In my previous article, I looked at ways of driving continuous improvement within procurement with a focus on data, technology, reducing complexity with suppliers and developing shared, mutually beneficial goals.
In this article, I will summarise 4 key measures intended to simplify the expectations and management, which in turns enables key suppliers to expand their relationships with you and deliver and exceed your expectations.
I previously suggested procurement teams work more closely with sales, marketing and internal stakeholders to better understand their objectives and how your end-customer measures you. These discussions will put you in good stead, as these same metrics should be applied to your supply base. Although price is a factor, it is not likely to be the no 1 measure…
- Quality – this is a simple measure of the number of defective parts against the volume received. This should be measured on a period and rolling basis.
Work with your production team to determine both the cost of defective parts (lost productivity, return) and the ‘acceptable’ rate – then work with your suppliers to consistently deliver better results
2. Delivery – again, a monthly and rolling measure based on the number of late shipments versus the total number of shipments received. And again, work with the production team to understand the impact of late delivery and ensure that your supplier(s) are aware of this impact – their sales rep can share this within his/her business to ensure everyone knows the impact and is working to the same goal.
3. Reduce lead-time – the measurement being actual lead time – starting lead time. Understand your factory cycle times and that of your supplier in their process, plus get comfort on what ‘flex-capacity’ the supplier has for increased demand.
4. Inventory turnover – this is often a key measurement of how effective a business is at selling its goods and managing its costs. A reducing turnover can indicate declining sales demand or poor stock control and the cost of retaining inventory that isn’t selling is high.
Again, work with engineering to understand their optimum requirements given the process from receipt to despatch – remember, you are not a warehouse for your supplier’s goods. As a general rule, your best supplier’s lead-time, is the benchmark for all others, but your best supplier still needs to improve year-on-year.
Against each measure, set a scoring system relevant to your business. For example;
99-100% on-time deliveries = 25 points
97-99% = 20 points
50%+ improvement in lead-time = 25 points
40-50% improvement = 20 points
Build these into a simple scorecard and/or share performance dashboards with your supplier(s).
I would also recommend costing these measures with your financial controller –putting a financial measure against the improvements and sharing with your internal stakeholders brings all parties round common goals.
Author: Ian Yates, Founder of Barcanet - Barcanet analyses over £22bn supplier spend, Ian has over 25 years’ experience of using technology to help businesses achieve competitive advantage - reduce costs, automate processes and create efficiencies. To book a call with Ian e-mail him on info@Barcanet.com