IBT LEVEL3
LOGISTICS AND SUPPLYCHAIN MANAGEMENT
UNIT CSM303-MANAGING SUPPLIER PERFORMANCE.
Learning outcomes
• LO-1-Understandtheconceptofsupplier performancemanagement.
• LO-2-Identify how supplierperformance is processed in a company .
• LO-3-Analyse SupplierEngagement Plan and supplierrelationshipmanagement.
LEARNING OUTCOME -01 AND
ASSESSMENT CRITERIA-01.
• LO-01-Understandtheconceptof supplier performancemanagement
• AC1.1-Describetheimportanceofsupplier performanceManagement.
• AC1.2-Differentiatethe benefitsand challenges in suppliers’performancemanagement.
• AC1.3-Explainthebasic Roles and responsibilityof thesuppliers.
AC1.1-
Describe the importance of supplier performance Management.
• Commanding Verb is Describe which meansProvide an extended range of detailed factual information about the topic or item in a logical way.
• Consider the many benefits that effective supplier performance management can bring to your business.
• By proactively monitoring and assessing supplier performance, you can identify areas for improvement and work collaboratively with your suppliers to enhance the quality of goods and services provided.
• This can lead to a more streamlined operation overall, mitigating risks and increasing supply chain efficiency. In addition, by building stronger relationships with your suppliers through effective communication and feedback, you can foster an environment of trust and collaboration that can lead to longterm success.
• Take the time to consider the positive outcomes that supplier performance management can bring to your business.
AC
1.2-Differentiate the benefits and challenges in suppliers’performance management.
• Commanding Verb is Differentiate which means-Recognise or ascertain a difference to identify what makes something different.
• Can you please provide a comprehensive explanation of the advantages and challenges that come with managing suppliers' performance?
• The process of managing supplier performance is critical in ensuring that suppliers meet their contractual obligations and deliver quality goods or services in a timely and cost-effective manner. By managing supplier performance, companies can reduce risks, improve quality, and minimize costs.
• However, the process can also present various challenges, such as difficulties in measuring supplier performance, maintaining good relationships with suppliers, and managing conflicts that may arise.
• Please ensure that your response is written in a formal tone, free of grammaticalerrors, and is concise. Also, kindly avoid using contractionsor informal language.
• Kindly elaborate on the benefits and challenges associated with managing suppliers' performance.
• It is important to outline the specific advantagesand difficulties involved in this process. Please ensure that your response is written in a formal tone, free of grammaticalerrors and is concise. Additionally, please refrain from using contractionsor informal language.
AC1.3-Explain the basic Roles and responsibility of the suppliers.
• Commanding Verb is Explain which means -Make something clear to someone by describing or revealing relevant information in more detail.
• Give a detailed explanation of the roles and responsibilities that a supplier has to undertake to ensure that a business functions smoothly.
• Specifically interested in understanding the aspects a supplier should focus on to provide high-quality services and maintain a long-term business relationship with their clients."
LEARNING OUTCOME -02 AND ASSESSMENT CRITERIA-02.
• LO-02;-Identifyhow supplier performanceis processed in a company .
• AC 2.1-Explain factors should be taken into account when establishing goals for Suppliers, and elaborate the five steps in the Supplier Performance Management Process?
• AC 2.2-Describe the seven steps to measure supplier performance.
• AC 2.3- Examinetheactionsshould betakenif supplier doesnotship in accordancewiththeshipping guidelines
AC 2.1-Explain factors should be taken into account when establishing goals for Suppliers, and elaborate the five steps in the Supplier Performance Management Process?
• Commanding verb is explain which meansMake something clear to someone by describing or revealing relevant information in more detail.
• When setting goals for suppliers, it is important to consider various factors.
• This includes the supplier's capacity, quality of work, and ability to meet deadlines.
• In terms of the supplier performance management process, there are five key steps that must be followed.
• These steps include identifying objectives, establishing key performance indicators (KPIs), monitoring performance, analyzing results, and taking action to improve performance.
AC 2.2- Describe the seven steps to measure supplier performance.
• Commanding verb is Describe which means -Provide an extended range of detailed factualinformation about the topic or item in a logical way.
• "Can you please provide me with a detailed and comprehensive description of the seven steps that are involved in measuring supplier performance?
• I would greatly appreciate it if you could explain each step in a clear and concise manner, providing examples where applicable.
• Additionally, please make sure that all spelling, grammar, and punctuationare correct in your response."
AC 2.3-Examinetheactionsshouldbetakenifsupplierdoesnotshipinaccordancewiththeshipping guidelines.
Commanding verb is Examine which means -Inspect (something) thoroughly in order to determine its nature or condition.
If a supplier does not comply with the shipping guidelines, it is important to take appropriate actions to mitigate any potential impact on your business operations.
Firstly, it is recommended that the purchase agreement terms be reviewed to verify if the supplier was bound by a specific delivery deadline or shipping terms.
If so, consider sending a written notice to the supplier outlining the breach and requesting corrective action within a reasonable timeframe.
• If the supplier fails to respond or resolve the issue, you may escalate the matter to a higher management level within the supplier's organization.
• Alternatively, you may explore other options, such as sourcing from a different supplier or seeking legal advice to enforce the terms of the agreement.
• Documenting any communicationsand actions taken throughout the process for future reference and ensuring transparencyand accountabilityis also important.
• By taking a proactive approach, you can minimize the impact of any potential delivery delays or noncompliance by the supplier and maintain a positive relationship with your customers.
LEARNING OUTCOME -03 AND ASSESSMENT CRITERIA03.
LO-3-Analyse Supplier Engagement Plan and supplier relationship management.
AC 3.1-Specify the importance and objectives of the engagement with suppliers.
AC 3.2- Examine the stages involved in a supplier engagement developmental plan?
