Jul
20
Supply chain performance is always a much talked about issue. There are lots of guides available all promising various cures or remedies for any hiccups within the supply chain and whilst many of these are very good, there has also been a lot of unrealistic expectations raised with regard to how a supply chain should perform!
For a start, the supply chain will be unstable. This is a given, all supply chains, by heir very nature will be unstable, but the trick is to manage the instability and therefore reduce the risk. After all we live in an uncertain world and the supply chain will be subject to natural and man made constraints that cannot always be anticipated. So always take your bottom line as having the expectation that the supply chain will be unstable; what matters is how you manage it!
It is also realistic to expect that the supply chain will manage to meet your needs and in turn meet the needs of your customers. If a supply chain fails to perform and meet these requirements then it has indeed failed, so it should be able to fulfil these criteria.
The meeting of your needs and the needs of the customer sound very easy to quantify, but these are actually quite complex areas. For a start, the supply chain needs to be able to deliver goods or services at the right time for your particular needs. But those goods or services need to be at the right price, in addition the goods need to be of the right quality with either no or very few defective goods received. The supply chain also has to be able to offer the ’back up’ that your business needs in the form of invoices sent in a timely fashion, defective goods being received back by the supplier, administration services that are effective and good transportation links.
Living in the real world
Although in an ideal world it would be conceivable that goods would arrive on time, in the right sequence, 100% perfect etc 100% of the time, every time, this in itself is unrealistic. The supply chain, as stated earlier is subject to the vagaries of the world in which we live and there can be flooding, natural disasters and various other conditions that can adversely affect the supply chain. Hence it is important to decide what is the minimum level of service that can meet your needs, bearing in mind that perfection only exists in the abstract.
For example, to think about realistic expectations of the supply chain, it is reasonable to set a limit as to what is acceptable in terms of supplies. 100% perfection, 100% of the time may be an aspiration but back in the real world how that can be achieved is not yet known. So you need to set a service level you can live with. Some companies aim for 85% or 90% etc.
It is also important to think about the other factors that will adversely affect your business if they are not achieved, for example the timing of deliveries; too early and you have no where to store them, too late and production is halted. So it could well be that you aim to have deliveries on time for some 95% of the time, simply to accommodate the fact that transport can often be held up.
Once you have established the minimum levels of service and accepted the fact that the supply chain is, by its very nature, not stable, then you will have gone a long way to ensuring that your expectations from the supply chain and the supplier relationships within it are in fact reasonable!
Mar
17
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.