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A vendor rating, also known as a supplier rating, is based on a formal system of evaluating the companies that supply materials or services to an organization. The process is meant to encourage a high-quality, efficient vendor-to-customer relationship. Overall, vendors are typically judged by both the services they offer and what capabilities they possess. A variety of factors, which depend on the particular vendor, are reviewed and the results are usually quantified with either a numerical score — possibly expressed as a percentage — or a rating from poor to excellent.
There are several common elements that are factored into a typical vendor rating. An organization will usually evaluate the overall vendor experience, including the quality of service, the timeliness of delivery, the quality of the product type, and the accuracy of the amount delivered. Evaluations will also often consider what the vendor has to offer as far as the ability to provide certain materials and services and at what cost. Issues such as billing accuracy and timeliness, warranty, and whether or not services and products conform to the market average are also often considered.
The complexity of a vendor rating program depends upon the size of the organization. Many companies have a supplier relationship management program which handles the rating process on an ongoing basis. Smaller companies may not conduct as frequent or as thorough evaluations, though they will often use several of the same criteria. Whatever the size of the organization, one of the key factors of developing an effective vendor rating system is to determine which elements are critical to the success of the organization being served before starting an evaluation.
A vendor rating system can be used to determine whether or not a supplier relationship is worth pursuing. If a vendor falls below a certain level of quality, an organization may issue a warning that certain aspects of service must be improved in order to sustain the relationship. An organization may also use a particularly low score or rating as the grounds for terminating a vendor relationship.
In order for a vendor rating program to be effective, the details of the evaluation and the expectations of the organization must be made clear to the supplier. Many companies accomplish this with a formal vendor education program. After initial communication about the parameters of the vendor review process, the organization will typically establish some sort of regular system of communication in which the vendor is informed of any issues that may have changed the rating, whether in a positive or negative direction.