In practice, many firms report supplier performance on a monthly or quarterly basis. In many companies, the desire for information is much greater than the capability to generate or obtain this information.
What metrics do other firms use on their supplier scorecards? In many cases, suppliers may be able to address most of the issues that arise out of SPM by using their own internal resources.
As just described, metrics should flow from performance expectations.
For example, firms may wish to measure strategic suppliers in more detail and custom suppliers primarily in service and reliability. Sometimes the top level elements on a scorecard are calculated from several KPMs and rolled up into an overall score in areas such as quality, delivery and responsiveness.
A large manufacturer of environmental care products calculated its total failure costs 7 steps to measure supplier performance then estimated how much a supplier performance management system could potentially reduce costs.
Supplier recognition should not be approached casually. You want to measure the most important aspects of supplier performance, not choose areas just because they can be easily measured. We go through that level of detail so that we are not disappointed when parts come in.
Collect the performance data.
Metrics that are not aligned can derail the process and make it irrelevant. One important aspect of capturing and tracking value is communicating the results both internally to stakeholders and externally to suppliers.
Successful SPM requires good leadership, organizational alignment, a good business process, effective communications and taking action as part of the process. Performance expectations are typically the business practices that the customer would like the supplier to follow and deploy.
Segmenting the Supply Base for SPM With so many suppliers past, present and future, a company cannot possibly manage performance plans for every single one of them. Supplier segmentation is not a science. Getting From Performance Management to Performance Improvement Getting suppliers to improve performance does not happen solely because of scorecards.
These systems generate B2B data, making it easier for groups to become data-driven, she said. Finally, these products are totaled to determine a final rating for each supplier. Do you want to use different scorecard flavors for different supplier segments? It continues to reap additional savings and benefits as it extends the use of the SPM program.
The total cost of doing business with the supplier can be calculated by the supplier performance index SPI. Considerations include size of the company, number of certifications, quality management systems, complaint history, and financial stability.
Use data that you have collected like on-time delivery rate, return rate, and number of supplier corrective actions to work with your suppliers, says Boudreaux. The categorical system is the most subjective technique since it does not differentiate between the weights of the attributes considered.
It depends on how much resources you have to dedicate to evaluating your suppliers, says Boudreaux. Once an SPM process is fully implemented, many companies develop recognition programs for their top suppliers.
Which suppliers should be measured? Categorical supplier measurement is the easiest method to implement but suffers from subjectivity. Typically, suppliers are divided into strategic, collaborative, custom and commodity quadrants, with strategic suppliers being the primary focus and commodity suppliers requiring fewer resources.
Is there a system for handling complaints or problems? Cost-Based System Using the cost-based system, a buyer is able to quantify the additional costs incurred if a supplier fails to perform as expected. You also can monitor suppliers and vendors by doing an audit periodically. It should also create a rollout plan to both the stakeholder and supplier communities.
The cost-based system is the most objective of the three methods because it also considers non-performance costs. Your business should have a system in place for evaluating, selecting and then reevaluating the suppliers and vendors it works with.
However, frequent meetings with suppliers facilitate the prevention of inefficient practices at an early stage and encourage continuous improvement of suppliers.Seven steps describe how an organization can use internal resources to improve the performance of key suppliers and at the same time produce a return on investment.
A sidebar explains why supplier performance should be measured. Seven Steps To Measure Supplier Performance by Sherry Gordon 20 I AUGUST I mi-centre.com very organization knows it should be assessing supplier performance. Most are deploying some sort of supplier. The supplier segmentation process is a starting point for discussions among Procurement and other stakeholders about which suppliers may have the greatest impacts on the company's own performance, which suppliers harbor the greatest potential risks, and which suppliers need to be measured, monitored, or improved.
Monitoring or measuring supplier performance may help to reduce the cost of purchasing and increase the overall value of the purchasing (Abdolshah, ), and to improve supplier development (which has potential to impact customers financially and competitively) (Gordon, ).
Seven Steps to Measuring Supplier Performance By Software AG Social Media A Team - December 7, There’s no doubt that B2B organizations, from procurement through.
Supplier Performance Management software provides the tools to collect, measure, analyze and report on supplier-related KPI’s in one centralized and standardized system.
Total Supplier Manager incorporates SPM functionality to deliver a complete supplier lifecycle management solution.Download