Copyright © 2009, Supply Chain Education, Inc. Just the Facts Please! The Quantitative Approach to Rating Suppliers Presented to ISM-Dallas, July 9, 2015

Copyright © 2009, Supply Chain Education, Inc.

Just the Facts Please! The Quantitative Approach to Rating Suppliers

Presented to ISM-Dallas, July 9, 2015

Just the Facts Please! The Quantitative Approach to Rating Suppliers

Presented to ISM-Dallas, July 9, 2015

10

9.5 89


How is rating suppliers like

dating and marriage?

Just the Facts Please! – The Quantitative Approach to Rating Suppliers


OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system.

OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability.

OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance.

The Three Key Objectives The Three Key Objectives









What is wrong w/the: YOUR OK –

I’M OK approach?



Not Always Apple Pie

http://www.youtube.com/watch?v=dy-xz0WQWB0



Was it something I said?

http://www.youtube.com/watch?v=XuBpOkoroKc









Key Rating ElementsKey Rating Elements

1. Quality



What is Quality?

Quality has two components:

• What the item or service must look like or do (i.e.specifications).

• A frequency measure of how often it must conform to the specifications (i.e.parts per million).



How to calculate PPM

Assume that in a shipment of 1,000 pieces –25 were defective,

Then 25/1000 = .025 = .025 x 1,000,0000

= 25,000 PPM



Conditionof Excellence

ConformanceTo

Requirements

Fitn

ess

for

Use

Acceptable

Price

No

Def

ects

Aes

thet

ics Product

Attributes


Transcendent

1

2Product

3

Use

r

4

Manufacturing

5 Value

C

ompo

nent

s6



1. Quality

2. Delivery



The Delivery Delimma:THEY WERE A LEGEND IN

THEIR OWN MIND

http://www.youtube.com/watch?v=5QK82ow3FS4




1. Quality

2. Delivery

3. Customer Service


What is Customer What is Customer Service?Service?


ServiceQuality

Dimensions

Tangibles

Assurance

Empathy

Reliability

Responsiveness




1. Quality

2. Delivery

3. Customer Service

4. Price/Cost



Assume that you have a supplier thatyou have been doing business with for past 50 years. In this 50 years, they haveNever raised their prices.

Should you still be concerned about theirCOST STRUCTURE?

Assume that you have a supplier thatyou have been doing business with for past 50 years. In this 50 years, they haveNever raised their prices.

Should you still be concerned about theirCOST STRUCTURE?



You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives:

X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces

For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you shouldBe concerned about their cost structure:

You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives:

X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces

For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you shouldBe concerned about their cost structure:

Case Study: From Bitter To Sweet


The Underlying Problem

http://www.youtube.com/watch?v=FGfplQ1FUFs




1. Quality

2. Delivery

3. Customer Service

4. Price/Cost

5. Technology



Is TECHNOLOGY a solution or a toolor not?

http://www.youtube.com/watch?v=ssYgejIBH_g



Factors To RateFactors To Rate

Quantitative Qualitative

1. Price/Cost

2. Financial

3. Inventory

4. Delivery

5. Quality

6. Lead Time

1. Capabilities

2. Global Reach

3. Service History

4. Tech Support

5. Mgmt Attitude

6. Best-In-Class



Rating Method – Categorical

The Steps

1. Determine the evaluation factors2. Assign a grade that reflects the supplier’s performance on each factor3. Determine the overall grade average



Rating Method – Weighted-Point

The Steps

1. Determine the evaluation factors2. Establish a weight for each factor3. Determine the supplier’s performance on each factor4. Multiply the performance for each factor by the weight and then sum



Rating Method – Cost-Ratio

The Steps

1. Determine the evaluation factors2. Determine your costs for non-performance in each of these areas3. Calculate the costs actually incurred for each shipment - ratio of cost to shipment



Rating Method – Cost-Ratio (cont’d)

The Steps (cont’d)

4. Total the ratios for all factors5. Calculate the adjusted price = PRICE x (1 + OVERALL COST RATIO)6. Use the adjusted price to evaluate suppliers for future business









SRC – Supplier Relationship Committee

1. Drive Cost Savings

2. Utilize SOMI

3. Encourage

Innovation

4. Penalize Mediocrity



INNOVATION: What do you think about:

1. Ford = Fix or repair daily 2. Ford = Found on the road dead 3. Ford = A Preferred Customer

http://info.detnews.com/video/index.cfm?id=1189


The Ten-Tale Tale Signs Of A

Poor Supplier 1. C ost Increase Passers Vs. Cost Cutters

2. O rder Terms And Conditions Are Ignored

3. M inimal To Zero Sales Visits

4. P rocurement Is Bypassed In Favor Of Other Departments

5. L ack Of Management Support

6. A n Unresponsive Customer Service Staff

7. C ustomer Treated According To Sales $

8. E mphasis On “Use As Is”

9. N o Innovation

10.T heir QA dept. Is Your QA dept.


Questions?



Documents

Copyright © 2009, Supply Chain Education, Inc. Just the Facts Please! The Quantitative Approach to Rating Suppliers Presented to ISM-Dallas, July 9, 2015