Methodology to Re-classify Suppliers

After the analysis of the present scenario about the classification policy of FICEP S.P.A, we have found
several flaws in the classification system. The FICEP policy only considers quality as a sole characteristics
for classifying it’s suppliers. However this system is not helping FICEP function with it’s full potential as
several other important parameters are not taken into consideration while categorization of suppliers.
In the dynamic and volatile supply chain environment other parameters such as “proper order delivery
(in terms of quantity), on time delivery (in terms of lead times), proper information on product (in terms
of levelling), proper packaging, ease of communication, financial status of supplier, geographic location,
flexibility (both in terms of time as well as quantity) and historical relationship with suppliers” plays a
vital role in the performance of the Original Equipment Manufacturer.

Out of all these above mentioned parameters, we decided to consider six parameters in order to
evaluate and classify the suppliers. However all these KPIs’ do not have similar effect on the system, as
some KPI affect the system more than others, we decided to give a weighted value to each KPI
depending on its impact on the total management process.

Table of KPIs’ and designated weighted average value

KPI(K) Designated Variable Weighted Avg. Value(W)

Proper order delivery (in terms ‘Q’ 20%
of quantity)
On time delivery (in terms of ‘L’ 40%
lead times)

Proper information on product ‘I’ 10%

(in terms of levelling)

Proper packaging ‘P’ 20%

Ease of communication ‘E’ 5%
Historical relationship with ‘H’ 5%
suppliers
∑W 100%

Each and every order no (O) has a list of product codes (X), and, each and every product code will have a
respective data for Q,L,I,P,E and H. Every order no (O) has a respective supplier code (S), which means
that the order no has been assigned to the respective supplier. The idea is to generate value for each
product code and then subsequently value for each supplier over a period of time and classify according
to the value generated for the supplier.
Mathematical Representation:-
FICEP has a set of suppliers(F)
F = ( S1, S2, ……., Sk )

Every S has a set of O:-

S = ( O1 , O2 , …. Oj )

Every O has a set of X:-

O = ( X1 , X2, ….. Xi )

Every X has a value based on the following formula:-

Val(Xj) = Zj

Zj = 20*(100-Qj) + 40*(100-Lj) + 10*(Ij) + 20*(Pj) + 5*(100-Ej) + 5*(Hj)

Where

Q = 100*(|Ordered quantity – Delivered quantity|)/Ordered quantity

L = 100*(|Expected Lead time – Actual Lead time|)/Expected Lead time

E = 100*(no of product code ordered – no of order confirmed)/no of product code ordered

H = 60 if supplier is associated in between 1935 and 1984

= 30 if supplier is associated in between 1985 and 2005

= 10 if supplier is associated in between 2006 and 2015

I = value given by the logistic manager while downloading the materials based on the information
provided on the package. Value of I range from 0 to 100. Where 100 = complete information regarding
the product and 0 = no information regarding the product.

P = value given by the logistic manager while downloading the materials based on the quality of
packaging. Value of P range from 0 to 100. Where 100 = proper packaging and 0 = no packaging on the
product.

N.B:- the value of ‘E’ and ‘H’ are based on historical value which are computed and assigned based to
their history to each supplier before the start of each year. For the working year the value remains fixed.

Val(Oi) = Yi = (∑ Zj)/j

Val(Sk) = Mk = (∑Yi)/i

Finally Variable FICEP(F) will have a set of values from M1, M2…..Mk with a mean, range and variance,
which will be subsequently used to classify the suppliers.