This is the third and the last in the articles addressing “SUPPLIER PERFORMANCE MANAGEMENT”.

Let’s make sure we know why we want to do this:

  • There is a need to align the performances of us, our suppliers, and customers
  • To identify what those criteria is and their respective measurements
  • How to utilize the data/information to drive areas to improvement

Let’s identify the alignment of performance measurement:

     CUSTOMER                                  BUYER                                   SUPPLIER

1.  Quick Delivery                             Cycle Time                            Lead time
2.  Lower Prices                               Lowest Total                        CostValue
3.  High Quality                                100% Conformance            100% Conformance
4.  Quick Response                         Service Turnaround             Service Turnaround

There are metrics universally used and available:

  • Order Fulfillment
  • Customer Satisfaction
  • Warranty costs
  • Forecast Accuracy
  • Inventory Levels – measured in $ and days of supply
  • Obsolescence

The sources of the measurements come from the following:

  • Data from transactions like receipt of goods/service and work activities such as inspection
  • Sources are not just internal but in cooperation with our customers and suppliers
  • Also, availability from professional societies (Institute of Supply Mgt. -ISM; Association of Supply Chain Mgt. – ASCM (APICS))
  • Employing an informational tool – “BENCHMARKING”

The intent of these measurement is to direct attention to ensure we are on track to our plans and identify actions needed to get back on track. To perform analysis that provide incite regarding noncompetitive prices (costs), the consistency of quality provided within the customers desires.

Who are the users of what & why?

WHO                   WHAT                              WHY?
Buyer                  Overall                             Track Performance
Quality                Quality data &                Statistical Analysis
                            Documents                     System Assurance
Engineering       Quality                             Provides direction to Internal/external customer
                            Service                            Request Aid/response
Finance              Cost                                 Meeting Budgets

Here is a sample report depicting the Suppliers Performance:


CRITERIA                   POINT VALUE      JANUARY      FEBRUARY      MARCH
Quality                        25                          Actual Performance Experience – example = 10 of 100 orders rejected is 90% which would earn score of 90% of 25 = 22.5
Delivery                      20                          Same calculation as above but using delivery request vs. actual
Documents                15                          Same calculation as above but using correct papers provided
Cost                            15                          Same calculation as above but using quoted vs. actual
Quantity Received    10                          Same calculation as above but measuring actual received vs. ordered
Service Provided      15                          Measures providing service as & when requested
TOTAL                        100                       75                    80

This report should be generated at a minimum weekly or monthly.

Understand that the of collecting the data and reviewing such is important. It will provide insight to where an organization needs to address changes within our own operations as well as the suppliers. Please note the following points of “READING THE NUMBERS – IMPACTS”:

POOR QUALITY – leads to increased costs

  • Increase purchasing quantities
  • Increase safety stock
  • Expedite replacement
  • Missed customer shipments

POOR DELIVERY – leads to increased costs

  • Expediting shipments
  • Managing shortages
  • Increased safety stock
  • Looking for another source
  • Missed customer shipments

POOR RESPONSIVENESS - leads to increased costs

  • Follow-up and expediting
  • Missed shipments
  • Customer dissatisfaction
  • Lack of reliability – schedule fluctuations
  • Managing uncertainty

The intent of these articles was to make us see the importance of measuring our suppliers and working with them to improve the performance posture. Only by doing this will we see operating cost reductions associated with supplier performance.