Original Date: 09/14/1998
Revision Date: 01/18/2007
Information : Best Value Analysis for Procurement
In the past, Raytheon Missile Systems Company (RMSC) chose vendors primarily by low bid or through qualitative knowledge of individual buyers. Although quality and delivery data was available, the method for retrieving this information was difficult and time consuming. In 1991, RMSC implemented Best Value Analysis for Procurement to simplify and validate its vendor selection process.
Best Value Analysis for Procurement provides historical data from the Supplier Performance Rating System, which is accessible by commodity, part number, or vendor. This automated tool also quantifies additional costs caused by a vendor’s late deliveries or poor quality products. Documented data (e.g., late delivery information, non-conforming material documents) is entered into the system, and maintained by specific vendor for a rolling period of 24 months.
Using standard algorithms, Best Value Analysis for Procurement automatically considers past performance and assigns a cost adjustment factor, or Performance Index (PI), to each vendor. The PI is then multiplied by the potential vendor’s bid price to obtain an anticipated best value cost of buying a specific part from that vendor. For example, a vendor with a good quality and delivery history for a specific part/commodity would have a PI of 1.0, and the projected cost of doing business would be the bid price. A vendor with a poor quality and/or delivery history would have a PI greater than 1.0, which would make the anticipated cost of selection higher than the bid price. Readily available, this information helps the buyer make a best value decision based on quantitative historical data. In cases where the best value vendor may not be appropriate, the buyer must provide documented rationale (e.g., complexity or technical adequacy of the product) in order to select someone else.
Best Value Analysis for Procurement enables RMSC to determine the best value vendor for each purchase. The primary strengths of this tool include providing instant, accessible historical data, and quantifying the anticipated costs of doing business with competing subcontractors. As a result, RMSC can make timely and cost-effective purchasing decisions.
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