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Supplier Performance Measurement By Chad Harris 9/23/2011Supplier Performance Measurement1.

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Presentation on theme: "Supplier Performance Measurement By Chad Harris 9/23/2011Supplier Performance Measurement1."— Presentation transcript:

1 Supplier Performance Measurement By Chad Harris 9/23/2011Supplier Performance Measurement1

2 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 9/23/2011Supplier Performance Measurement2

3 What is Supplier Performance Measurement? 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 9/23/2011Supplier Performance Measurement3

4 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? 9/23/2011Supplier Performance Measurement4

5 Jonathan Hughes’ Seven Principles of Supplier Metrics Measure… Develop and Utilize... Be Comfortable… Situate Metrics… Define Jointly… Share data… Meaningful metrics… 9/23/2011Supplier Performance Measurement5

6 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 consumer 9/23/2011Supplier Performance Measurement6

7 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 9/23/2011Supplier Performance Measurement7

8 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. 9/23/2011Supplier Performance Measurement8

9 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 9/23/2011Supplier Performance Measurement9

10 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 9/23/2011Supplier Performance Measurement10

11 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 9/23/2011Supplier Performance Measurement11

12 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 9/23/2011Supplier Performance Measurement12

13 Examples of Potential Performance Measures Quality Delivery Cost Communication Innovation Customer Satisfaction 9/23/2011Supplier Performance Measurement13

14 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 9/23/2011Supplier Performance Measurement14

15 Practical Exercise ABC 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% 9/23/2011Supplier Performance Measurement15

16 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. 9/23/2011Supplier Performance Measurement16

17 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. 9/23/2011Supplier Performance Measurement17

18 Discussion Questions 1.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? 9/23/2011Supplier Performance Measurement18

19 Summary A 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 9/23/2011Supplier Performance Measurement19

20 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 9/23/2011Supplier Performance Measurement20

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