AC 3.3- Describe why is supplier relationship management important, and what are the different types of it?
AC 3.1- Specify the importance and objectives of the engagement with suppliers.
• Commanding verb is specify which meansstate a fact or requirement clearly and precisely.
• When it comes to engaging with suppliers, it is important to understand the significance and objectives of such an activity.
• The importance of engaging with suppliers lies in building a strong and sustainable relationship with them, which can lead to improved quality of products and services, cost savings, and increased efficiencies.
• Additionally, engaging with suppliers can help in identifying potential risks and opportunities, which can be beneficial in making informed business decisions.
• The objectives of engaging with suppliers can vary depending on the organization's needs and goals.
• By understanding the objectives, organizations can better engage with their suppliers and achieve their goals more effectively.
AC 3.2- Examine the stages involved
in a supplier engagement developmental plan
• Commanding verb is examine which meansInspect (something) thoroughly in order to determine its nature or condition.
• Could you please provide with a comprehensive explanation of the different stages involved in this plan?
• It would be helpful to know how the plan is structured, what specific activities are included, and the expected outcomes at each stage.
• Additionally, any information on how the plan is monitored and evaluated would be greatly appreciated.
AC 3.3- Describe why is supplier relationship management important, and what are the different types of it?
• Commanding verb is Describe which meansProvide an extended range of detailed factual information about the topic or item in a logical way.
• Supplier relationship management is important for companies to maintain good relationships with their suppliers.
• There are different types of supplier relationship management, including transactional, collaborative, and alliance.
• Transactional supplier relationship management focuses on short-term relationships, while collaborative supplier relationship management focuses on long-term relationships.
• Alliance supplier relationship management is the strongest and most strategic type of supplier relationship management, where the supplier becomes an extension of the company.
• Provide a detailed explanation of the supplier relationship management and its types.
• Today’s competitive market aims to satisfy customer needs in a limited period.
• The faster the product is brought to the market, the more competitive edge the company is likely to have; faster product availability is key to increasing sales.
INTRODUCTION
• Speed-to-market has made it essential for companies to maintain an agile supply chain.
• Supply chain management (SCM) is a key strategic factor for increasing organisational effectiveness and better realising organisational goals such as enhanced competitiveness, better customer care and increased profitability.
The main objectives of SCM are:
• To minimise non-value-added activities
• Associated investment cost and operating cost
• Increase customer responsiveness and flexibility in the supply chain
• Enhance bottom-line performance
• Cost competitiveness
• The Supply Chain Management Program integrates topics from manufacturing operations, purchasing, transportation, and physical distribution into a unified program.
• Successful supply chain management coordinates and integrates these activities into a seamless process. It embraces and links all of the partners in the chain.
• In addition to the departments within the organisation, these partners include vendors, carriers, third-party companies, and information systems providers.
• Vendor is an important constituent in the supply chain, and supply chain management is truly vendor management as it is an essential component of a product’s sourcing strategy.
• Performance evaluation-based vendor selection is a decision of strategic importance to an industry. It provides the organisation with much-needed visibility into the compliance and performance of its supplier base.
• It works on the principle of Pareto, where in a sourcing organisation, it is most likely that 20 per cent of a vendor base is delivering 80 per cent of business value.
• However, the problem is to identify which are those vendors that are critical to sourcing strategy and which are the ones that should be weeded out.
• This is done through vendor or supplier performance management.
SUPPLIER OR VENDOR
PERFORMANCE MANAGEMENT
• Supplier or vendor performance management measures, analyses, and effectively reports the vendor’s performance to help with continuous process improvements and nurture a long-lasting relationship with the vendor. It helps in managing the following:
• Time & resource efficiency
• Alignment of vendor to organizational objectives
• Risk mitigation Manufacturers adopt supplier performance management plans to reduce costs, lower supply chain risk factors, and promote continuous improvement. A successful SPM process identifies potential supply chain execution issues earlier, allowing manufacturers to resolve them quickly. Suppliers that are examined under an SPM plan are typically measured against two factors:
• The expectations agreed upon in their original contract.
• The current performance norms of their particular marketplaces.
WAYS TO MEASURE SUPPLIER PERFORMANCE
• Key Performance Indicators (KPIs) are the most common way tomeasure a vendor’s performance.
• To measure real value, the organisation must develop appropriate metrics that quantitatively measure even intangible aspects of vendor performance, such as innovation, flexibility, etc.
Supplier assessment can be achieved in 7 steps:
• 1. Align supplier performance goals with organisational goals and objectives–
• A supplier strategy that relates to the overall organisational goals and objectives should be formulated.
• Suppose a company is pursuing lean and -in-time deliveries. In that case, the key suppliers need to be on a lean journey themselves as the lack of synchronisation impact cost, quality and delivery.
2. Determine an evaluation approach– The aspects of supplier performance that companies may wish to evaluate include:
• Financial health – Indicators of financial health are sales, profitability and liquidity.
• Operational performance metrics- It includes on-time delivery, quality, lead time, responsiveness etc.
• Business processes and practices – Reviews how a supplier runs its business and provides a product or service at the best value. Information can be obtained through questionnaires, surveys or site visits to suppliers.
• Enabling behaviours or cultural factors– Business models such as Lean and six sigma enable continuous improvement and teamwork.
• For example, suppose a supplier lacks a culture of constant improvement.
• In that case, it is unlikely that the supplier will be in sync with the demands of a customer who values continuous improvement methodologies and expects the same drive to improve its supply base.
• Risk factors-An important aspect of evaluating suppliers is understanding and mitigating risk.
• One can uncover risk factorsin financial health, operational performance environment, business processes and practices, and enabling behaviours or cultural factors.
• Risk cannot be determined solely by using past performance to predict the future.
