1. Copyright © 2009, Supply Chain Education, Inc. Just the Facts Please! The Quantitative Approach to Rating Suppliers Presented to ISM-Dallas, July 9, 2015 10 9.5 8 9

2. Copyright © 2009, Supply Chain Education, Inc. How is rating suppliers like dating and marriage? Just the Facts Please! – The Quantitative Approach to Rating Suppliers

3. Copyright © 2009, Supply Chain Education, Inc. OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system. OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability. OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance. The Three Key Objectives Just the Facts Please! – The Quantitative Approach to Rating Suppliers

4. Copyright © 2009, Supply Chain Education, Inc. OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system. OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability. OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance. The Three Key Objectives Just the Facts Please! – The Quantitative Approach to Rating Suppliers

5. Copyright © 2009, Supply Chain Education, Inc. What is wrong w/ the: YOUR OK – I’M OK approach? Just the Facts Please! – The Quantitative Approach to Rating Suppliers

6. Copyright © 2009, Supply Chain Education, Inc. Not Always Apple Pie http://www.youtube.com/watch?v=dy-xz0WQWB0 Just the Facts Please! – The Quantitative Approach to Rating Suppliers

7. Copyright © 2009, Supply Chain Education, Inc. Was it something I said? http://www.youtube.com/watch?v=XuBpOkoroKc Just the Facts Please! – The Quantitative Approach to Rating Suppliers

8. Copyright © 2009, Supply Chain Education, Inc. OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system. OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability. OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance. The Three Key Objectives Just the Facts Please! – The Quantitative Approach to Rating Suppliers

9. Copyright © 2009, Supply Chain Education, Inc. Key Rating Elements 1. Quality Just the Facts Please! – The Quantitative Approach to Rating Suppliers

10. Copyright © 2009, Supply Chain Education, Inc. What is Quality? Quality has two components: What the item or service must look like or do (i.e.specifications). A frequency measure of how often it must conform to the specifications (i.e.parts per million). Just the Facts Please! – The Quantitative Approach to Rating Suppliers

11. Copyright © 2009, Supply Chain Education, Inc. How to calculate PPM Assume that in a shipment of 1,000 pieces – 25 were defective, Then 25/1000 =.025 =.025 x 1,000,0000 = 25,000 PPM Just the Facts Please! – The Quantitative Approach to Rating Suppliers

12. Copyright © 2009, Supply Chain Education, Inc. Condition of Excellence Conformance To Requirements Fitness for Use Acceptable Price No Defects Aesthetics Product Attributes Copyright © 2009, Supply Chain Education, Inc. Transcendent 1 2 Product 3 User 4 Manufacturing 5 Value Components 6

13. Copyright © 2009, Supply Chain Education, Inc. Key Rating Elements 1. Quality 2. Delivery Just the Facts Please! – The Quantitative Approach to Rating Suppliers

14. Copyright © 2009, Supply Chain Education, Inc. The Delivery Delimma: THEY WERE A LEGEND IN THEIR OWN MIND http://www.youtube.com/watch?v=5QK82ow3FS4 Just the Facts Please! – The Quantitative Approach to Rating Suppliers

15. Copyright © 2009, Supply Chain Education, Inc. Key Rating Elements 1. Quality 2. Delivery 3. Customer Service Just the Facts Please! – The Quantitative Approach to Rating Suppliers

16. What is Customer Service?

17. Copyright © 2009, Supply Chain Education, Inc. Service Quality Dimensions Tangibles Assurance Empathy Reliability Responsiveness Just the Facts Please! – The Quantitative Approach to Rating Suppliers

18. Copyright © 2009, Supply Chain Education, Inc. Key Rating Elements 1. Quality 2. Delivery 3. Customer Service 4. Price/Cost Just the Facts Please! – The Quantitative Approach to Rating Suppliers

19. Copyright © 2009, Supply Chain Education, Inc. Assume that you have a supplier that you have been doing business with for past 50 years. In this 50 years, they have Never raised their prices. Should you still be concerned about their COST STRUCTURE? Assume that you have a supplier that you have been doing business with for past 50 years. In this 50 years, they have Never raised their prices. Should you still be concerned about their COST STRUCTURE? Just the Facts Please! – The Quantitative Approach to Rating Suppliers

