Supplier Performance “How to Measure It, Communicate It and Improve it ”

Supplier Performance“How to Measure It, Communicate It and Improve it”

September 13th, 2011

04/22/23

“Great Suppliers are managed not found.”

- Debra Powell-Schaeffer 1996

04/22/23

Meet DanDan is a Sr. Buyer. Recently his department, ACME, experienced a change in management. A new Director has come on board and one of her first questions was related to Supplier Performance. In a nutshell, she wanted to know what ACME was doing to measure it, communicate it and improve it. Some recent high profile, missed deliveries have only added fuel to an already hot fire.

Dan’s Boss assigns him the task of creating an effective Supplier Performance Plan.

Dan decides that the first thing to do is to create a Supplier Scorecard. After all he

thinks to himself…I can’t fix a problem until I know how bad it is…

What would be the primary metrics that Dan should report on his Supplier Scorecard?

04/22/23

Creating a Supplier Scorecard

Here are the Key Metrics which Dan used:•I. Quality Performance (35% of total score)

• Supplier Quality on a PPM Basis

• Certified Ship to Stock % (of all parts supplied by Supplier)

•II. Delivery (25% of total score)

• On Time Delivery Performance per Measurement Period

•III. Pricing (10% of total score)

•IV. Cost Reductions (10% of total score)

•V. Service (20% of total score)

• Communication

• Capabilities

• Reliability (honors commitments)

• Inside Sales Support

• Outside Sales Support

• Engineering Support

• Quality Support

•VI. Continuous Improvement (additional points possible)

• Certifications

• Measurable Improvement over previous Scorecard

• Participation in Six Sigma or LEAN Events

04/22/23

Dan’s Scorecard

Dan creates his scorecard and begins reviewing

supplier performance data to fill out his first scorecard.

SUPPLIER NAME

I. Quality Score for Quarter <80 81-85 86-90 91-95 95-98 1000 1 2 3 4 5

Current ScoreTotal Points for Quality 0 0 0 0 0 0 0

II. Delivery Score for Quarter <80 81-85 86-90 91-95 95-98 1000 1 2 3 4 5


III. & IV. Price Support Score for Quarter0 1 2 3 4 5


V. Service Score for Quarter0 1 2 3 4 5


0

ACME PURCHASING REPRESENTATIVE 0DATE Current QTR SCORE

CURRENT QTR. NOTES

Supplier's Price Support in relation to Industry and Competitors (0 = Very Poor, 5 = Best in Class)

Supplier's Service Support in relation to Industry and Competitors (0 = Very Poor, 5 = Best in Class)

VI. Extra CreditSupplier's may receive 1, 2, 3, 4, or 5 Extra Points for Certif ications,

Outstanding Performance in the Quarter, Improvement Over Previous Quarter, Etc. at Purchasing's Discretion.

ACME Office Supplies Division711 N. Elm

St. Louis, MO 63119

04/22/23

Dan’s First Scorecard

Dan first scorecard goes out to Abby Works.

Abby Works is a long-time supplier with some recent quality issues that affected

their quality score this quarter.

A final score of 73 is not very good…

SUPPLIER NAME

ABBY Works 2011 2nd QTR

I. Quality Score for Quarter <80 81-85 86-90 91-95 95-98 1000 1 2 3 4 5

Current Score 3Total Points for Quality 0 0 0 21 0 0 21

II. Delivery Score for Quarter <80 81-85 86-90 91-95 95-98 1000 1 2 3 4 5


III. & IV. Price Support Score for Quarter0 1 2 3 4 5


V. Service Score for Quarter0 1 2 3 4 5


0

ACME PURCHASING REPRESENTATIVE 73

Janice HallJuly 5th,

2011

VI. Extra CreditSupplier's may receive 1, 2, 3, 4, or 5 Extra Points for Certif ications,

Outstanding Performance in the Quarter, Improvement Over Previous Quarter, Etc. at Purchasing's Discretion.

CURRENT QTR. NOTES

Qualit rejects on leaf springs up 25% this quarter.

Supplier's Price Support in relation to Industry and Competitors (0 = Very Poor, 5 = Best in Class)

Supplier's Service Support in relation to Industry and Competitors (0 = Very Poor, 5 = Best in Class)

DATE Current QTR SCORE

ACME Office Supplies Division711 N. Elm

St. Louis, MO 63119

04/22/23

What’s Next

After reviewing scorecards, with his boss, Dan realized that ACME really has some significant supplier performance issues. In fact, almost none of ACME’s top suppliers scored above an 85. ON-Time Delivery and Quality

Scores were simply not high enough for the majority of their suppliers.

