Targeting a more resilient, cost-effective supply chain, many manufacturers are looking to reduce the number of their suppliers and optimize inventory holdings. But how do you know which vendors most effectively deliver "on-time, in-full" deliveries against orders? Or which suppliers deliver consistently high quality goods as measured by the number of rejects?
Supplier performance management works best as both a daily operational process and a periodic review. However, most manufacturers miss that "right-time" analysis, relying on after-the-fact reports that are delayed and siloed within one department or for one supplier. Only full transparency within the organization and with external suppliers can provide a company with a true assessment of supplier performance and work with suppliers to improve overall supply chain performance.
A New Approach
In the past, supplier management was conducted as a periodic review using static information, typically a scorecard that examined primarily financial and contractual obligations. However, ongoing supplier evaluation, against criteria that include qualitative and quantitative aspects of performance, should be part of a holistic approach to supplier management and supply chain optimization.
To be effective, supply chain and supplier performance management must continuously examine the complete value stream that, in most companies, will span multiple internal and external entities. This continuous performance improvement approach requires:
- Extracting relevant performance information from all entities involved in the supply chain;
- Ensuring that performance information is up to date and presented in a timely manner to everyone involved in managing the supply chain; and,
- Delivering actionable performance information by making it interactive, providing context and enabling intuitive analysis for better, faster decision making.
Critical metrics — related to cost, on-time delivery, quality of goods and services, shipping and logistics, and inventory — should be used for two distinct purposes: periodic reviews of supplier performance and continuous performance improvement of the overall supply chain.
Regular Supplier Review
This combination of periodic and continuous performance reviews is necessary to effectively evaluate and rank suppliers. By doing this, companies can reduce the number of suppliers to as few as possible while still maintaining high-quality supply for all components and alternate suppliers for critical components to provide redundancy of supply. The review period will vary depending on the supply frequency as well as on whether there have been supply, pricing or quality issues.
Ideally, suppliers will have ongoing access to the same information used to evaluate their performance. Software-as-a-service (SaaS) is well-suited to enabling multiple people from different organizations to access consistent, relevant, authorized information. SaaS solutions can provide ubiquitous access to data across the Internet, while no company has to allow employees from external organizations behind their firewall. Allowing suppliers to regularly view authorized information ensures they know how they are being measured and allows them to correct problems.
Additionally, using an interactive approach to the review, facilitated by an interactive performance dashboard, enables participants to collaboratively examine and understand performance, identify opportunity areas for improvement and determine new goals and objectives. For example, if there has been an issue in meeting on-time deliveries, the supplier and the manufacturer could interactively drill into details (such as component type, location, shipping method, lead times, etc.) to determine if there is a consistent cause and then work together to determine if a change in process within the manufacturer, supplier or even a third party could eliminate the issue.
Case Study: Vendor Measurement and Ranking
As part of an overall supply chain optimization initiative, an Australian manufacturer needed to reduce their total number of vendors. The manufacturer turned to the performance management platform from my company, myDIALS, in order to measure and rank vendors.
The focus of the initiative is on managing supplier deliveries, both from internal divisions as well as external suppliers. This includes continuously improving supplier performance, and hence supply chain effectiveness; and periodically reviewing and ranking suppliers to determine which should be discontinued.