3.Develop a method to collect information about suppliersMethods include paper questionnaires, web-based questionnaires, extractsfrom current systems, site visits and third-partystandardcertification.
Paper questionnaire
METHOD
Web based questionnaire
Site visits
CHALLENGES
Hard to construct sound informationgatheringinstruments
• Difficult to deploy
• Suppliers procrastinate fillingout
Requires resources to develop
• Resource intensive for both customer and supplier
• Requires trained personnel
Certification to third party standards such as ISO 9001
• Conformance to procedures
• doesn’t guarantee best practice deployment.
• Can move the focus away from performance to documentationof procedures.
• 4. Design and develop a robust assessment system- Organizations must choose an approach to evaluating suppliers.
Approaches may include:
• Accepting a third-party standard, such as ISO 9001 and its sector-specific derivatives or good manufacturing practices.
• Benchmarking performance against industry leaders
• Developing KPIs and scorecards based on system data or internal customer feedback.
• Developing your certification or evaluation and measuring performance against it. In the apparel industry, PLM is the tool where all supplier-related data resides in the system.
• As the relationship with the vendor starts at the product development stage, the PLM should have supplier performance management capabilities.
• Supplier scorecards within PLM can enable informed decision-making during the product development cycle.
• The ranking based on KPIs can provide information about suppliers who are at the bottom of performance metrics and, thus, perfect cases for either development or removal from the system.
• PLM with supplier performance capabilities can objectively provide much-needed visibility for supplier selection and subsequent product development with that supplier.
• 5. Deploy the system- One of the biggest difficulties in assessment systems deployment.
• For systems requiring data extraction, IT may need to develop and link information from different systems.For questionnaire-based systems, the
• Questionnaires can become difficult for both internal and supplier participants to respond to.
• On-site evaluations or audits require personnel training.
• Subject matter expertise, survey instrument development expertise, and knowledge of IT are needed to avoid the pitfalls of deploying all these approaches.
• 6. Give feedback to suppliers - Many organizations send performance report cards to their suppliers.
• Customer companies need to discuss performance with their important suppliers and work on the critical issues of the relationship. This requires a two-way flow of information.
• 7.Produce results from supplier performance: Measuring supplier performance is about understanding, communicating and improving supplier performance.
• Supplier performance measurement can lead to supplier development and improvement.
• Companies should work with suppliers to develop action plans based on assessments.
• They should then track performance to these plans to close the loop and realize the full benefits of the supplier performance measurement process.
Defining acceptable vendor performance
• Defining Acceptable Vendor Performance requires the creation of a scorecard. A scorecard is a report card that can be provided to the vendor (and purchasing people) so that they can easily see their performance against standard expectations (and perhaps against the performance of other suppliers). Steps to measure:
• Set the target service level for each vendor metric.
• Establish what defines satisfactory performance for every measured action.
• Define your scoring system.
• Tailor your targets as necessary.
• After collecting the data, understanding how to interpret the data and determining whether acceptable vendor performance is achievable, many importers choose to design and utilize vendor report cards.
• For example, here is a report card resulting from a performance metric implementation. Itmeasures ontime shipments and the goal is set to 98% on-time performance.
• This vendoronly performs at 57% on time; therefore, there is clear room for improvement.
• The samplesize in this example is small, but the impact can be quite large on even the most basic supplychai
Example
Importance of Supplier Performance Management
Enhanced Control and Oversight
• Efficient Procurement Teams and Systems:
• By implementing SPM, procurement teams can effectively rank vendors based on predefined criteria such as service quality, deliveries, and price points.
• This structured approach allows for an average rating of vendors, providing insights into their performance.
• Armed with this data, procurement teams can create a list of preferred vendors, ensuring a consistent flow of goods and services that meet organisational needs.
• Standardised Procedures and Frameworks
• One of the primary benefits of SPM is the establishment of standardised procedures and frameworks. These frameworks act as a guiding mechanism for procurement teams, ensuring that all actions align with the organisation’s goals and objectives. By adhering to a set framework, companies can maintain a consistent service quality across all vendors, reducing the potential for defects or inconsistencies in deliveries.
• Comprehensive Analytics and Feedback
• Organisations can use advanced analytics tools to gather feedback on vendor performance, allowing for datadriven decision-making. These analytics provide insights into areas of improvement, highlighting potential solutions to enhance vendor relationships and overall supply chain efficiency. By collaborating with vendors and conducting demos where necessary, businesses can refine their procurement strategies based on real-time data and feedback.
Operational Efficiency and Risk Mitigation
Effective Control Mechanisms: Implementing SPM allows organisations to control their supply chains effectively. By setting predefined criteria and standards, companies can evaluate vendors based on their performance against these benchmarks. This proactive approach ensures that vendors meet specific requirements, reducing the risk of market disruptions and supply chain failures.
• Risk Mitigation and Contract Compliance
• SPM enables businesses to identify potential risks associated with vendors, allowing for proactive measures to mitigate these challenges. By establishing robust contracts that outline clear expectations and deliverables, organisations can hold vendors accountable for their performance. This contractual clarity ensures that all parties understand their roles, responsibilities, and obligations, fostering trust and transparency in the business relationship.
• Software Integrationand Development
• The integration of specialised software solutions facilitates the seamless implementation of SPM practices. These software tools allow organisations to monitor vendor performance, track deliveries, and evaluate service quality effectively. By leveraging software analytics, companies can understand their market position comprehensively, enabling them to make informed decisions based on actionable insights.
Role of Supplier Performance Management:
1. Establishing Standards: SPM helps define performance standards and expectations, providing a clear framework for suppliers to follow.
2. Measurement and Evaluation: It involves systematically evaluating supplier performance against predefined metrics, ensuring transparency and accountability.
