How to Leverage Supplier Performance Management for Continuous Supply Chain Improvement

Sharing appropriate performance measures with suppliers will align performance understanding and enable a collaborative approach to supplier management


While the primary user community is within the manufacturer, metrics also are made available directly to their suppliers (suitably restricted to information pertaining to each individual supplier) so they can use the same metrics to monitor and manage their own performance. This also ensures that there are no surprises during the periodic review.

Examples of this manufacturer's performance metrics include:

  • Deliveries on time;
  • Delivered item and batch quality metrics, including defects per million parts (DPM) and batch non-conformances (NCR);
  • Detail on time/late analysis with cause codes;
  • Issues and incidents related to transport, quality, stores, demand planning, new items and data deficiencies.


The supply chain management team within the manufacturer receives proactive alerts highlighting overdue orders as well as orders due in the next five days. They are then able to drill into the performance metrics by supplier and warehouse to determine where the issues lie. They can also determine the impact to specific product lines and customers and therefore do risk assessment and work directly with their suppliers and customers to mitigate the impact of supply chain issues.

The five-day look ahead allows them to proactively manage suppliers to ensure deliveries will be met and, if there are potential issues, to determine alternative supply or work with suppliers to explore ways to avoid the potential issues.

The manufacturer also is able to look at trends over time as well as aggregates and averages related to issues, non-conformance, late deliveries, quality problems and so on. This information is used during supplier reviews to determine whether a particular supplier is achieving its goals, and, if not, whether it is improving or if the supplier's quality of service is stable or deteriorating.

Initial analysis showed that as the financial crises grew, vendors that had excess capacity and wanted to receive quick payment were delivering supplies early and counting these as on-time deliveries. However, this meant that the manufacturer was paying for the products early, increasing inventory holdings and taking up warehouse space. The manufacturer identified this practice, pinpointed the associated suppliers and then reset expectations and acceptance criteria for deliveries.

Continuous Supply Chain Optimization

Beyond regular supplier review, the same performance information can be used internally and within suppliers in a supply chain optimization initiative. Continuous supply chain improvement requires a closed-loop performance improvement model as outlined in the illustration at right.

To achieve continuous improvement for supply chain optimization, companies must fully understand and characterize issues, find the root cause and determine the appropriate corrective action. This process requires:

1. Determining appropriate goals or targets for key performance metrics and monitoring results against these targets.

2. Setting up a system of proactive alerts on variances from targets.

3. Reviewing trends over time, variances from goal or period-over-period comparisons (for example, has a supplier regularly failed to meet required delivery times over a quarter, or is this issue an anomaly?).

4. Using control charts to identify abnormalities or systemic issues that will affect future results (for example, variation of quality statistics between deliveries), as well as Pareto charts to identify the most significant contributors to a particular issue or trend (such as quality rejects by component type, location or supplier).

5. Looking at cost and quality implications of moving supply for a particular component from one supplier to another if there is a cost differential (for example, what is the impact on shipping costs if we use a different carrier that offers faster delivery but at a higher cost?).

6. Performing several "what-if" scenario analyses to monitor the impact of changes, derive the expected results and then implement the scenario with the best outcome.

This performance improvement loop requires the continuous availability of right-time performance information, the ability to interact with it to filter and obtain more detail, contextual information to help understanding, collaborative capabilities to allow people to share their knowledge and "every person" analytics in order to ascertain the impact of potential actions.

Supplier performance management is a critical component in optimizing a supply chain. This is best performed not just as a periodic review process using static, scorecard type data, but as part of an overall continuous improvement approach to supply chain optimization. Using appropriate performance measures internally to drive daily supply chain performance, and sharing these measures with suppliers, will naturally align performance understanding, enabling a collaborative approach to supplier management.

These same performance measures can be used interactively during supplier reviews to identify issues as well as opportunities for performance improvement. Suppliers can proactively manage their performance to achieve goals and objectives, and common measures can be used across suppliers as part of their ranking when a company is looking to reduce its total number of suppliers.

About the Author: Wayne Morris is CEO of myDIALS, which delivers SaaS-based operational performance management solutions to the manufacturing, oil and gas, utilities, healthcare, financial services, government and mining industries. More information at www.mydials.com.

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