1. Measure &
rate
potential
suppliers
M5:Preface:2
ITC
Assess suppliers’
capabilities,
motivation &
financial
situation
Identify
criteria to
appraise
suppliers
Locate, screen
and further
research
suppliers
Supplier Appraisal = Critical

2. ITC M5:U1:1.1-3
Supplier Appraisal = Critical
If supplier appraisal is not carried out as carefully
and systematically as needed, there is an increased
risk that suppliers chosen by the firm will fail to
perform adequately


3. Set supply targets
& priorities
Identify potential suppliers
New supplier
contacts us
Screen the potential suppliers
Position the item
Review the outcome with the suppliers
Record the outcome on a supplier database
The Supplier Appraisal Process
Set item-specific supply strategy
(& desired supplier relationship)
Analyse supply markets
Determine the criteria for supplier appraisal
Research further information on suppliers
Weight the criteria & rate the suppliers
Undertake a SWOT analysis of shortlisted suppliers
Determine supplier development strategy
Reassess overall
supply risk
1
2
3
4
5
7
6
8
9
ITC M5:U2:2.2-1

4. The Performance Equation
Performance Capability Motivation
= x
Evaluate the
supplier’s ability
to supply your
company
Evaluate the
supplier’s interest &
potential commitment
Determining appraisal criteria...
M5:U2:2.5-1
ITC

5. Level of
attractiveness
Value of
business
H
The Supplier Perception Model – measuring
motivation
- How suppliers see your company as a potential client
M
L
N
N L M H
M5:U4:4.2-1
ITC

6. The value of your business to a supplier
Your % share = Your expenditure x 100
Supplier’s turnover
M5:U4:4.2-2
ITC

7. The value of your business to a supplier
Classifying your expenditure as a proportion
of the supplier’s turnover
Classification Percentage
High (H) More than 15%
Moderately high (M) 5% - 15%
Low (L) 0.8% - 5%
Negligible (N) Less than 0.8%
M5:U4:4.2-3
ITC
5
2
X

8. The level of attractiveness of
your business to a supplier:
Are your business strategies compatible?
Is it easy to do business with your company?
How good is your financial situation & payment record?
Will the supplier benefit from being associated with you?
Do you offer a good potential for future business
development & expansion?
M5:U4:4.2-5
ITC

9. Is your business strategy compatible
with the supplier’s ?
Is the sector you are in a core sector for the supplier?
Is the purchase item part of a product-line that the
supplier is developing?
Is the supplier trying to break into your market?
How would you fit in with the supplier’s business
strategy as a customer?
M5:U4:4.2-6
ITC

10. Is it easy to do business with
your company?
Are you conveniently located?
Are the national & corporate cultures compatible?
Are your information & communication
systems compatible with the supplier’s?
Are you known for being fair, reliable & ethical?
Are there any links to your company or your staff?
M5:U4:4.2-7
ITC

11. How good is your financial situation &
payment record?
Will you pay on time?
Will you be able to make advance payments?
How good is your financial health?
How efficient are you in paying invoices?
M5:U4:4.2-8
ITC

12. Will the supplier benefit from being
associated with you?
How good is your overall reputation and image?
Are you a well respected client that the supplier
can benefit from being associated with?
M5:U4:4.2-9
ITC

13. Do you offer a good potential for
future business development &
expansion?
What is your growth potential like?
Will you be able to buy additional items
in the future?
M5:U4:4.2-10
ITC

14. Level of
attractiveness
Value of
business
High
High
Low
The Supplier Perception Model
-how suppliers see your company as a potential client
Marginal Exploit
Develop Core
ITC M5:U4:4.4-1

15. Supplier Perceptions
Marginal
Exploit
Develop
Core
ITC M5:U4:4.4-3

16. Supplier Perceptions
Marginal
Low priority & low supplier motivation
No development potential
Your bargaining position will be weak
ITC M5:U4:4.4-4

17. Supplier Perceptions
Exploit
Your level of purchases may be important, but the
supplier sees no reason to develop a long-term
relationship
The supplier will not make any particular effort or
give you priority
If the supplier is sure of your business it may
exploit you by raising prices
ITC M5:U4:4.4-5

18. Supplier Perceptions
Develop
Your business may be small, but the supplier sees a
long-term development potential or wishes to be
associated with your company for other reasons
The supplier is willing to invest time & effort in the
relationship
This quadrant is suitable for long-term and
co-operative relationships
ITC M5:U4:4.4-6