3.Continuous Improvement: Supplier Performance Management is not a one-time activity; it involves continuous improvement. Feedback and performance data are used to drive ongoing enhancements in supplier performance and collaboration.
4.Issue Resolution: When issues arise, SPM provides a structured approach for issue resolution. It allows for timely identification and resolution of problems to prevent long-term disruptions.
Benefits of Supplier Performance Management
• Avoid Supply Chain Risk and Disruptions
• For businesses, it is important to be familiar with third-party vendors in their supply chain. This helps them to put measures in place to prevent interruptions and reduce the incidence of risk exposure.
• Supplier performance management offers in-depth visibility into the risks that suppliers can pose in the overall supply chain network.
• As a result, businesses can adapt to preventive measures to reduce or eliminate the hazards that can disrupt supply chain operations in the future.
• Improve Brand Reputation
• Suppliers' actions may tarnish the company's brand image. This is where supplier performance management can help.
• By leveraging supplier management solutions, businesses can track their suppliers' performance against the key performance indicators (KPIs) and enact corrective actions early.
• This can help improve the brand's reputation in the eyes of the customers.
• Avoid Costs and Achieve Cost Savings
• Lack of accurate and timely supplier information can greatly impact costs and savings.
• Supplier performance management can also help businesses track various cost factors that can contribute to savings achievements.
• Also, this can help centralise supplier data into a single source for everyone across the organisation interacting with vendors.
Collaborate with Suppliers
Collaboration with suppliers helps in creating new value for businesses.
Supplier management solutions can help companies gain relevant information about suppliers that can further pave the way for establishing robust relationships with suppliers.
The data collected through supplier performance management solutions can help improve the supply base, create realistic contracts based on past performance optimisation, supplier quality, more communication with suppliers, formation of common goals, and establishing trust. Thus, supplier performance management can help develop meaningful and mutually beneficial relationships with suppliers and improve contract management, strategic sourcing and supplier relationship management.
Challenges in Supplier Performance
Management:
• Despite its importance, managing supplier performance comes with its set of challenges. One primary challenge is the need for standardized metrics and measurement systems.
• Organizations may prioritize different performance indicators, making creating a universal benchmark for supplier evaluation difficult.
• Another challenge is the dynamic nature of the business environment. Suppliers may face unforeseen issues such as production delays, quality fluctuations, or financial instability.
• Adapting to these changes and ensuring a consistent level of performance becomes challenging.
• Moreover, communication gaps can hinder effective supplier performance management and supplier development. Consistent communication between buyers and suppliers may lead to better understanding, impacting the overall performance of the supply chain.
Seven Steps To Measure
Supplier Performance
• The Seven steps comprise a process for developing and deploying supplier assessment:
• 1. Align supplier performance goals with organisational goals and objectives.
• 2. Determine an evaluation approach.
• 3.Develop a method to collect information about suppliers.
• 4.Design and develop a robust assessment system.
• 5.Deploy a supplier performance assessment system.
• 6.Give feedback to suppliers on their performance.
• 7.Produce results from measuring supplier performance
1. AlignPerformanceGoals
• Determining what performance your organisation wants from its supply chain can be done in various ways.
• It would help if you first had in place a supplier strategy that relates to overall organisational goals and objectives.
• Many organisations are pursuing continuous improvement programs and methodologies such as Six Sigma, lean enterprise, lean Sigma, continuous improvement, operational excellence and total quality management.
• Organisations trying to get to the next level of excellence must have key suppliers aligned with their organisational direction.
• Suppose a company is pursuing lean and just-intime deliveries. In that case, key suppliers must be on a lean journey themselves because the lack of synchronisation can adversely impact cost, quality and delivery.
• If a company is committed to Six Sigma and has developed a fact-based culture, then the company will require a similar approach to performance improvement from its important suppliers.
• Alternatively, if a company has yet to articulate an enterprise improvement strategy, the drive to allocate the resources to measure and improve sup-plier performance will be less strong. It is difficult to ask suppliers to “do what I say and not what I do.”
• Additionally, the commitment of upper management resources to such a program may be difficult if continuous improvement is not valued within the culture.
2. ChooseEvaluationApproach
The aspects of supplier performance that companies may wish to evaluate include:
•Financial health.
•Operational performance metrics.
•Business processes and practices.
•Enabling behaviours or cultural factors.
•Risk factors.
Financial health.
• Financial health is most important for key suppliers or long-term partners.
Typical indicators of financial strength include factors such as sales, profitability and liquidity.
• Economic data can be obtained via Dun & Bradstreet or other credit reports, banks and trade references.
• Data are, of course, more accessible for publicly traded companies than for privately held ones.
• So, sometimes, the best way to get financial information is to ask suppliers directly. The challenge lies in spotting negative trends in advance of a major problem.
• It is unnecessary to rely solely on financial reporting tools because understanding a supplier’s operational performance metrics and business processes and practices can reveal potential financial issues.
Operational performance metrics.
• Operational performance metrics can cover many areas, such as on-time delivery, quality, lead times, responsiveness (rescheduling, order status), inventory turns and customer service call response time.
• There are several ways to obtain these metrics: extract them from your enterprise system, get reports from the supplier or conduct internal supplier satisfaction surveys of the end user at the customer.
Business processes and practices.
• Business processes and practices can be reviewed to see how a supplier runs its business and provides a product or service at the best value, on time and exactly as required for its customers.
• This information is typically best practicebased and qualitative, focused on processes and inherently independent of any vertical business sector bias.
• Information on business processes and practices can be obtained through questionnaires or surveys during site visits to suppliers. This information is critical for creating and maintaining mutually beneficial long-term relationships.
• It is also some of the most resource-intensive information to obtain, both for the customer and the supplier.
• Organisations should consider applying commercially available supplier assessment software tools for this purpose to scale the process.
