Supplier Performance Measurement

Supplier Performance Measurement 1

Supplier PerformanceMeasurement

By Chad Harris

9/23/2011


What Will Be Covered• Supplier Performance Measurement Defined• Brainstorming Activity: Supplier Performance

Measurement In Your Company• Principles For Implementing Supplier Performance

Measurement System• Some Areas That Can Be Measured• Real World Example• Practice Exercise

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What is Supplier PerformanceMeasurement?

The methods and systems used to collect and provide information needed to measure and rate suppliers on a continuous basis. It allows a firm to:• Evaluate the contributions of suppliers to the

firm’s overall business objectives• Improve co-ordination and quality of

collaboration between the firm and its suppliers

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Brainstorming Exercise• Why should a company be active in

measuring the performance of its suppliers?• How can measuring supplier performance

improve a supply chain?• How can supplier performance

measurement benefit the end consumer?

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Jonathan Hughes’ Seven Principles of Supplier Metrics

• Measure…• Develop and Utilize...• Be Comfortable…• Situate Metrics…

• Define Jointly…• Share data…• Meaningful metrics…

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Principle 1:Measure What Is Important

A firm should measure the meaningful aspects of performance, not just those that are easiest to identify and measure. Meaningful measures will:• Provide a unified focus on objectives• Improve coordination with suppliers• Deliver greater value to the consumer9/23/2011


Principle 2:Develop Predictive Metrics

A firm should focus on developing predictive metrics and measures of outcomes. Predictive metrics can:• Help identify problems early on• Allow a firm to predict outcomes more

accurately

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Principle 3:Be Comfortable with Subjectivity

Many critical measures and metrics are subjective by nature, and therefore are subject to individual interpretation and human judgment.

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Principle 4:Situate Metrics to Facilitate Dialogue

Metrics should facilitate open dialogue within the firm as well as with suppliers. This will help the firm and its suppliers to:• Interpret the metrics• Improve overall performance• Improve the quality of the relationship

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Principle 5:Define Metrics Jointly

The firm should work with suppliers to define the metrics. These metrics can then be used jointly by the firm and its suppliers to:• Diagnose existing problems• Define potential solutions

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Principle 6:Share Data

The information collected should be shared with suppliers. This will allow the suppliers to :• Trace their performance in key areas• Compare their performance with the

performance of key competitors

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Principle 7:Define Metrics to Assess Value

Metrics should allow a firm and its suppliers to analyze the value each party receives from the relationship.• Is the supplier helping the firm• Is the firm helping the supplier

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Examples of Potential Performance Measures

• Quality• Delivery• Cost

• Communication• Innovation• Customer Satisfaction

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Real World Example:Walmart

Some of the key elements of Walmart’s supplier performance measurement system:• Supplier recognition programs• “Retail Link” allows suppliers to

benchmark with competing suppliers• Training to help suppliers improve

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Practical ExerciseABC Company would like to see how several of its key suppliers are performing in the areas of quality, delivery, communication, and customer satisfaction.• Instructions:

– Examine the scores that have been given to the suppliers in these key areas.– Determine the weighted score by multiplying the assigned score by the weight.– Add the four weighted scores up to determine the suppliers overall weighted score

• Category Weights: – Quality – 40%– Delivery – 30%– Communication – 15%, – Customer Satisfaction – 15%

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ABC’s Suppliers• Company X

– Quality: 5 pts.– Cost: 4 pts.– Communication: 3 pts.– Customer Satisfaction: 5 pts.

**Each category is out of 5 possible points

• Company Y– Quality: 5 pts.– Cost: 5 pts.– Communication: 3 pts.– Customer Satisfaction: 4 pts.

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ABC’s Suppliers (cont.)• Company Z

– Quality: 4 pts.– Cost: 4 pts.– Communication: 5 pts.– Customer Satisfaction: 5 pts.

**Each category is out of 5 possible points

• Company AB– Quality: 4 pts.– Cost: 5 pts.– Communication: 5 pts.– Customer Satisfaction: 5 pts.

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Discussion Questions1. Which supplier is performing the best in

terms of the weighted score?2. Which company has the lowest score?3. What actions could ABC Company take

after reviewing these scores?

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SummaryA consistent and thorough process for measuring supplier performance can help a firm:• Improve Quality of Products• Increase Efficiency of Supply Chain• Deliver Greater Value to the Consumer

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Reading List• Supplier Metrics That Matter, by Jonathan Hughes, CPO Agenda, Autumn

2005

• Supply Chain Management: From Vision to Implementation, by Stanley E. Fawcett, Lisa M. Ellram, and Jeffrey A. Ogden, Pearson Prentice Hall, 2007

• How Many ‘C’s in Partner?, by Neil Fuller, Supply Management, September 2005.

• Creating the Ideal Supplier Scorecard, by Dr. Robert J. Trent, Supply Chain Management Review, March 2010

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Documents

Supplier Performance Measurement