Patrick S. Woods, C.P.M., CPIM, A.P.P.
Patrick S. Woods, C.P.M., CPIM, A.P.P., Commodity Manager, Emerson Electric/Fisher Controls, Sherman, TX 75091, 903-868-8160
Overview. What is a benchmark? Webster's Dictionary defines the word as "something that serves as a standard by which others may be measured." The purpose of this presentation is to illustrate how to develop a supplier benchmark audit which will allow you to define the standard by which to measure your supplier(s), quantify and weight each standard according to its importance to your organization and develop a survey scorecard to summarize and apply the findings in the context of a Best In Class, Acceptable, Marginal or Unacceptable supplier. The benchmarked supplier can then be evaluated in the light of this summary and compared with Best In Class standards. The Supplier Benchmark Audit, therefore, is the precursor to supplier approval/reapproval.
Defining The Standard(s). The first step in the benchmark development process is to design the benchmark audit document which is nothing more that an in-depth questionnaire which allows you to gather information about the supplier's technical, operational and/or financial capabilities. Note: Other areas can be added depending on the importance to your firm.
Background Information - Regardless of the type of supplier to be benchmarked, each form should begin with this section. The Background Information section should include the supplier's name, contact person/address, main location, other locations (if applicable), year the company was established, publicly or privately held, and subsidiary of (if applicable).
This is also the section where you can determine the number of employees overall as well as the number of employees in key areas (i.g. quality, engineering, marketing/customer service, management, administration or other areas deemed important). Other questions relative to background information could include major product categories of their customer base as well as a list of major customer names (with corresponding contact, phone and percentage of total sales). At this point you could also request the supplier's five-year growth plan as well as a copy of their long range business plan (if applicable). The next areas to cover in the study will again depend on what is important to you in supplier evaluation. However, listed below are some areas important to most customers. Again, you can either delete or add subjects as you deem appropriate.
Quality Assurance - questions could include:
Technology - questions could include:
General Management/Financial - questions could include:
Delivery - questions could include:
Pricing - questions could include:
Environmental & Safety - questions could include:
As you have probably realized, the sample questions listed above represent many different areas of importance to the customer: quality assurance, engineering/user, management, finance/accounting, production & inventory control and environmental. Representatives from each of these areas within your company and others as deemed appropriate should be involved in the development of the questions to be used in the benchmark study as well as part of the team involved in benchmarking the supplier.
Quantifying The Standard(s). The next step in the benchmark development process is to assign points to each question. A point value system could be developed as follows:
SCORING5 = BEST0 = WORST
To the right of each page of questions, a rating column could be listed allowing each member of the benchmark team to rate each question on the 1-5 scale listed above. It would also be beneficial to allow the supplier to review a copy of the benchmark study ahead of time and rate themselves. Therefore the rating column to the right of each page could be shown as follows:
Question #1._____ _____
Weighting Each Section. The next step in the benchmark development process is to weight each major section. For simplicity sake, if a perfect score is equal to 100 points or 100 percent, then the combination of points for all sections would total to a maximum of 100 points. Applying this logic to the questions above could present an initial problem. Listed above were 67 questions. Assuming that on average, each question would rate a 3, then the total points possible would equal to 201 or double the 100 point maximum. To correct for this situation, each major section is assigned a maximum number of points (weighting) with a quality point adjustment factor and then the sum of the points for all sections are equal to 100 points or 100%. In the sample sections above, a point weighting system could be assigned as follows:
Total = 100 Points
Developing The Supplier Survey Scorecard/Adjustment Factors. The specific ratings for each survey question, both supplier self assessment and team assessment can be summarized in a scorecard format and the overall rating could equate to Best In Class (85% or higher), Acceptable (75 to 85%), Marginal (60 to 75%) or Unacceptable (60% or lower).
SUPPLIER SURVEY SCORECARD
Quality - Possible 20 Points Max Score Self Team
Quality Point Adjustment Factor = Total X .3636 = 201312
Technology - Possible 20 PointsMax ScoreSelfTeam
Quality Point Adjustment Factor = Total X .3077 = 201717
General Mgmt./Financial - Possible 20 PointsMax ScoreSelfTeam
Quality Point Adjustment Factor = Total X .2667 = 201615
Delivery - Possible 15 PointsMax ScoreSelfTeam
Quality Point Adjustment Factor = Total X .2727 = 151313
Pricing - Possible 20 PointsMax ScoreSelfTeam
Quality Point Adjustment Factor = Total X .4000 = 201917
Environmental/Safety - Possible 5 PointsMax ScoreSelfTeam
A. Environmental Safety (6 Questions)303030
Quality Point Adjustment Factor = Total X .1700 = 555
Maximum Score SelfTeam
Total Score =1008379
Condition =85% And Up -Best In Class
75 To 85% -Acceptable
60 To 75% -Marginal
60%/ Below -Unacceptable
Note: Prior to benchmarking your supplier, you may wish to first chose another company, preferably, in the same commodity industry or in a related industry that has demonstrated Best In Class capabilities (i.g. ISO quality system, proven cost reduction programs, inventory control programs, positively recognized by competitors or in the industry) to benchmark and confirm an overall rating of 85% or higher. This will give you a true basis of comparison or a benchmark that your supplier should work toward in its continuous improvement program(s).
Applying The Findings. The standards listed above (or the ones you chose) will allow you to quickly sort out the supplier's strengths, weaknesses and neutral points. Key questions to consider would be: Does this supplier's strengths out weigh their weaknesses? Are such weaknesses acceptable or do they need to be corrected? Does this supplier already have a corrective action plan in place to correct its deficiencies or is there an attitude of complacency (what you see is what you get!)? Is the supplier's deficiencies correctable or should I move on to another source/opportunity. Generally, from strictly a rating perspective, Suppliers who fall into the Acceptable category can move into the Best In Class category. Suppliers in the high end of the Marginal category (with additional work and corrective action planning) can also move up into the Acceptable or even Best In Class categories. Suppliers falling into the low Marginal or Unacceptable ranges are probably beyond hope (or require major resources and commitments to make drastic improvements) and should be abandoned for better opportunities.
If you chose to share the data with the supplier, they can also benefit from the fact that you have evaluated them in a clearly defined, quantitative method, targeting specific areas for improvement as opposed to your classifying them as simply a "Good" or "Bad" supplier.
Parting Thoughts. As mentioned above, the conducting of the benchmark visit should be a team effort with representatives from both the customer and supplier firms that can adequately address each area (i.g. the quality area should have both your QA rep. conducting the audit and the supplier's QA rep responding to the audit). You should also plan your strategy with your audit team prior to the visit (i.g. should we split up or cover a specific area as a team?). After the visit, you should sum up your findings/ratings as a team and promptly communicate them with the supplier as to how they rated and what their future holds with your firm. It is also a good idea to send out the audit form to them at least a couple of weeks prior to the visit to give them time to answer the questions and if required, bring in key personnel to address the issues. Lastly, encourage the supplier to return the document to your prior to your visit so that you can review it with your team and focus on the deficient areas. Note: depending on the size and complexity of the supplier, the actual visit should take from 1-2 working days.
Based on the above discussion, why not develop your own benchmark audit? The results may surprise you!