• Evaluating business processes and practices can help identify the root causes of supplier problems. Traditional quantitative metrics can highlight an issue or negative trend but cannot reach the root cause.
• A supplier, for example, may make a product that meets quality standards but does this by inspecting the quality of the product rather than through defect prevention methods.
• This can result in eventual degradation of quality, with the product having a poorer cost structure to support inspection.
• In the case of a service business, a company may need to add resources to maintain adequate service levels because of the inefficiency of its internal processes.
• We are enabling behaviours or cultural factors.
• At the heart of high-performance business models such as Six Sigma, the Malcolm Baldrige National Quality Award criteria and lean enable behaviours, such as customer focus, agility, continuous improvement, and teamwork.
• If, for example, a supplier has a constant improvement culture, the supplier will likely be in sync with the demands of a customer who values continuous improvement methodologies and expects the same drive to improve in its supply base.
Risk factors.
• An importantaspect of evaluatingsuppliers is to understand and then mitigate risk. You can uncover risk factors in financial health, operational performance environment, business processes and practices, and enablingbehavioursand cultural factors.
• Risk cannot be determined solely by using past performance to predict the future.
Financial risk factors may be the most obvious area many companies focus on.
• The operational performanceenvironment includes risks from dealing with foreign suppliers, such as trade relations, shipping, and currency exchange. The business processes and practices a supplier has in place are also critical.
• For example, knowing what processes a supplier uses (if any) to, in turn, manage its suppliers helps identify risks in lower tiers of the supply base that need to be visible to the customer organisation.
• Another risk factor is the leadership in place at the supplier. Leadership committed to investing in the workforce and enablingemployee empowerment and input has a greater chance of success and overcoming business adversity as it arises.
• A culture lacking teamwork and continuous improvement indicatesa higher risk to the customer, as the chances of a supplier being responsive to systemic problems, getting to the root causes of problems and correcting them are slimmer.
3. DevelopInformationCollection Method
• The challenge is the coverage problem—collecting any of the above information for a large portion of your supply base using current resources.
• Methods include paper questionnaires, web-based questionnaires, extracts from current systems, site visits and third-party standard certification.
• Everyone thinks all can write a questionnaire, but most questionnaires are poorly constructed. They are typically vague, full of buzzwords, ask for several pieces of information in one question, and are discouragingly too long.
• .
• They are just plain difficult to fill out easily and quickly. In addition, the information gathered often is not actionable. If the assessment system design is not optimal, collecting the information will be difficult.
• Another drawback to questionnaire-based supplier data gathering is that too few data points are gathered from too few people, and the validity may be questionable.
• Quality managers and site managers or owners typically complete supplier surveys, and if they don’t get others’ input, they tend to paint a rosy picture of their own business
Outputs of the various methods can include Reporting on survey results.
• Supplier performance metrics such as KPIs derived from internal surveys or internal management systems.
• Supplier assessment reporting, which can be qualitative and quantitative.
• Ultimately and ideally, supplier performance scorecards containing a rollup or summary view of all results.
• Customers should create a holistic view of supplier performance, expose it to internal relationship managers and give suppliers access to their performance indicators for increased collaboration
4. Design an Robust Assessment System
• Organizations need to choose an approach to evaluating suppliers. Approaches may include accepting a third-party standard, such as ISO 9001 and its sector-specific derivatives or good manufacturing practices.
• Benchmarking performance against industry leaders.
• Measuring performance against best practices, such as the Malcolm Baldrige National Quality Award criteria.
• Develop KPIs and scorecards based on system data or internal customer Developing your certification evaluation and measuring performance against it matter which components of a supplier assessment system an organization develops, a big challenge lies in creating a system founded on metrics relevant to the business and based on generally accepted best practices
• Using existing evaluation systems or thirdparty standards may be simpler. Still, it may not be aligned with the processes and practices critical to a company’s particular industry position, culture or strategy.
• Sometimes, organizations collect data for the sake of data or collect the types of data they have historically gathered.
• They want to gather information from suppliers but have not connected data to their organization’s business strategy or the performance that would best support their business models.
Designing and developing a robust supplier performance measurement system requires deep business knowledge and familiarity with highperformance systems and measurement methodologies.
It requires expertise in properly constructing the questions to elicit accurate responses and correctly measure performance. Thus, some companies use a combination of these approaches
5. Deploy the System
• One of the biggest difficulties in assessment systemsis deployment. For systems requiring data extraction and massage, IT may need to develop and link information from disparate systems.
• For questionnaire-based systems, the questionnaires can become unwieldy and difficult for internal and supplier participants to respond to.
• As for on-site evaluations or audits, they require personnel training, preferably a cross-functional team, and are resource-intensive to deploy properly.
• Subject matter expertise, survey instrument development expertise, and knowledge of IT are needed to avoid the pitfalls of deploying all these approaches.
6. Give Actionable Feedback
• Many organisationssend performance report cards to their suppliers. Suppliers often bristle at the term “supplier management” because it implies one organisationmanaging another.
• Customer companies need to have a real dialogue with their important suppliers on performance and work on the critical issues of the relationship.
• This requires a two-way flow of information. If performance measurement and supplier assessment results are not actionable or expectationsof actions are not communicated, those actions will not occur.
• This is a difficult piece of the supplier performance puzzle because many supplier organisations may have competencies in some areas that exceed their customers.
• In many cases, customers drop the ball in the follow-up department, sending out results with a dialogue about the next steps for continuous improvement and thus defeating part of the purpose of the whole exercise.
ProduceResults
• Measuring supplier performance is about understanding, communicating, and improving supplier performance.
• Suppose all the important components of a good supplier assessment system are in place, and you and your supplier get relevant, actionable results. In that case, the suppliers can take the next step to improve their performance.
