Rank Suppliers Based on Composite Score of Pricing and Requirements

Many companies evaluate and shortlist suppliers not just based on the best pricing offered, but also on how well they meet requirements. You can use a composite score of requirements and pricing to rank suppliers.

• Category managers can select the overall ranking method as Composite scoring.

• In requirements, a Pricing section is automatically added to score the supplier's response amount.

• Category managers can assign weights to requirement sections including pricing.

• A relative score is calculated for the pricing section based on supplier's response amount. Evaluators score other requirements.

• Composite score is calculated by adding the weighted requirement score and weighted relative score.

• Overall composite rank is derived based on the composite score of response amount and requirements.

• Category managers can see both overall ranks - based on composite score and response amount.

Currently, the overall response rank is based on the lowest response amount and is used to identify the best supplier offer. For some companies, the rank needs to take requirement scores into consideration in addition to the lowest response amount. Requirement scores represent qualitative aspects such as technical capabilities, other commercial considerations, or risk.

Composite Score is derived as follows:

• Relative Score for Pricing = Maximum Score * (Lowest Response Amount/Response Amount)

• Weighted Relative Score = Relative Score * (Pricing Section Weight/Max Score)

• Composite Score = Weighted Relative Score + Weighted Requirement Score

Higher the composite score, higher the overall rank. For example, consider that as a category manager, you do these steps to use composite scoring to select a supplier.

1. Opt in to Rank Suppliers Based on Composite Score of Pricing and Requirements.

2. Check to see that Apply Internal Cost Factors in Supplier Negotiations isn't opted in to.

3. In the negotiation style that you applied to the negotiation, select the Overall rank option and the Requirements option.

4. Create an RFQ to procure computer accessories, include the details, select the suppliers Compucon Systems and Softgear, and publish the RFQ.

   The suppliers responded to the RFQ. The responses include answers to requirements and prices offered for line items. Weights assigned to each section are Pricing 40%, Overview 40%, and Commercial 20%.

For these responses, requirement scores, relative scores, and a composite score are derived as follows. Compucon Systems has quoted the lowest response amount, therefore it's ranked 1 while Softgear is ranked 2.

Here's how the relative score is calculated for pricing section.

Supplier	Response Amount	Overall Rank (Amount)	Relative Score	Weight (%)	Weighted Relative Score (Pricing)
Compucon Systems	$400.00	1	10*(400/400) = 10	40	10*40/10 = 40
Softgear	$500.00	2	10*(400/500) = 8	40	8*40/10 = 32

Here's how requirement scores are calculated for Compucon Systems:

Requirement Sections	Weight (%)	Requirement Score	Weighted Requirement Score
Overview	40	4	16
Commercial	20	2	4
Total			20

Here's how requirement scores are calculated for Softgear:

Requirement Sections	Weight (%)	Requirement Score	Weighted Requirement Score
Overview	40	4.5	18
Commercial	20	6	12
Total			30

But during requirements evaluation, Softgear scored more than Compucon Systems, which also increased its Composite Score, therefore, Softgear is ranked 1, while Compucon Systems is ranked 2.

Supplier	Weighted Requirement Score	Weighted Relative Score (Pricing)	Composite Score	Overall Rank (Composite)
Softgear	30	32	30 + 32 = 62	1
Compucon Systems	20	40	20 + 40 = 60	2

You as a category manager can change the section weights during award analysis and view the change in composite score and overall rank (composite) in real-time. You can also override the composite scores as per business needs, and can knockout suppliers if responses don't meet or surpass the bare minimum to be shortlisted for awarding.