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:
SUPPLIER RATING REPORT
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.