• Supplier performance measurement can lead to supplier development, and supplier performance improvement has the potential to impact the customer financially and competitively.
• An example is in purchased part lead times, which often comprise a high proportion of overall lead times. Increased agility on the part of suppliers can translate into greater customer responsiveness to their end users.
• Removing time from the supply chain also eliminates costs. Companies need to work with suppliers to develop action plans due to assessments.
• Should then track performance to these plans, close the loop, and realize the full benefits from the supplier performance measurement process
Supplier Information Outputs
Supplier Information Collection
Five steps in the Supplier selection Process
• Step 1 – Supplier SelectionScorecard
• The first step in the supplier selection process is to create a supplier selection scorecard.
• The supplier selection scorecard contains all the important elements you require in a supplier. It has long been stated “that which does not get measured, does not get done”.
• Your scorecard should be quantifiable and include the following:
Supplier characteristics
• The important strategic alignment factors you value
• Applicable business policies
• Any constraints – management directives, government regulations, contracts already in place, and other commitments
• At this step, make sure you are prioritizing your needs. The above may be important, but some are more important than others.
• For example, quality is the most important. Surprising to some, cost is often a low priority. Suppose a supplier offers poor quality, long lead time, late deliveries, etc. Does it matter how low the price is? It simply won’t do!.
Step 2 – Identify Suitable Suppliers
Once you have the selection criteria in place, you must create the pool from which you will select a supplier. During this part of the process, you will want to consider:
Current suppliers – Starting with suppliers you have experience with and established relationships with is generally a good idea.
Past suppliers – Depending upon the reasons why they are ‘past’ and not ‘current’
• Competitors – You may be in a position to buy from a competitor if it is ethical and lowrisk
• Industry groups – many of which are non-profit and maintain databases of member companies
• Recommendations and prior business relationships – perhaps created while working at other companies.
• Internet – which offers myriad opportunities to find, research, and contact potential suppliers
Step 3 – ScorecardRanking
Next, gather information from the identified suitable suppliers – perhaps in a Request for Quote (RFQ) or Request for Proposal (RFP).
Tabulate the information you collect and use the scorecard to rank the potential suppliers.
Depending upon the complexity and criticality of the product or service, you may:
Select the highest-ranking supplier – Recognize that while you are not required to pick the top scorer, moving too far down the list is a red flag, indicating the process was flawed.
Choose more than one for further qualification. This may include interviews, site visits, etc.
• Step 4 – Negotiate
• After you have narrowed the list to a manageable number of the best options, possibly just one, let the negotiations begin!
• Depending on the critical good or service, you may negotiate with just the top supplier on your scorecard, even if others remain on the list of potentials.
• These others, of course, are not told they are not #1 until after you have completed negotiations and agreements are completed.
• Based on the complexity of the situation, lawyers may be involved.
•
Step 5 – Create Contract
• Once an agreement is reached, a contract is created and signed.
• For many transactions, the purchase order is the contract. You may have a contract for complex situations and then create a separate purchase order.
• Creating the purchase order will include activating your procurement system. This should be a standard operating procedure and involve preparing your accounts payable process for the supplier invoice.
Six techniques to help you deal with poorly performing suppliers
• one/ Set clear expectations and consequences
• Firstly, ensure that you have established your expectations, e.g.
•
• Did your supplier know when you expected delivery, and had they agreed to that date?
•
• Did all parties understand the shipping terms/delivery requirements/shipping to location?
•
• Did the supplier understand what (if anything) would happen if deliveries were late? (e.g. financial penalties, etc.)
• Two/ Be prepared to interrogate
• Talk to your supplier – find out what went wrong –communication is key to understanding the issues and ensuring you don’t suffer from them again –simply leaving it and hoping for the best next time could spell disaster
• Three / Understand the route cause
• Why did the supplier fail to deliver on time? Was it due to manufacturing processes or failure to procure parts on time? Find out the key contributory factor. If you are using the supplier regularly, understanding what went wrong and ensuring a fix is put in place is imperative.
• Four / Provide feedback on performance
• Regularly communicate with your suppliers and tell them what you believe their delivery performance is (be prepared for some difference of opinion!) – ensure that as part of this communication, you state your expectations.
• Five/ Be prepared to take criticism if you are part of the problem
• If you have process issues, be prepared for your supplier to place some of the blame on you – try to put things into perspective – understanding the problems on ALL sides is crucial if you're going to improve things – don’t expect the supplier to take all the criticism if they are not entirely to blame –ensure that if you do have issues you have appropriate plans to fix them.
• Six/ Follow up
• Have regular reviews – if you have a poorly performing supplier – and you have identified the issues – follow up regularly to ascertain what improvements are being made and how they impact results. Consider having periodic business reviews where you can assess the trends and tailor improvement activity accordingly.
Supplier Engagement Plan
• The Victorian Government Purchasing Board (VGPB) is committed to improving the government and supplier market interaction.
• A supplier engagement plan (SEP) documents the processes, systems, and communication approaches put in place to ensure the highest levels of trust and accountability in all dealings with suppliers.
• It encompasses informing the market about supply opportunities, managing supplier relationships during procurement, and managing complaints and debriefs.
• Providing timely, accurate and relevant information to the market is central to maintaining a positive view of government and supporting supplier participation in the government marketplace.
• The VGPB requires the SEP to transition to the proposed procurement framework as part of the assessment.
• Supplier engagement is an ongoing organisation function subject to regular evaluation and review.
• This document contains informationto help organisationsprepare their SEP.
• It is important to manage an organisation’scommunicationsin acoordinatedand collaborativemanner. We recommend involving the
• organisation’sinternalcommunications unit (corporatecommunications) at an early stage.
• Good supplier engagement can help your organisationmeet their business objectives.
