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 against corporate goals and targets whilst highlighting key issues that need addressing.
One of the major problems within supply chain is that there are so many things that you could measure, indeed you can argue that in supply chain, KPI opportunities 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 in both deciding upon which measures to use and also in gathering accurate and meaningful data.
Once you’ve agreed upon your measures consider how you will publish them for example you can utilize reporting summaries like traffic light reporting systems (commonly called a RAG) or even a 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, which is a common reporting methodology used in manufacturing businesses , can not only help drive internal improvements but also drive focus and improvement on customer satisfaction – as QCD measures will typically target areas that the customer sees or feels the impact of.
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) score.
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 the customer, where suppliers deliver late – this can impact the manufacturing process which in turn can affect when the items can be shipped.