Mark S. Miller C.P.M., C.I.R.M.
Mark S. Miller C.P.M., C.I.R.M., Purchasing Manager, Case Corporation, Racine, WI. 53404, (414)- 636-6565, MMiller@Casecorp.com.
Abstract. Measuring supplier performance is an important purchasing tool. This paper will review the steps we took in establishing supplier performance measurement program. I will review: the results of our supplier performance benchmarketing, measurement details we established for the four performance factors we selected, and general tips that you should consider in your supplier performance measurement program.
What others are measuring. We had much debate as to the most important factors that should be used to measure supplier performance and the weighting the individual factors should get in the overall supplier rating. We established a team to study other companies who had an established supplier performance measurement program to determine which factors and weights they were using . The following are the results of our study:
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Factors and weights we used. As a result of our benchmarketing study we decided to use the following factors and weights in our supplier performance measurement program:
Details of the four factors. The next task for the team was to define in more detail each of the four factors we are measuring . The following are details on how we measure supplier delivery, supplier quality, supplier value and supplier partnering attributes.
Measuring supplier on time delivery . We found there are many different ways to measure supplier on time performance. The first decision we made was that we were going to establish a mechanical method to measure delivery performance. Our volume of receipts are so large that it was not practical to have a manual measure that was accurate. Some of the other important factors to consider in measuring supplier on time delivery are:
Supplier quality measures. There are a number of ways to measure suppliers quality performance . Some of those we considered were: the number of deviations requested, accuracy of paperwork, field campaigns and the suppliers cost of quality. We decided to use inspection data and warranty data to measure supplier quality performance.
The inspection measures are based on the number of rejects versus lines inspected . The inspection statistics are tracked in the system. For example if 100 lines are inspected from a supplier and 4 are rejected the reject rate is 4%.
We had many discussions as to whether warranty records should be used for measuring supplier performance. Was the warranty caused by the supplier or was the problem with our design? We are still discussing these issues.
Measuring suppliers value performance. We decided that value would be calculated from a subjective survey that the buyers would fill out quarterly. The value survey asks the buyer to look at total acquisition cost not just price. Total acquisition cost considers all costs: freight, handling, quality, administrative not just the price quote. "Soft" cost reductions such as cycle time reductions, inventory reductions, EDI transactions, and assistance in initial designs are to be considered. Cost reductions and cost increases compared to the inflation rate are also to be considered by the buyer when rating a suppliers value performance.
Measuring suppliers partnering performance. The partnering measure is another survey that is filed out by a team of company personnel that deals with the supplier. The rating team consists of the buyer, expediter, engineering, receiving, accounts payable and quality.
There are five main areas that are measured: accessibility, responsiveness/ attitude, engineering/ technology, administrative practices and proactive/ innovation. Questions in the partnering survey ask the team to consider issues such as: supplier sense or urgency, process control plan, use of EDI, invoicing process, billing procedures, customer service support, design process and quality of supplier personnel.
Tips for Measuring supplier performance. There are a number of things we learned in establishing our supplier performance measurement program that may help you. The following are six tips :
How to use Supplier performance measures. We have found that a program to measure supplier performance is very useful. The following are four important uses for supplier performance measures:
Summary. To improve supplier performance you must first have a system to measure it. We have used our supplier performance measurement factors: delivery, quality, value and partnering, to establish " annual supplier performance agreements" that establishes mutual goals . A supplier performance measurement program is an important purchasing tool and I hope the six tips and four factors outlined above will help you with your program.