Get great performance from your suppliers
Filed Under Blog
Suppliers can make or break an organizations performance. Poor quality materials or an inability to meet delivery schedules can result in severe consequences (manufacturing lines on stop, angry customers to name but two!). But how can you manage supplier performance and can you predict which supplies are more likely to perform badly?
Tell your supplier what you want!
First things first – establish clear performance criteria with your suppliers – this should be done at the outset and included within any contract. Explain what you want and how it will be measured to ensure zero ambiguity. Embed KPI’s as part of your contracts and avoid suppliers becoming satisfied with varying degrees of performance.
Source from appropriate suppliers
Perhaps the key aspect in achieving supplier performance is sourcing from appropriate suppliers in the first place. Whilst there is no guaranteed method of selecting a perfect supplier there are a number of elements that can help you anticipate potential problems – for example – consider the following:
Vendor Competency – are you procuring your materials/services from a supplier that considers your requirement their core competency? For example are you using a machining supplier for the manufacture of complex parts where there area of specialism is simple high volume parts? Purchasing outside of core competency can significantly increase performance risks.
Experience –can the supplier demonstrate a successful track record of delivering against similar specifications, to similar customers whilst achieving lead times and price requirements? A successful and demonstrable track record can instill confidence.
Capacity Constraints – Understanding what capacity your supplier has in terms of resources (people, equipment etc) is important. Capacity represents the available “engine room” to fulfill your requirements. When placing orders/contracts understand how the supplier will allocate equipment and people in order to meet your orders. For ongoing relationships how will the supplier cope when it receives new orders, understand its planning process and how it prioritizes its work. Where needed, how will the supplier expand (for example can it add to its shift patterns or bring in new equipment.)
Appointed your supplier? Ensure you have regular reviews
Once you’ve awarded your contract to the supplier. Regularly reviewing their performance is a key activity for both supplier management and in mitigating related issues that are affecting the organization. Establish joint KPI’s with your key suppliers that can be regularly reviewed. Ensure that the data is credible and set time aside to discuss both performance and any improvement initiatives that may be required. Be prepared for criticism (and an action plan) if some of the issues are self inflicted (i.e. poor specification, ambiguous delivery schedules.)
While there are many things you can measure when reviewing supplier performance many organizations start with QCD (Quality, Cost and Delivery) these are the cornerstone basics that drive performance. However they are not the only things and should not be considered in isolation. When it comes to what data you should review consider what the key drivers are for the success of your business – for example consider:
• Quality – Right first time and levels of defects
• Cost
• Delivery Performance/Schedule adherence
• Service – are there key issues with the service you receive that you can discuss using objective data
• Innovation – Are you looking for your supplier to innovate? For example reduce levels of obsolescence,
• Compliancy – do you have stringent compliancy requirements you can measure?
• Sustainability – does your supplier have to meet any sustainability or corporate responsibility requirements?
Remember that your organizations performance can contribute greatly to the performance of your suppliers. This can be through drivers such as effective communication demand signals (coupled with delivery needs), payment, specifications etc.
Summary
Vendor performance can be complex with many factors influencing the outcome – determining your requirements and having appropriate processes to deliver them is key. Businesses must also not overlook the importance of adequate supplier selection which can significantly de risk supply chain efforts.
To obtain value for money many organizations utilize a collection of procurement methods to acquire materials and services. While the method used will depend on various rationale (spend or commodity for example), tendering is a key tool, typically used to foster competition and deliver business benefits.
Whilst tendering can be utilized for all sorts of commodities (direct and indirect) many businesses place criteria on where and how it is used. For example tendering can be well suited to the supply of certain products (its common in indirect spend). Tendering doesn’t guarantee success and the process is not without issues and businesses should consider these prior to launching a tendering initiative.
Tendering still requires robust business requirement.
Tendering doesn’t replace good business practice it complements it. Businesses still need robust clearly defined specifications/requirements. Without clarity on requirements (including detailed technical specification where applicable) it is difficult to ensure that the suppliers responding to the tenders can provide the right product or enable the buyer to carry out effective comparisons between suppliers. As ever with requirements definition it is worth investing as much time as available to develop requirements that are both robust and easily understood.
Don’t underestimate the supplier’s role in benefits realization – specifications must allow for innovation which may lead to further benefits.
Have a clear view of what the tendering process will achieve
Whether your organization is looking for the lowest price, shortest lead-time or in need of close affiliation with product experts it is imperative that you have a clear understanding of what you will achieve through tendering. Understanding what benefits are being targeted can help when designing your scoring process and in comparing suppliers.
With this in mind consider some initial research or dialogue with the market – find out if your tendering process will deliver benefits (or if another approach would be more suitable) – arm yourself with as much information as possible and select the most appropriate purchasing method.
Your tendering process is not just about unit cost.
Organizations must remember to focus on more than cost of the piece part, there are a variety of other factors to consider including methods of supply, quality, delivery schedules, sustainability issues, compliancy etc. Consider what’s important to you and develop a scoring/weighting system to compare suppliers.
Consider supplier approval requirements
A common issue is how to select which suppliers take part in your tendering process – consider your selection criteria for suppliers and consider how suppliers can pre-qualify before the tendering phase. Supplier approval can often be a complex process that requires various stakeholder input (Quality approval, technical review etc for example). This process can take time and there is a real likelihood that without a pre-qualifying process you may get suppliers responding to tenders who will not be accepted as an approved supplier thus wasting everyone’s time.
Consider also how many suppliers will be needed to achieve the benefits you are targeting, select a suitable number of suppliers to facilitate the competition required.
Consider stakeholder attachment to suppliers and buy-in to switching
Always communicate your plans to internal stakeholders and ensure that they understand that on completion of the tendering process suppliers may be switched. There are always those within an organization that can become emotionally attached to suppliers (often for very good reason). Get buy in that supplier switching will take place where benefits can be proven (be prepared to evidence these!). Try to understand intangible requirements which lead internal stakeholders to consider the incumbent supplier being the best option. Do this early as you can find yourself unstuck if on completion of the tendering process the business refuses to sign off a supplier change.
Risk Management
A thorough risk review is required – this should take into account QCD issues as well as information on the market and commodity. Consider mitigation requirements and how risk will be addressed in the supplier scoring phase and following contract.
Summary
Where tendering is appropriate and executed correctly it will typically yield benefits. Businesses should review all areas of spend and consider the benefits of competition. Tendering does have some common issues that need to be considered in order to make it a success, but these could be considered common purchasing issues that best practice should address anyway.