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Leading global excellence in procurement and supply
Transforming Supplier Performance Management
Chris Kidd
20th March 2014
Leading global excellence in procurement and supply
Overview
• Introduction
• Why do SPM?
• Transforming the process
• The SPM process in reality
• Summary
Leading global excellence in procurement and supply
What’s the point of SPM?
Value creation & Risk management
80% of our costs 50% of our workforce
30% of our HSE incidents
Leading global excellence in procurement and supply
Transforming the process – Supply Chain Model
MRO
B A C D E F G H I J
Distributor “G”
Distributor “A”
Distributor “J”
Leading global excellence in procurement and supply
Transforming the process – Prerequisites
Buy-in from different stakeholders
Be clear - what is the value of SPM to your organisation?
Resource
Right people & behaviours
Continuous Improvement
Willing suppliers
Senior Management Commitment
Leading global excellence in procurement and supply
Transforming the process – The Approach
• Where did we start from?
• Timescales for transformation
• Segment suppliers & focus on the high value
• Establish KPIs and agree with all stakeholders
• The process and QPR schedule
• Migration to electronic system
Leading global excellence in procurement and supply
Transforming the process – Migration to e-system
Key Performance Indicators (KPIs)
Value Objective Area
Data Elements for KPI Data Element Type Calculation Method
(Delete / Update as
required)
Example: On-Time Deliveries, Total
Deliveries
(How will this data
element be captured/
displayed?)
Example: KPI = # of ontime deliveries / total
deliveries * 100
Number of HSSE incidents Whole Number Jeffrey Rijpkema Green = Zero
Red > 0
Value of invoices past due date Currency Jeffrey Rijpkema Green = Zero
Red > 0
Number of non-conformances Whole Number Jeffrey Rijpkema Green = Zero
Red > 0
Number of instances where paperwork was
incorrectWhole Number Jeffrey Rijpkema Green = Zero
Red > 0
Number of Complaints Whole Number Jeffrey Rijpkema Green = Zero
Red > 0
Total number deliveries Whole Number Jeffrey Rijpkema Red < 70%
Number of deliveries on time in full Whole Number Amber > 70%, <95%
Green > 95%
Total number deliveries Whole Number Jeffrey Rijpkema Red < 70%
Number of deliveries on time in full against
agreed dateWhole Number Amber > 70%, <98%
Green > 98%
Number of non-contract orders Whole Number Jeffrey Rijpkema Red > 50
Amber <50, > 20
Green < 20
Total spend Currency Jeffrey Rijpkema
Number of orders Whole Number
Value of additional freight cost Currency Jeffrey Rijpkema Green = Zero
Amber > 0
KPI Definitions & Targets
Value Objective KPIIs this KPI Mandatory or
Optional?
KPI Type
(How will the final
calculated KPI result be
displayed?)
Data Element Response Provided By:
Respondent Name - Required for Each Element
(Can be a different person or the same person
depending on the requirement for the KPI. User must
be listed in table on Supplier & Users Tab)
Frequency of Measurement
(if not montly / quarterly
please specify in which
quarters / months it will be
measured i.e. Q1 Only)
Target & Range for RAG
Example:
RED: 0
AMBER: >0, <2
GREEN: >=2
Attachment Required to
Support the Response?
What is the document that
needs to be attached to
Support the Response?
Are Comments Required to
Support the Response?
What is the question that needs to be
asked to support Support the Response
to the KPI?
Copy of the non conformance Optional
Quarterly No Attachment
Required Nature of the incident? (if value is > 1)HSSE Incidents Number of HSSE incidents Mandatory Whole Number N/A Quarterly No Attachment
OptionalDecimal NumberQuality & Efficiency Invoice Process Adherence Value of invoices past due date Mandatory
Delivery Delivery Schedule Adherence? On time in full deliveries vs agreed date Mandatory Percentage
Delivery Delivery Schedule Adherence? On time in full deliveries vs requested date/PO Mandatory Percentage
Number of deliveries on time agains agreed date/Total
number deliveries*100Quarterly Required
List of Pos with requested
delivery date, confirmed
delivery date and date of
delivery
Optional
Quarterly Required
List of Pos with requested
delivery date, confirmed
delivery date and date of
delivery
OptionalNumber of deliveries on time/Total number
deliveries*100
Cost Efficiency Value per order Mandatory Currency
Cost Efficiency Number of non-contract orders Mandatory Whole Number
Total spend/Number of orders Quarterly No Attachment Optional
QuarterlyN/A
Quarterly No Attachment OptionalN/ACost Cost Optimisation Additional freight cost Mandatory Decimal Number
Quarterly No Attachment
Quality & Efficiency Product Quality Number of non-conformances Mandatory Whole Number
N/A
N/A Quarterly Optional
Optional
Quality & Efficiency Delivery Compliance Correct paperwork for delivery not and CofC Mandatory Whole Number N/A Quarterly No Attachment Optional
Quality & Efficiency Service Delivery Number of Complaints Mandatory Whole Number N/A
Value Objective Area
Value Objective KPI
(Delete / Update as
required)
HSSE Incidents Number of HSSE incidents Quality & Efficiency Invoice Process Adherence Value of invoices past due date Quality & Efficiency Product Quality Number of non-conformances Quality & Efficiency Delivery Compliance Correct paperwork for delivery not and CofC Quality & Efficiency Service Delivery Number of Complaints
Delivery Delivery Schedule Adherence? On time in full deliveries vs requested date/PO Delivery Delivery Schedule Adherence? On time in full deliveries vs agreed date
Cost Efficiency Number of non-contract orders Cost Efficiency Value per order Cost Cost Optimisation Additional freight cost
Leading global excellence in procurement and supply
Transforming the process – Case study
• Valve distributor
0
10
20
30
40
50
60
70
80
Q1 2013 Q2 2013 Q3 2013 Q4 2014N
um
be
r o
f O
ff C
on
trac
t O
rde
rs
Valves Off Contract Orders
86%
88%
90%
92%
94%
96%
98%
100%
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2014
% o
f D
eliv
eri
es
Re
ceiv
ed
On
Tim
e in
Fu
ll
Valves Delivery Performance
Performance
Target
Leading global excellence in procurement and supply
Transforming the process – Challenges & Barriers
• Demonstrating immediate benefit to the supplier.
• Training & educating suppliers on the process and systems.
• Buy-in from internal stakeholders – site procurement & end user engagement e.g. agreeing KPIs, attendance.
• Finding time for ourselves and the supplier to manage the process effectively (particularly using a manual process)
• Migrating a large number of suppliers in a short time frame proved to be a constraint on the system.
• Quantifying the tangible benefits performance management.
Leading global excellence in procurement and supply
The SPM Process in Reality
• With time the process drives itself
• Honest discussion with suppliers
• Open approach from both sides
• Good forum for end users to discuss real issues with suppliers
• Commitment for action and improvement
• Requires real time, effort and budget
• Benefits are real and tangible
• Suppliers love it!
Leading global excellence in procurement and supply
Summary
• There is potentially huge value to your organisation.
• Don’t underestimate the effort required from all parties.
• Risk management tool.
• Don’t let it substitute day to day management.
• All a question of ROI & deriving value for end users.
Leading global excellence in procurement and supply
Questions