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How Effective is Your Materials Management Organization

Author(s):

Bill Poole, CFPIM, C.P.M.
Bill Poole, CFPIM, C.P.M., President, Purchasing and Planning Solutions, Rochester, NY 14616

85th Annual International Conference Proceedings - 2000 

Overview: One of the most difficult things for managers to do adequately is to assess the competency of their people and their organization. This is generally systemic to the fact that performance metrics are either lacking or poorly defined. This paper will put a new slant on how to correct this chronic issue. Additionally it will focus on how to work with the employee to make sure the expectations are understood and there is a plan of action that drives toward improvement.

The performance measures I suggest should be broken into three main subgroups. These include:

  • Personal qualifications for the job.
  • Key steps in managing the procurement process
  • Individual performance against goals.
  • Each of these then needs to be developed for each major procurement role such as:
  • MRO Purchasing
  • Materials/components Purchasing
  • Services Purchasing
  • Capital Purchasing

This paper will focus on raw materials and components buyers, however the basic tenets can easily be modified for use in the other procurement areas.

PROFESSIONAL QUALIFICATIONS

WEIGHTING HIGH MEDIUM LOW
Professional certification 5% CPM certified APP certified In-progress
Scholastic and on the job experience 5% 4 year college degree or 5 years of service 2 year college degree or 3 years of service No degree and less than 3 years of experience
Training and Education 5% Receives at least 40hours per year Receives 20-40 hours per year Receives less than 20 hours per year
Interpersonal Skills 5% Routinely demonstrates a high level of interpersonal skills. Generally demonstrates a high level of interpersonal skills. Needs to work on interpersonal skills

INDIVIDUAL PERFORMANCE VERSUS GOAL

WEIGHTING HIGH MEDIUM LOW
On time supplier delivery 5% >99.5% 97.0-99.5% <97%
Material quality Vs specification 5% >99.5% 97-99.5% <97%
Billing Accuracy 5% 100% accurate 97-99.9% accurate <97% accurate
Receiving Errors 5% 100% accurate 97-99.9% >97% accurate
Supplier Rating System 5% System established and reviews conducted quaterly System established and ratings are done System in place but not updated routinely
Negotiation Proficiency 5% Negotiation goals outlined before session and objectives are met Negotiation goals outlined before all sessions Negotiation goals are sometimes outlined
Total cost 5% Total cost is understood and measured monthly Total cost is understood and measured less than monthly Total cost measurement is in place but not routinely updated
Total cost variance 5% Is measured and within +/-1 2% of goal Is measured and within 5% of goal TCV is measured but not +/- 5% of goal
Product Packaging 5% All materials are recieved damage free and clean 98% of materials are received damage free and clean. <98% of materials are received damage free and clean
Inventory 5% Achieves at least 10% annual reduction in safety stock due to supplier delivery issues and lot sizes Achieves at least 5% annual reduction in saftey stock due to supplier delievery issues and lot sizes Understands the amount of inventory carried for poor supplier delivery performance and lot size.

MANAGING THE PROCUREMENT PROCESS

WEIGHTING HIGH MEDIUM LOW
Product strategies 5% In place for all major purchases and updated annually In place for 75% of major purchases and updated semi-annually In place for <75% of major purchases
Supplier visitation 5% Major suppliers are visted at least annually Major suppliers are visted at least semi-annually Visits are conducted less than semi-annually
Dealing with appropriate suppliers 5% All major suppliers are accredited and approved All major suppliers are approved Major suppliers are in the process of being approved
Supplier rating system 5% All major suppliers are rated Most major suppliers are rated Few major suppliers are rated
Quality rating system 5% All major suppliers have established SPC & PCK programs All major suppliers have established SPC programs Few major suppliers have established SPC programs
Inventory 5% The amount of inventory carried due to poor supplier delivery and large lot sizes is known for all major items The amount of inventory carried due to poor supplier delievery for all major items Amount of inventory carried for all major items is known

Scoring

On of the key values of an evaluation system like this is the majority of the measures are quantifiable and easily measured. Qualitative systems tend to be difficult to administer because of their subjective nature. This system makes it abundantly clear what a supervisor is expecting and at the same time allows measures that can be used year to year to make sure the buyer is showing growth. To calculate the score multiply the weighting times the score for each item. In the example shown above there are 20 items to rate. For simplicity each item was given a weight of 5%. As you begin to use the system you will determine how much weight you wish to apply to each item. Also you may wish to add or delete categories to best suit your operations. The following is a suggested valuation for each of the individual ratings.

  • HIGH = 5
  • MEDIUM = 3
  • LOW = 1

The logic for awarding point for low relates to the reasoning even a low effort should receive some credit. If not activity is occurring then no rating will be given for this category, thus the score is zero.

APPLICATION

Once you have completed the scoring you can look at the score on a basis of what classification a buyer belongs in. A suggested scale is:

Classification Score
Senior buyer 90 Points+
Buyer 80-89 Points
Junior buyer 70-79 Points
Beginning buyer <70 Points

Managers find this an effective method to chart the progress of personnel. Also it is a handy tool to be used when a non-purchasing person is placed in role of a Purchasing Manager or Materials Manager without prior experience. Many supervisors also find this method preferable to other non-quantifiable ratings that tend to be difficult to show an individual when their performance has slipped. An additional advantage is most ratings systems over react to special one-time situations that occur. My preference on-time events be compensated separately in lump some one time payments. Companies that use-rating systems such as the one outlined above find excellent results in focusing their efforts on improving the operations of the individual and the materials management organization.


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