/red instead of 3/2/1 rankings, for example. It is just more obvious with the color rankings that it is wrong to try to perform add/divide/average operations on the colors.

Combining rankings also causes a problem with lost information:
- Is a company with a D=90 Q=80 C=20 really the same as a company with D=20 Q=80 C=90?
What good is a better cost (C) if they cannot reliably deliver(D)?
- Or the same as a company with D=90 Q=20 C=80?
What good is a better ontime (D) and cost (C) if the quality (Q) is garbage?
But in the single score system you are proposing, all three of those scenarios would get the same rating.

Problems With Risk Priority Numbers

So, instead of a single score value, consider using your prioritization of criteria to combine the three rankings. For example, lets say Quality is most important to us, Delivery next, and Cost is third. So, our supplier score is now Q-D-C, in that order. Then, use a scale of 0-9 instead of 0-100 for each criteria. Now the three scenarios above look like:
D=90 Q=80 C=20: S=63.3 QDC=892
D=20 Q=80 C=90: S=63.3 QDC=829
D=90 Q=20 C=80: S=63.3 QDC=298
So, our QDC rating gives us a much more realistic and informative rating than the simple averaging for the S score.

You can use weighted averages to simulate some of our prioritization, although it still loses information. For example, lets use the same prioritization as above (Quality then Delivery then Cost) for a weighted average score W=(Q*0.5 + D*0.3+C*0.2)/3
D=90 Q=80 C=20: S=63.3 QDC=892 W=23.7
D=20 Q=80 C=90: S=63.3 QDC=829 W=21.3
D=90 Q=20 C=80: S=63.3 QDC=298 W=17.7
So the weighted average W score sorts out these three suppliers better than the S score, according to the prioritization of our criteria.

#### Sidney Vianna

##### Post Responsibly
I second other responses telling you to be careful about this; while factual approach to decision making is a valid principle, unless you have hundreds or thousands of suppliers, you probably should not get too sophisticated in your approach, as there will always be a degree of subjective assessment when it comes to supplier performance.

As an example of a highly developed supplier rating system, have a look at this brochure from The Boeing Company, but, remember, they have tens of thousands of suppliers to deal with.

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#### optomist1

##### A Sea of Statistics
Super Moderator
Hi Than Cao, Welcome to the Cove...a great place to share ideas and learn...I would suggest that you collaborate with Engineering, Purchasing, Quality....etc., and approach this in more of a holistic manner…
• establish a Excel or other based spread sheet assess each Supplier’s Eligibility to source parts or products orders to. Once this established (a good SEA Excel Template for all to use), this updated spreadsheet is used by all internal parties, to assess each supplier re: for New Business, Source Package and RFQs
• AND with Purchasing, SQ (if you have such a group at your firm) generate an External Supplier Scorecard....the Scorecard would be used and shared with the Supplier address the good, the bad, and the ugly of their on-going performance.
• In parallel establish an Internal Scorecard for use by your colleagues with information Suppliers do not need to see, i.e. is a Supplier in trouble delivery, fiancé or quality wise…kind of an early warning indicator for internal use.
Especially today, the more info a customer has re: supplier’s performance, capabilities etc., The Better, even more so in Automotive and Aero fields!! Supply Chain performance is critical, my two Euros worth...hope this helps

#### Jim Wynne

There are apparently only nine suppliers involved, so there should be no need for any kind of detailed ranking. You should know which suppliers are reliable and which ones have caused trouble for you, if any. Just because something can be counted doesn't mean that it should be counted.

#### Mikey324

##### Quite Involved in Discussions
I would question what the value add would be? It sounds like very qualitive data would need to be used to create an arbitrary quantitive value.

Its hard to rank everyone together in one group and get numbers you can use. For example, a high volume supplier could have 300 rejections out of a 250,000 part shipment (1200 ppm) and a low volume suppler could have 1 rejection out of a 100 part delivery (10,000 ppm). Which one would is realistically more of an issue?

#### Evelyn7E

##### Starting to get Involved
My company has 5 suppliers engaged in manufacturing semi-finished mechanical products and 4 coating suppliers.
At the end of production, I would like to rank my suppliers.
Now I have data on actual delivery time compared to the contract (D), quality inspection results (Q), product cost (C).
But, I don't know the standard or the template or the method for scoring the above criteria to quantify the results.
The result I want is in the form of s score (for example, supplier A gets 80/100 points, supplier B gets 75/100 points...) for easy ranking and comparison.

Thanh Cao, You must establish what metrics which is important for your company before you rank your supplier such as quality, delivery, technology roadmap, field services etc. Even in quality there are also many metrics, It should be a balance score card which carry the voice of important stake holder. It would also very much depend on your nature of business and which part of supply chain you are in such as OEM, up stream supplier, downstream supplier

#### Steve Prevette

##### Deming Disciple
Super Moderator
Rather than ranking your suppliers, I would suggest trending the results of each supplier on a periodic basis to see if they are improving, or say if there is a significant stumble. If you have a relatively small number of metrics and a small number of suppliers, then a balanced scorecard approach may be sufficient. Rather than mixing apples and oranges, if you can say - Supplier C has an adverse trend in meeting delivery dates, then that is actionable. I do recommend (of course) a form a statistical process control dashboard which I (and others) have documented.

A big question that may help is - what is the effect on the bottom line, and future potential for your company?

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