19. Supplier Perceptions
Core
The supplier considers your company to be part
of its core business (in terms of current
business as well as development potential)
The supplier will make a significant effort to
sell to you and to retain your business
This quadrant is suitable for partnerships
ITC M5:U4:4.4-7

20. Level of
attractiveness
Value of
business
H
The Supplier Perception Model:
getting to an overall rating
M
L
N
N L M H
H
M
L
N
M5:U4:4.5-1
ITC
C
A
B

21. Supplier service &
responsiveness
Availability
Cost
Quality
Your appraisal criteria will relate to –
measuring capability :
ITC M5:U3:3.2-1

22. Quality - Capability assessment criteria
for standard items
Can your specifications be met?
Flexibility and capacity to tailor specifications
Reject rates
Percentage of items returned during the first year
Maintenance intervals required
Consumption levels of replacement parts
Mean time between failures & outage rate
Durability
Comprehensiveness of warranty
ITC M5:U3:3.2-2

23. Quality - Capability assessment criteria
for non-standard items
Investment in research & development
Intellectual property
Qualifications & experience in design & production
Availability of appropriate design tools
Manufacturing capability & technology
Comprehensiveness of quality/environmental
management system
Previous experience with similar products/services
ITC M5:U3:3.2-3

24. Supply Availability - Capability assessment criteria
(I)
Market segments serviced by the supplier
Whether the supplier supplies your competitors
Capacity & utilisation
If subcontractors are used
Stock levels
% of your requirements that are within its standard range
% of your top 20 required items within its standard range
Export experience
ITC M5:U3:3.2-8

25. Supply Availability - Capability assessment criteria
(II)
Supply horizon - promised availability
Normal lead-times
Delivery reliability
Order tracking system
Industrial relations
Accessibility & logistics arrangements
Security of supply over time
ITC M5:U3:3.2-9

26. Supplier Service & Responsiveness
-Capability assessment criteria (I)
Is customer support or responsiveness
mentioned in the supplier’s mission statement or goals?
Does the supplier have:
•A customer service policy?
•A system for reporting complaints and rectifying defects?
•Well-trained & experienced service staff?
What kind of service can you expect - and how quickly?
ITC M5:U3:3.2-14
?

27. Supplier Service & Responsiveness -
Capability assessment criteria (II)
Does the supplier offer training or on-site coaching?
How well can the supplier provide support in your language?
Does the supplier have effective information systems?
Does the supplier measure performance against service level
agreements?
Are there any plans/investments to improve customer service?
Does the supplier seek feedback from customers?
Is there a strategy and system to continuously improve its customer
service?
ITC M5:U3:3.2-15

28. Cost - Capability assessment criteria (I)
Standard items:
Standard prices / rates
Discounts
Payment schedules (services)
Terms of payment
Financing costs
Price revision formulae
Currencies used
General handling & shipping charges
ITC M5:U3:3.2-18

29. Cost - Capability assessment criteria (II)
Installation, commissioning & decommissioning
Input/output efficiency
Labour, energy consumption & other operating costs
Maintenance costs
Average production downtime
Costs of after sales support
Cost of equipment upgrades
Buy-back, residual or scrap value
The case of equipment (life-cycle costs):
ITC M5:U3:3.2-19

30. Cost - Capability assessment criteria (III)
E-commerce
Consolidated billing services
Acceptance of purchasing cards
Possibility of using delegated purchasing
under call-off contracts
Offering you stocks under consignment
Criteria related to reducing costs at your end:
ITC M5:U3:3.2-20

31. Selecting appraisal criteria for different
categories of purchase items
Routine Leverage
Bottleneck Critical
ITC M5:U3:3.3-1

32. Routine items:
are low value & low risk, so your main
concern is to minimise time & effort
Supply strategy for continuous routine items
Number of suppliers: One
Nature of relationship: Minimum intervention
Type of contract: Long term contract
Type of supplier
Able to supply as many of the buyer’s requirements as possible
Responsive, therefore minimising the need for intervention
Will continue to supply the required products for the long term
ITC M5:U3:3.3-2

33. Leverage items (high value & low risk):
ITC M5:U3:3.3-6
Supply strategy for continuously required leverage items
Element of
strategy
Case 1:
Very high
switching
costs
Case 2:
Low price
variability /
negligible
switching
costs
Case 3:
Low price
variability /
relatively high
switching costs
Case 4:
High price
variability /
low switching
costs
Case 5:
High price
variability /
relatively high
switching costs
Number of
suppliers
One Many One Many Two or three
Type of
contract
Term
contract –
typically
long term
Spot
Term
contract
Spot
Term
(framework)
contract –
typically over
medium term
Type of
supplier
Lowest cost
over the
contract
term
Lowest cost
today
Lowest cost
over contract
term
Lowest cost
today
Lowest cost
over the
contract term

