INTER PLANT STANDARD STEEL INDUSTRY

GUIDE ON VENDOR RATING

(First Revision)
IPSS

Corresponding Indian Standard does not exist

IPSS:3-01-003-01
Formerly:
IPSS:3-01-003-96

0.

FOREWORD

0.1

This Inter Plant Standard prepared by the Standards Committee on

Materials Management, IPSS 3:1, with the active participation of the
representatives of SAIL plants/units and was adopted in July 2001.

0.2

IPSS aims at achieving rationalization and unification of practices in SAIL

plants/units and are intended to provide guidance to SAIL managers in their
management practices so that quality system can be introduced
progressively in all activities of SAIL units. This standard lays down the
method of vendor rating and provides to the Materials Managers clear
guidelines, formulae and weightages for relevant factors.

0.3

This standard was first published in March 1996. The practical problems
faced in its implementation during the last five years, have been considered
and necessary changes incorporated in this revision to remove them.
Service factor, which was one of the factors in the original standard, was
found to be too subjective to be quantified by the user plants. This factor
has been removed in this revision.

0.4

Objective - With the growing emphasis on adoption of quality system as

per ISO 9000 series of standards, the Standards Committee on Materials
Management, IPSS 3:1, has felt the necessity for an integrated approach to
materials management covering aspects like vendor identification, vendor
development, vendor registration, monitoring for vendors performance,
vendor de-registration etc. Accordingly, a series of standards were brought
out and this standard is one in that series.

1.

SCOPE

1.1

This standard provides objective and step-wise guidance for Vendor Rating
in steel plants.
NOTE: This document has been primarily designed for SAIL units. The other organizations outside
SAIL are free to adopt this with appropriate changes.

2.

INTRODUCTION

2.1

The quality of a product/services depends upon the quality of the inputs,

processes, etc. It is, therefore, essential that the inputs are procured only
from those vendors who have demonstrated their capability to supply the

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inputs of desired quality at an acceptable cost and within the agreed time
schedule. It is, therefore, essential to rate or classify the vendors on a
scientific basis. This standard aims at providing the necessary objective and
step-wise guidance for Vendor Rating.
2.2

Vendor rating is a process of assessing the performance of a vendor in

comparison with other vendors with a view to drawing up a comparative
scale. This involves processing of huge amount of data into manageable
information which in turn provides objective criterion for:
a)

Vendor selection for issue of enquiries

b)

Acceptance of tender/distribution of quantities where more than one

tenderer qualifies to get order

c)

To give feed back to the vendors on their performance and to guide

them for improvement of their performance.

d)

Decision on continuation/suspension of dealings with vendors

3.

PROCEDURAL STEPS

3.1

Vendor Rating shall be based on the following factors:

a) Quality
b) Delivery
c) Price

3.2

Quality Factor

3.2.1 Quality means the totality of features, characteristics and specification of a

product or service that bears upon its ability to satisfy stated or implied
needs of the customer.
3.2.2 Quality Rating (QR) for an item in a lot/consignment/Goods Receipt Note
(GRN), as applicable, will be determined by the following formula:
q + x1 . q1 + x2 . q2
---------------------------Q

QR

WQ

=
=
=
=
=

quantity accepted
quantity accepted with deviation
quantity accepted with rectification
quantity rejected
total quantity offered for inspection = (q + q1 + q2 + q3)

Where
q
q1
q2
q3
Q

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IPSS:3-01-003-01
x1
x2
WQ
3.3

=
=
=

0.5 (demerit factor for deviation)

0.4 (demerit factor for rectification)
50 (weightage for quality factor)

Delivery Factor

3.3.1 Delivery means accepted quantity supplied in time as per the delivery
schedule stipulated in the Purchase Order (PO).
3.3.2 Delivery Rating (DR) will be calculated by the following formula:
q1 + 0.8q2 + 0.6q3
----------------------Q

DR

WD

q1
q2

=
=

q3

Q
WD

=
=

quantity accepted within delivery period (DP)

quantity supplied beyond delivery period but within
10% of the scheduled DP
quantity supplied beyond 10% of the scheduled DP
but within 25% of scheduled DP
quantity to be supplied by that time as per PO
35 (weightage for delivery factor)

Where

3.3.3 In case of phased supplies, the rating will be averaged for the quantity.
3.3.4 If amendment to the original DP is solely attributable to the purchaser, then
the amended DP shall be taken for consideration of Delivery Rating,
otherwise original DP shall be considered.
3.3.5 Date of supply will be the date of RR/Consignment note when the material
moves by rail/road irrespective of the delivery point stipulated in the order.
3.3.6 In case of door delivery where consignee is plant/units branch office, the
date of receipt will be taken as the date of supply.
3.3.7 In case of door delivery to the consignee by the local vendor, the date of
receipt of the goods in the plant shall be taken as the date of supply.
3.4

Price Factor

3.4.1 Price Rating (PR) for an item will be calculated by the following formula:
PR

PL
---------P

WP

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Where
PL = lowest of the prices quoted by vendors for the item
P = price quoted by the vendor being rated
WP = 15 (weightage for price factor)
3.4.2 Price will mean the final cost worked out for tender evaluation which shall
be the landed cost.
4.

VENDOR RATING

4.1

The formulae given above shall be applied to one complete order at a time.

4.2

The composite Vendor Rating (VR) score shall be calculated by the

following formula:
VR = QR + DR + PR

5.

CLASSIFICATION OF VENDORS

5.1

Based on the Vendor Rating scores calculated for each executed order,
average VR score will be worked out by the following formula:
VR1 + VR2 + ........ VRn
--------------------------------n

AR

=
=
=

average VR score
VR score for the nth order
number of rated orders

where
AR
VRn
n

Vendor Rating shall be done every financial year and the data shall be
maintained for five years including the current year.
5.2

Based on the AR score, vendors shall be classified into three categories as

follows:
AR obtained

Class of Vendor

Above 75
66 to 75
55 to 65
5.3

A
B
C

Where a vendor obtains AR below 55, his performance will be highlighted to

the Head of Purchase Deptt for decision on issuing intimation to the vendor.
__________

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