3 Easy Supplier Evaluation Methods Used in Apparel Industry

What is Supplier Evaluation?

The term supplier evaluation is used in apparel industry to describe the quantitative process of evaluating and approving potential suppliers to raw material or accessories in apparel industry. Several techniques are used by the apparel industry to evaluate suppliers and measure performance, in order to ensure a portfolio of best in class suppliers is available for use.

Figure: Supplier evaluation methods in apparel industry

Objectives of Supplier Evaluation

supplier evaluation methods are usually a time consuming activity, so they are not performed frequently. In real time situation, many companies do the evaluation on a monthly or quarterly basis. some companies evaluate suppliers only once in a year. Supplier evaluation methods are commonly used for the following objectives:

track performance of supplier.
identify supplier improvement opportunities.
develop supplier
benchmark suppliers against best practices.

Supplier Evaluation Methods

There are three most common supplier evaluation methods. They are:

The categorical system.
Weighted-point average system.
The cost based system.

As the categorical system does not differentiate between the weights of the attributes considered, it is the most subjective technique. By assigning weights to each attribute, the weight point average system overcomes this drawback. As the cost based system also considers no-performance costs, it is the most objective.

1. The Categorical System

In this method, the customer or buyer selects attributes that are most appropriate and ideal for their particular situation. The buyer assigns either a preferred (+), unsatisfactory (-), or neutral (0) rating for each of the selected attributes to every vendor. Then ratings are summed up for each vendor. For example, ratings resulting in scores of one preferred (+), two unsatisfactory (–), and one neutral (0) would total one negative (-).

Table 1 is shown an example of the categorical system of supplier evaluation in the apparel industry. Here, the evaluation factors or attributes differs between factories based on their company’s policy and requirements. Small firms and firms in the process of developing and evaluation system are the major users of this system.

Vendor	Cost	Quality	Speed	Total
Nz yarn manufacturer	Neutral (0)	Unsatisfactory (-)	Neutral (0)	–
Yongo fabric supplier	Good (+)	Good (+)	Good (+)	+++
Z &z accessories	Neutral (0)	Good (+)	Good (+)	++
Tex chemical supplier	Good (+)	Unsatisfactory (-)	Neutral (0)	0

Table 1: Supplier evaluation by using categorial system

Advantages of categorical system

Low-cost system.
Good for firms with limited resources.
Different personnel contribution.
Requires minimal data.
Easy to implement.

Disadvantage of categorical system

Usually manual.
Most subjective and it relies on memory, personal judgment, and the experience/ability of the buyers.
Less frequent generation of evaluation.
Least reliable.

2. Weighted-point average system

The weighted point method considers attributes that are weighted by the buyer. Each attribute’s weight is multiplied by its performance score, and then the totals are calculated to determine the final supplier rating. Typically, quantitative measurements are used in this system. The basic steps involved in the weighted point of supplier evaluation method are given below.

Determine the evaluation criteria.
Estimate the importance of each criterion.
Rate each product against all evaluation criteria.
Compute the average rating for each criterion for each product.
Weight the product rating for each criterion by importance.
Compute the total rating for each product.
Compare product rating.

Assume that there are seven criteria that are being used to evaluate supplier, quality, price, service, production capacity, engineering capacity, business structure and delivery. These attributes are weighted with the relative importance considered by the buyer on a 10(less important) to 100 (most important) scales as shown table 2.

S/N	Attributes	Weight (%)
1.	Quality	20
2.	Price	25
3.	Service	20
4.	Production capacity	10
5.	Engineering capacity	5
6.	Business structure	5
7.	Delivery	15

Table 2: Different attributes and their weighted percentages

This example evaluates three suppliers, namely X, Y, and Z, based on their previous order performance. The results are displayed in Table 3. Performances are rated from 0 (poor) to 5 (excellent).

S/N	attributes	weight(%)	performance rating of suppliers (X)	supplier X score	performance rating of suppliers (Y)	supplier Y score	performance rating of suppliers (Z)	supplier Z score
1.	Quality	20	5	(5/5)×20= 20	4	(4/5)×20= 16	4	(4/5)×20= 16
2.	Price	25	4	(4/5)×25= 20	3	(3/5)×25= 15	5	(5/5)×25= 20
3.	Service	20	3	(3/5)×20= 12	4	(4/5)×20= 16	2	(2/5)×20= 8
4.	Production capacity	10	2	(2/5)×10= 4	2	(2/5)×10= 4	3	(3/5)×10= 6
5.	Engineering capacity	5	4	(4/5)×5= 4	3	(3/5)×5= 3	5	(5/5)×5= 5
6.	Business structure	5	3	(3/5)×5= 3	2	(2/5)×5= 2	3	(3/5)×5= 3
7.	Delivery	15	5	(5/5)×15= 15	2	(2/5)×15= 6	4	(4/5)×15= 12
total point by			supplier X	78/100	Supplier Y	62/100	Supplier Z	70/100

Table 3: Performance rating assessment of the supplier Z,Y and Z

Advantages of weighted point system

combines qualitative and quantitative factors into a single system.
moderate implementation costs.
allows supplier ranking.
flexible system.

Disadvantages of weighted point average system

requires computer skills.
tends to focus on unit price.

3. Cost-ratio Based System

This method evaluates supplier performance by using a standard cost analysis. Buyers can use this method to quantify any additional costs incurred if suppliers do not perform as expected. Total cost of each purchase is calculated by taking into account the selling price and the buyers internal operating costs related to quality, delivery, and service. Cost ratio is calculated by the following formula:

cost ratio= Non-performance cost÷ purchase price

An example of cost the associated with the quality factors are provided here for Supplier Z&Z, the various elements and cost associated with quality are provided in table 4.

elements	cost in INR
plant visit	2800
sample approval	5000
inspection cost	1500
rejections or losses	3000
rework cost	1800
paper work expenditures	500
total non-performance cost	Rs.14,600
total value of purchase	Rs. 1,00,000
quality cost ratio	0.146 or 1.46%

Table 4: Elements and cost associated to quality for supplier Z&Z

In this manner, the manufacturing firm will collect the cost ratios of different heads of the single supplier and use it to compare with the other suppliers. the sample for the comparison with the different supplier is provided in table 5.

supplier	quality cost ratio (%)	delivery cost-ratio (%)	service cost-ratio (%)	total (%)	Quoted price/Unit (Rs)	Net adjusted cost (Rs)
Z&Z	1.46	2	1.54	5	110	115.5
XYZ	2	1	2.2	5.2	115	120.98
ABC	1.85	1.92	2.12	5.89	105	111.18

Table 5: Identification of true value of the product by cost ratio based method

Advantage of cost ratio based system

As an evaluation tool, it is consistent and reliable.
the ability to provide positive supplier reinforcement.
a way to communicate the company’s buying priorities to suppliers.

Disadvantage of cost ratio based system

this method is very complex to use and other difficulty is its requirement that users have a developed cost accounting system.
identifying costs of supplier non-performance is difficult.

Reference

Grace I. Kunz, Ruth E. Glock, (2004), Apparel Manufacturing: Sewn Product Analysis. 4th Edition. Prentice Hall.
Kadolph, S. J. (2006). Textiles. New Delhi: Pearson Education.
R. Rathinamoorthy, R. S. (2018). Apparel Merchandising. Chennai: Woodhead Publishing India Pvt. Ltd.

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