34. Leverage items (high value & low risk)
(Cont’d)
ITC M5:U3:3.3-7
Supply strategy for continuously required leverage items
Element of
strategy
Case 1:
Very high
switching
costs
Case 2:
Low price
variability /
negligible
switching
costs
Case 3:
Low price
variability /
relatively high
switching costs
Case 4:
High price
variability /
low switching
costs
Case 5:
Nature of
relationship
Co-
operative
(will not
exploit
dominant
position
once buyer
is “locked
in”)
Arms-
length
Arms-length
(buyer-
dominant)
Arms-length Co-operative
High price
variability /
relatively high
switching costs

35. Bottleneck items...
...are low value & high risk so your main
concern is to reduce risk
Supply strategy for continuous bottleneck items
Number of suppliers: One (possibly two)
Nature of relationship: Be a “good customer”
Type of contract: Term contract (probably
for a significant period)
Type of supplier
Must be particularly capable in the areas which pose the greatest risk to
your company.
Will not exploit its strong bargaining position with your company.
Will continue to supply the required products for the long term.
ITC M5:U3:3.3-14

36. Critical items:
Supply strategy for continuous critical items
Number of suppliers: One
Nature of relationship: Partnership
Type of contract: Long term “partnership” contract
Type of supplier
 Must be particularly capable in the areas which pose the greatest risk to your
company.
 Must have the ability to be a very low cost provider and/or technological leader in
the long term.
 Your required products and services must be core business to the supplier.
 The supplier’s business strategy must be compatible with your company’s business
strategy.
 The supplier must be financially stable and have a sustainable market position.
 It must not have any preferential relationship with your company’s competitors.
 It should not seek to exploit your company’s position.
ITC M5:U3:3.3-19

37. Weighting your appraisal criteria for
supplier capability
Weighting your appraisal criteria is a way of
making them measurable
The weight you give indicates the order of
importance of the factor to be measured
Your supply targets will be the basis for weighting
the appraisal criteria
ITC M5:U6:6.2-1

38. An example:
3 Appraisal criteria:
Technical performance
Product reliability
Lead-time to delivery…
Allocating weights:
Technical performance = 10 points
Product reliability = 10 points
Lead-time to delivery = 9 points
Product reliability = 10 points
Low meantime between failures (3 points)
Low outage rate (3 points)
Durability of equipment (4 points)
ITC M5:U6:6.2-2

39. Case 1: Measuring equipment
Appraisal criteria (and components with
allocated weights)
Overall weight
(1-10)
Supply
target
1. Technical performance
 Precision in measurement (10)
10 Q
2. Product reliability
 Low meantime between failures (3)
 Low outage rate (3)
 Durability of the equipment (4)
10 Q
3. Lead-time to delivery
 Delivery of the main equipment (9)
9 A
4. Continued availability of spares
 Offers of continuity of supply (1)
 Financial stability (3)
 Core product for supplier (3)
 Sustainable market position (3)
10 A
ITC M5:U6:6.2-3
(*) Q = quality; A = supply availability; R = supplier responsiveness; C = cost
(*)

40. Case 1: Measuring equipment (Cont’d)
Appraisal criteria (and components with
allocated weights)
Overall weight
(1-10)
Supply
target
5. Technical support
 In installation and commissioning (2)
 Readiness to train staff on-site (3)
 Response time to queries (2)
 Response time to maintenance and repair (3)
10 R
6. Life-cycle cost
 List price (1)
 Discounts (1)
 Cost of spare parts (2)
 Cost of staff training (1)
 Cost of maintenance support (2)
7 C
TOTAL: 56
ITC M5:U6:6.2-4
(*) Q = quality; A = supply availability; R = supplier responsiveness; C = cost
(*)

41. Rating your potential suppliers’
capabilities
First you need to establish the possible supplier
performance ranges for each appraisal criterion
You then need to decide on the lowest but
acceptable performance level. This will be your
“baseline”
ITC M5:U6:6.3-1