• Developing collaborative and mutually beneficial relationships with existing and potential supply partners delivers greater levels of innovation and competitive advantage than could be achieved througha traditional, transactionalpurchasing arrangement.
• Strong performance is needed on both sides for the partnership to be successful. Supplier engagement activities may, therefore, overlap with other areas, such as staff training and otherstakeholder engagement activities being carried out by your organisation’s communications team.
• The VGPB will implement a high-level supplier engagement plan to inform business/professional associations and peak procurement-related bodies about the procurement reform.
• Organisations should focus on the existing suppliers, providing reassurance when necessary and keeping them up-to-date with major developments, for example, telling suppliers when they transition.
Objectives Of Supplier engagement Plan
• Supplier engagement is an ongoing function of an organisationsubject to regular evaluation and review. It is important to define supplier engagement objectives so that you can measure the success of your activities afterwards. The minimum objectives of a SEP are to:
• Improve transparency of procurement-relatedinformation;
• Detail the actions, processes and activities to map engagement with the supplier market;
• Make information on your procurement processes and key activities easily accessible to suppliers;
• Encourageparticipation of small and medium enterprises (SMEs)and notfor-profit (NFP)organisationsin government procurement;
• Facilitate feedback from the supply market (including specific segments such as SMEs) regarding (actual or perceived) participate in government procurement;
• Adopt new ways to engage with suppliers, for example, procedures for encouraging/managing innovation and market-based solutions;
• Inform your existing suppliers about the intent and opportunities of the procurement reform and Provide consistent messaging to the supplier market
• Developing a supplier engagement plan
• Developing your supplier engagement plan (SEP) includes the following stages:
• Stage 1: Develop and document your supplier engagement processes and systems;
• Stage 2: Implement processes and systems; and
• Stage 3: Communicate processes and systems with suppliers
• Stage 1: Develop and document processes and systems
• The first step is to understand your current approach to supplier engagement and identify gaps and opportunities for improvement. The second step is to begin mapping out the processes and systems related to supplier engagement.
Evaluating your SEP
• It is recommended that the SEP team produce a regular report (for example, every two months) to track the process and see how well the SEP is meeting its objectives. The VGPB may request oversight of this evaluation if deemed necessary
Stage 2: Implement processes and systems
• Implement the processes and systems identified in Stage 1. This will require some form of project plan with assigned roles and responsibilities.
• This information will comprise the main body of the SEP as part of the assessment to manage the transition. This stage may overlap with other activities related to implementing the proposed procurement reform.
Stage 3: Communication processes and systems
• This section contains tools to help you communicate more effectively with your target audience.
Target audience analysis
• To communicate effectively and in a resultsdriven way, organisations need to understand that suppliers may have different concerns and may respond to different communication approaches.
• For example, you could categories suppliers by size, market segment or risk.
• Segmenting suppliers by risk or spending would allow you to priorities the relationship with suppliers involved in high-risk procurement or those with the highest spending (and the potential for savings).
Supplier relationship management (SRM)
• Supplier relationship management (SRM) is the systematic approach to evaluating vendors that supply an organisation's goods, materials and services.
• It determines each supplier's contribution to success and develops strategies to improve their performance.
• The SRM discipline helps determine the value each supplier provides and which are most critical to business continuity and performance. It also enables managers to cultivate better supplier relationships based on each supplier's importance.
• Supplier relationship management is used by supply chain professionals who regularly deal with suppliers in procurement, project management and operations.
• Sometimes called supply chain relationship management, SRM is one of the many disciplines of supply chain management.
• It is similar to vendor management and procurement processes, but key differences exist.
• Vendor management generally focuses on establishing costs and service-level agreements between the organisationand its vendors, while procurement focuses on the purchase itself (i.e., ordering, contracting, invoicing and paying.
• The concentration strategy on key functions and expertise, which many leading industries have adopted, has forced the evolution of a company’s procurement from an administrative and short-term driving function to a strategic activity in which firms turn their business in search of performance improvements.
• Consequently, supply chain management and purchasing performance are increasingly recognized as an important determinant of a firm’s competitiveness.
• Therefore, to support the variety of product and service purchasing processes and integrate different business partners in an electronic network.
• Supplier relationship management systems were developed to coordinate and automate the supplier integration and communication process.
• Supplier relationship management is part of supply chain management, which deals with all aspects of the business relationship between companies and their suppliers.
• SRM, on the other hand, describes the business structures and processes companies require to communicate with their suppliers while providing methods, processes, and tools to support the different phases of a direct supplier relationship, e.g. identification, evaluation, qualification, and necessary termination.
• Although several software vendors state to possess a single SRM solution, the work will treat SRM as a combination of stand-alone modules/suites specialized in part of the procurement process, building a set of functionalities that enable the communication and integrationof multiple channels and the automationof the purchasing and sourcing process between two or more independent organizationse.g.electronic sourcing, electronic procurement and supplier enablement.
A. E-Sourcing
• The sourcing activities occur at the beginning of the purchasing process before any transaction. Its main focus is the negotiation process of direct goods, and it is a critical element of strategic purchasing. In addition, sourcing is a process that develops supplier strategy and supports its execution.
• The main goal of these systems is to support buyers in finding the most appropriate supplier for goods, and the foreground is the negotiation phase of the purchase process in which professional buyers search for the most suitable product source for a company based on price or any other established criteria.
•
• Electronic auctions and electronic requests for quotation(RFQ)are the two most well-known negotiation forms applied in e-sourcing and are often used in practicesas synonyms of these terms.
• An auction is a form of bid employed since antiquity to establish the selling price through a transparent selling process.
• Initially, the e-auction systems focused exclusively on price negotiation, leaving out of their scope all other relevant negotiation factors, e.g. quantity, quality, and delivery time.
