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Keeping Score: How to Measure Supplier Performance

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Measuring supplier performance

Do you measure your suppliers? If your answer is “no”, quickly implement a program and save your company some money. One of the most important aspects in dealing with suppliers is their capability to react quickly to quality issues. However, if you do not measure them on a disciplined and timely basis, your chances of making suppliers accountable for their performance are very low.

Key Supplier Measurement Methodologies

Company priorities can be evidenced by what they measure. Most companies want to develop a good business relationship with their suppliers, however many do not act like it. Their bottom line is to get the product they order and have it delivered on the date promised. What they don’t want are item substitutions, improper product or carton labeling, missing or inaccurate Advance Ship Notices (ASNs), or late deliveries.

It is not until one of these undesirable events occur before companies refocus their attention back to their supplier relationship. However, a supplier management program would maximize collaboration, results and cost savings, without impacting customer satisfaction.

So, how do I measure my suppliers? Let’s focus on three key areas, 1) define detailed expectations, 2) develop tracking procedures and 3) deliver feedback to suppliers.

Define Detailed Expectations

Clearly define detailed expectations for your suppliers. This is normally found in the supplier routing guide, and it encompasses requirements from buyers, IT and distribution center operations. The goal is to clearly articulate all specifications from the time a purchase order has been issued until the supplier invoice payments are completed. This includes PO/ASN EDI requirements, carrier selection and truck loading, product/ carton labeling and corresponding chargebacks. These routing guides are published as a comprehensive document, which regularly exceeds 100 pages.

Develop Tracking Procedures

Next, it is very important to develop tracking procedures for each ASN received by the distribution center. This process has to consistently track compliance by suppliers against the published routing guide. The standard operating procedure must then be followed consistently, recording the necessary transactional data to produce supplier KPIs. Common tools range from recording manually on receiving forms/ spreadsheets to integrated packaged software solutions.

Deliver Feedback to Suppliers

Lastly, deliver feedback to suppliers on a disciplined and timely basis. Always provide them with the measurements based upon factual data, so they can understand the issues. This same data will be used to implement the necessary chargeback systems as defined in the routing guide. The goal of this process is to work with underperforming suppliers and create the means for continuous improvement.

Benefits Realized

So what are the main take-aways about supplier performance measurement? It has been well-documented that the payback on performance management has a high level ROI at a low cost in time and dollars. A few key benefits of ASN receipt accuracy are as follows:

  • Decreased ASN receipt processing time
  • Decreased accounting and administration
  • Factual data for communication with suppliers
  • Highlights underperforming suppliers

For those companies looking at implementing a new performance measurement system, it can be as simple as a manual worksheet or as complex as an integrated software package. It may require external consulting resources to develop your program and provide assistance designing your processes. But overall, measuring supplier performance is a key component to continuous improvement. It takes internal discipline and accountability to successfully develop a strong long-term supplier relationship.

I’d love to hear about the performance metrics your organization has in place – the good, the bad and the ugly. Reach out to me in the comments box below.

If you would like more information on supplier performance measurement, check out enVista’s whitepaper with additional insight and real-world examples from The Men’s Wearhouse.

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