42. Supplier performance categories – Computer supplies
Appraisal criteria component: usual delivery lead-time
Not acceptable –
has not met any
reasonable
criteria
May not be
acceptable –
only meets
minimum
requirements
Acceptable
(baseline)
Acceptable – has
met all requirements
and exceeded some
Acceptable –
has well
exceeded all
requirements
0 1 2 3 4
3 working days or
more
2 working days 1 working day Same working day (if
ordered in the
morning)
3 hours or less
Example of appraisal categories & scores:
You now need to decide on the range of
possible supplier performances & their scores
ITC M5:U6:6.3-2

43. Scoring supplier capability
-an example:
The weight given to meantime between failures = 3
so Supplier A will get 3 x 3 = 9 points for this criterion
ITC M5:U6:6.3-10
Scoring supplier performance – Measuring equipment
Appraisal criterion component: meantime between failures
Not acceptable –
has not met any
reasonable criteria
May not be
acceptable –
only meets
minimum
requirements
Acceptable
(baseline)
Acceptable –
has met all
requirements
Acceptable –
has well
0 1 2 3 4
Avge. less than 100
days between
failures
Avge. 100-119
days between
failures
Avge. 120-
129 days
between
failures
Avge. 130-149
days between
failures
Avge. 150 or
more days
between failures
Supplier A X
Supplier B X
Supplier C X
exceeded all
requirements
and exceeded
some
2 3 1

44. Supplier Capability Ratings – Measuring equipment
A B C
(and components with allocated
weights) Score
Wtd.
Score
Score
Wtd.
Score
Score
Wtd.
Score
1. Technical performance
 Precision in measurement (10) 4 40 1 10 2 20
2. Reliability
 Low meantime between failures (3) 3 9 2 6 3 9
 Low outage rate (3) 3 9 2 6 2 6
 Durability of the equipment (4) 4 16 2 8 3 12
3. Lead-time to delivery
 Delivery of the main equipment (9) 2 18 4 36 3 27
Supplier Supplier Supplier
Appraisal criteria
Another example of ratings - measuring equipment
ITC M5:U6:6.3-11

45. Supplier Capability Ratings – Measuring equipment
Supplier
A
Supplier
B
Supplier
C
Appraisal criteria
(and components with allocated
weights) Score
Wtd.
Score
Score
Wtd.
Score
Score
Wtd.
Score
4. Supply horizon – continuity of
availability of spares
 Offers of continuity of supply (1) 3 3 3 3 4 4
 Financial stability (3) 3 9 3 9 1 3
 Core product for supplier (3) 4 12 2 6 3 9
 Sustainable market position (3) 4 12 2 6 0 0
5. Technical support
 Technical support in installation &
commissioning (2)
2 4 3 6 3 6
 Readiness to train staff on-site (3) 2 6 4 12 3 9
 Response time to queries (2) 3 6 3 6 2 4
 Response time to maintenance and
repair (3)
3 9 4 12 2 6
Another example of ratings - measuring equipment (Cont’d)
ITC M5:U6:6.3-12

46. Supplier Capability Ratings– Measuring equipment
A B C
(and components with allocated
weights) Score
Wtd.
Score
Score
Wtd.
Score
Score
Wtd.
Score
6. Life-cycle cost
 List price (1) 1 1 3 3 4 4
 Discounts (1) 2 2 2 2 3 3
 Cost of spare parts (2) 1 2 3 6 1 2
 Cost of staff training (1) 1 1 4 4 2 2
 Cost of maintenance support (2) 1 2 3 6 1 2
Maximum score possible = 224 Total
weighted score:
16
1
14
7
12
8
Supplier Supplier Supplier
Appraisal criteria
Another example of ratings - measuring equipment (Cont’d)
ITC M5:U6:6.3-13

47. The maximum possible score for any supplier
is 224 points. This is calculated as follows:
Sum of the weights of the Maximum score possible
appraisal criteria components for the components
= (56) x (4) = 224
x
Supplier A: 161 / 224 =72%
Supplier B: 147 / 224 =66%
Supplier C: 128 / 224 = 57%
Total capability scores:
ITC M5:U6:6.3-14

48. Comments on rating suppliers:
Some scores can be Yes / No
Some individual criteria scores - if the acceptable level
is not met - can cause you to exclude a supplier from
further consideration
You may set a minimum acceptable overall rating
ITC M5:U6:6.3-15
STOP

49. Supplier Ratings:
Capability & Motivation...
Capability
Motivation
100%
50%
N L M H
A
B
C
ITC M5:U6:6.4-1
H
M
L
N