20. Copyright © 2009, Supply Chain Education, Inc. You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives: X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you should Be concerned about their cost structure: You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives: X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you should Be concerned about their cost structure: Case Study: From Bitter To Sweet

21. Copyright © 2009, Supply Chain Education, Inc. The Underlying Problem http://www.youtube.com/watch?v=FGfplQ1FUFs Just the Facts Please! – The Quantitative Approach to Rating Suppliers

22. Copyright © 2009, Supply Chain Education, Inc. Key Rating Elements 1. Quality 2. Delivery 3. Customer Service 4. Price/Cost 5. Technology Just the Facts Please! – The Quantitative Approach to Rating Suppliers

23. Copyright © 2009, Supply Chain Education, Inc. Is TECHNOLOGY a solution or a tool or not? http://www.youtube.com/watch?v=ssYgejIBH_g Just the Facts Please! – The Quantitative Approach to Rating Suppliers

24. Copyright © 2009, Supply Chain Education, Inc. Factors To Rate QuantitativeQualitative 1. Price/Cost 2. Financial 3. Inventory 4. Delivery 5. Quality 6. Lead Time 1. Capabilities 2. Global Reach 3. Service History 4. Tech Support 5. Mgmt Attitude 6. Best-In-Class Just the Facts Please! – The Quantitative Approach to Rating Suppliers

25. Copyright © 2009, Supply Chain Education, Inc. Rating Method – Categorical The Steps 1.Determine the evaluation factors 2. Assign a grade that reflects the supplier’s performance on each factor 3. Determine the overall grade average Just the Facts Please! – The Quantitative Approach to Rating Suppliers

26. Copyright © 2009, Supply Chain Education, Inc. Rating Method – Weighted-Point The Steps 1.Determine the evaluation factors 2. Establish a weight for each factor 3. Determine the supplier’s performance on each factor 4.Multiply the performance for each factor by the weight and then sum Just the Facts Please! – The Quantitative Approach to Rating Suppliers

27. Copyright © 2009, Supply Chain Education, Inc. Rating Method – Cost-Ratio The Steps 1.Determine the evaluation factors 2. Determine your costs for non-performance in each of these areas 3. Calculate the costs actually incurred for each shipment - ratio of cost to shipment Just the Facts Please! – The Quantitative Approach to Rating Suppliers

28. Copyright © 2009, Supply Chain Education, Inc. Rating Method – Cost-Ratio (cont’d) The Steps (cont’d) 4. Total the ratios for all factors 5. Calculate the adjusted price = PRICE x (1 + OVERALL COST RATIO) 6. Use the adjusted price to evaluate suppliers for future business Just the Facts Please! – The Quantitative Approach to Rating Suppliers

29. Copyright © 2009, Supply Chain Education, Inc. OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system. OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability. OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance. The Three Key Objectives Just the Facts Please! – The Quantitative Approach to Rating Suppliers

30. Copyright © 2009, Supply Chain Education, Inc. SRC – Supplier Relationship Committee 1.Drive Cost Savings 2.Utilize SOMI 3.Encourage Innovation 4. Penalize Mediocrity Just the Facts Please! – The Quantitative Approach to Rating Suppliers

31. Copyright © 2009, Supply Chain Education, Inc. INNOVATION: What do you think about: 1. Ford = Fix or repair daily 2. Ford = Found on the road dead 3. Ford = A Preferred Customer http://info.detnews.com/video/index.cfm?id=1189

32. Copyright © 2009, Supply Chain Education, Inc. The Ten-Tale Tale Signs Of A Poor Supplier 1. C ost Increase Passers Vs. Cost Cutters 2. O rder Terms And Conditions Are Ignored 3. M inimal To Zero Sales Visits 4. P rocurement Is Bypassed In Favor Of Other Departments 5. L ack Of Management Support 6. A n Unresponsive Customer Service Staff 7. C ustomer Treated According To Sales $ 8. E mphasis On “Use As Is” 9. N o Innovation 10. T heir QA dept. Is Your QA dept.

33. Copyright © 2009, Supply Chain Education, Inc. Questions? Copyright © 2009, Supply Chain Education, Inc. Just the Facts Please! – The Quantitative Approach to Rating Suppliers