Clearly ACME’s expectations for performance were not being adequately communicated…

What should Dan do?

04/22/23

Communicating Supplier Performance

Dan decides to call one of his ISM colleagues to see what he should do to effectively communicate Supplier

Performance.

His friend recommends that Dan that establish a routine schedule for providing scorecards to the participating Suppliers and following that up

with quarterly face to face reviews.

04/22/23

Dan’s PlanDan decides that he needs to establish a routine Supplier Performance Process in order to ensure that his Suppliers are actively engaged in

meeting ACME’s expectations for Supplier Performance.

ACME Supplier Performance Process•Purchasing will provide Supplier On-Time Delivery Data at the end of each month.•Quality will provide PPM data at the end of each month.•This data would be summed each quarter and provided to the respective suppliers in a Quarterly Scorecard, which Purchasing will submit.•Individual Buyers will also be responsible for managing the subjective elements of the scorecard for their specific Suppliers.•Any Supplier with a score below 85 would be required to attend a face to face meeting at ACME to create an improvement plan to improve the scores in whichever area was deficient. And this improvement or lack thereof would be documented in the Supplier’s next Quarterly Scorecard.

What else might Dan consider?

04/22/23

Improving Performance

What actions should Dan consider?

At this point, Dan has effectively measured and communicated ACME’s critical Supplier Performance Metrics…but a quick check of

his email shows some critical missed deliveries and ongoing quality problems.

Simply documenting and communicating requirements was not necessarily go to

ensure compliance…frustrated Dan wondered what tools or actions he could take that would ensure Supplier’s were meeting the required

performance metrics.

04/22/23

Some Tools for Success…

● Dan decided that he needed some key tools to utilize in order to foster continued Supplier Performance Improvement.

1. Working together with ACME’s other departments, Dan creates a Supplier Partnership Manual which clearly documents all the required performance activities and metrics for servicing ACME.

2. Dan creates a Supplier Continuous Improvement Progress (CIMP) form, which is provided quarterly to suppliers in addition to their Scorecard. This CIMP records all deficient performance metrics and documents on a quarterly basis the Supplier’s actions to improve, correct or eliminate the root cause of their deficiencies. It is a living document that is referred to throughout the year and at all face to face meetings to ensure Supplier Performance Improvement.

3. Value Analysis Study – Dan decides to conduct and utilize Value Analysis Studies of key components purchased from his key Suppliers to determine areas for cost, quality and performance improvements with ideas generated by these same Suppliers.

04/22/23

Supplier Partnership Manual

ACME’s Supplier Partnership Manual contains the following:•Quality Requirements

•Delivery Performance Requirements

•An Explanation and Example of the Supplier Scorecard Process

•Cost Reduction Expectations

•Process Improvement Expectations

•Communication Requirements

•Accounting Requirements

•Credit Application Information

•Billing and Shipping Addresses for all Locations

•Key Contact Information for all Locations

•Shipping and Packaging Requirements

•Transportation Routing Instructions/Bulletins

•Intellectual Property Protection/Non-Disclosure Agreement Requirements

04/22/23

Supplier Continuous Improvement Progress (CIMP) page 1

04/22/23

Supplier Continuous Improvement Progress (CIMP) page 2

Value Analysis Study

04/22/23

Part# and Description: Buyer:

Current Manufacturer: Date Submitted: Manufacturer Part#:Estimated Annual Usage:Class Code:Buyer Code:

QUESTIONS YES NO RECOMMENDATIONS

Could Costs be reduced by relaxing Tolerances?Could Costs be reduced by relaxing Finishes?Could Costs be reduced by relaxing Testing?

Could Costs be reduced by material changes?Could Costs be reduced by volumes purchased?Could Costs be reduced by different mfg. Processes?

Can the part be simplified?Is there a similar part in form, fit, and function that is more cost effective?

Are any of the current specifications creating additional cost burden?Other Suggestions?

Supplier: Date:Address:Signature: Title:

SUPPLIER CHECKLIST FOR VALUE ANALYSIS STUDY

04/22/23

What did Dan learn?

Over the course of the next year, Dan was able to accurately measure Supplier Performance and communicate it to his respective Suppliers. Managing improved performance proved to be more difficult, but he

discovered that maintaining a continuous improvement process with each Supplier generated huge benefits in terms of improved Supplier

Performance, much to the satisfaction of Dan’s Boss and to Dan’s relief…

Supplier Performance “How to Measure It, Communicate It and Improve it ”

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