• Nowadays, a new generation of auction systems based on business intelligence technology allows the negotiation of multi-attribute criteria during the online auction and the continuouscontrol of supplier performance. The RFQ process is similar to the auction process.
• Thus, what is true for e-auctions can also be applied to eRFQ. The main difference between RFQs and auctions is the need for more standardisation regarding explicit, formal rules and regulations in RFQs .
• E-RFQ can be applied during the negotiation process of complex products and services, for which extensive technical description and complex calculations are required, as well as construction projects or facility management services
• On the other hand, e-auctions are appropriate for products with a well-defined demand in a highly volatile market with many suppliers, e.g., commodities.
• In addition to negotiation and supplier evaluation functionalities, e-Sourcing solutions should include contract management tools to provide companies with a precise overview of their contracts and commercial agreements.
• The main function of these tools is centralising contractual content and compliance with established commercial arrangements.
B. E-Procurement
• The definition of e-procurement is a reason for evident confusion in the literature and the practices.
• Several definitions describe e-procurement as a general technology that allows purchasing online supplies.
• This paper shortens this general view of e-procurement software enabling organisations to buy indirect and MRO goods online, automating buying processes, and centralising all spending data.
• The technology has progressed from enabling simple transactions to broader categories, such as services procurement and post-procurement stages, such as invoicing, reconciliation and settlement.
• This solution focuses on the purchase department's costs through the electo through portand support and the operative purchasing processes.
• Desktop Purchasing System has enabled companies to change their traditional centralised structures to a more decentralised one, allowing employees to realise their requisitions directly from their workplaces by applying web applications.
• In contrast, companies could establish specific rights and budgets for their internal customers to place orders, their supervisors to authorise the requisition, the warehouse to acknowledge the delivery and the finance department to emit and pay the invoice
• E-procurement solutions are adequate to support the purchase of indirect, valued, and standard products.
• These products represent around 5% of the purchasing volume but generate up to 80% of a company's total purchasing process costs, 60% of the orders and 70% of the suppliers.
• Services and complex products must be appropriately supported by those systems, or the electronic purchase of the former products is possible just with a high level of system customisation.
• The core component of a desktop purchasing system is the catalogue engine, which searches and selects goods online.
• The content management system creates and maintains the catalogue data if the organisationapplies a multi-supplier catalogue approach.
• Furthermore, the system relies on business rules and authorisation mechanisms to support organisations'directives and specific purchase processes.
• The integrationof those systems is funded by applying standardssuch as the Extensible Markup Language(XML).Several data exchange formats are currently based on XML, e.g., xCBL, cXML, and BMEcat. On the other hand, companies rely on material classification standardssuch as eCl@ssand UNSPSCto facilitateelectronic product information transfer to increase transparencyand reduce communication costs.
Supplier Enablement
• Enterprise integration is undeniably critical for companies in all business sectors striving to maintain a competitive edge .
• Most of the key business players have realised that their success in their e-business activities depends on their business processes synchronization with their trade partners by connecting their organisations directly or indirectly with both organisations' back- and front-end systems, using an appropriate gateway to exchange commercial and marketing.
• Supplier enablement is the channel that enterprises use to integrate with their trade partners and realise their esourcing and e-procurement activities.
• Supplier enablement takes place in companies by applying supplier portals and e-marketplaces.
• A company's portal is a web-based application that makes available personalised content and the rights to operate specific collaboration processes between heterogeneous groups .
• In the case of supplier portals, they create the basis to connect suppliers with their buyers, with a focus on purchasing processes and the exchange of transactiondata.
• They offer a structuredand customised gatewayto improve the business relations between two or more business partners.
• Conversely, an e-marketplace is described as a virtual online market where buyers, suppliers, distributors and sellers find and exchange information, conduct trade, and collaboratevia an aggregationof information portals, trading exchanges and collaborationtools .
• .
• For an efficient procurement strategy, these channels must be shared in the enterprise's intranet.
• Still, they should be integrated with companies' frontend and back-end systems to integrate their interprocesses and automate the data exchange
• At the same time, it is recommended that their users can access them anywhere, at any time, regardless of the distance and the sort of device they are using, e.g. computer, laptop, Personal Digital Assistant (PDA).In addition, supplier portals and e-marketplaces should include, in their functionality spectrum, several features to facilitate and secure their use by the company's employees, e.g.
• Navigation and search tools, reporting and notification functions since the acceptance and success of those channels depend on the willingness of these employees to use these channels in their daily procurement activities.
Suggestive Readings
Arter, Dennis R.,Quality Audits for Improved Performance ,third edition, ASQ Quality Press, 2003 (a basic guide to the principles of quality auditing that can be applied to supplier audits).Malcolm Baldrige National Quality Program, www.quality.nist.gov(excellent resource on quality assessment using the Baldrige criteria).Bossert, James L., Supplier Management Handbook , AS Quality Press, 2004 (a classic, in its sixth edition, about customer-supplier relations; contains practical information on setting up supplier certification).Cavinato, Joseph, and Ralph Kauffman.
The Purchasing Handbook: A Guide for the Purchasing and Supply Professional, McGraw-Hill, 2001 (the classic guide to everything you need to know about supply management, including information on supplier evaluation)
Nahar, N., It-enabled Effective and Efficient International Technology Transfer for SME’s, Proceedings of the Evolution and Challenges in System Development, September, Bled, 85-98, 1998a.[2]
Nahar, N., It-enabled International Promotion of Technology Transfer High-Tech Enterprises, Proceedings of the UIC/AMA Research Symposium on Marketing and Entrepreneurship, August, Boston, 1998b.[3]
Hammel, M., and Prahalad, C.K., Competing for the Future, Harvard Business School Press, Boston, 1994.