Measuring Purchasing Performance
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The old saying is that you can’t manage what you don’t know. Performance Indicators for any business are critical in evaluating success and highlighting key issues, that need addressing, within the company.
One of the major problems is that there are so many things to measure, indeed you can argue that in supply chain they are virtually limitless. The key trick is ensuring that what you measure is a key determinant in the success of your business (and preferably directly linked to your business strategy and targets). This can take time to both decide upon and also to gather meaningful data.
Once you’ve have agreed upon your measures you can distil this even further to a RAG – Red Amber Green traffic light report system or reporting dashboard to ensure that you measure by exception, focus on what’s going wrong in the business and how you can address it.
The Role of QCD in supply chain
QCD stands for Quality Cost and Delivery and represents the holy trinity of measures. QCD, common in manufacturing, can not only help improve things internally but improving the results of these measures can also influence customer satisfaction.
Quality
Quality is often measured in terms of rejected goods or defects – for example if a supplier delivered 100 items on time in the month then great! But if the quality was poor and only 20 of them were usable then not so great. Many organizations will choose to employ a DPPM score (Defective Parts per Million) or simply calculate quality as a percentage of overall deliveries as a not right first time (NRFT) ratio.
Cost
Cost can be measured in a variety of ways from the cost of the part i.e. monitoring the cost trend of a given commodity over time through to measuring productivity and transactional costs. It’s often argued that productivity is a difficult nut to crack as the actual time taken to raise a purchase order might be minimal compared to the time taken to source the supplier or provide key technical information. However it’s worth persevering as understanding your transactional cost can drive key changes in your processes and organization behaviour.
Delivery
Delivery Schedule Adherence (DSA) is one of the most common supply chain metrics. It specifically measures “did the item you ordered get delivered on the day/time it was supposed to be delivered on in exactly the right quantity”. Some organizations accept a tolerance threshold – for example seven days early or seven days late. For other organizations (and automotive is a good example here) it can be measured at a more granular level.
DSA can have a direct impact on customer satisfaction as where suppliers deliver late – this can impact the manufacturing process which in turn can affect when the items can be shipped.