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“If you want to retain those who are present, be loyal to those who are absent.”

-- Dr. Stephen Covey, The Seven Habits of Highly Effective People

“Learning cannot be disassociated from action.”

-- Peter Senge, The Fifth Discipline

“The most important measures are both unknown and unknowable.”

-- W. Edwards Deming, Out of the Crisis

 

Great Supplier Management Systems! by Kevin McManus

For nine of the past ten years, I have had the chance to serve as an Examiner, Senior Examiner, or Alumni Examiner for the Malcolm Baldrige National Quality Award process. In this role, I have been fortunate to make five site visits to high performing companies and to also learn about other such companies at the annual Quest for Excellence conferences. These experiences have helped me identify certain supplier and supply chain management practices that are consistent across high performing companies. The basics that are associated with these practices are described below:

Who are your key suppliers?

For a manufacturing facility, suppliers typically fall into five main groups – raw materials, supplies, packaging, staffing, and maintenance materials. Other possible supplier groups include utilities, information technology support, external training providers, consultants, shipping services, and cleaning or waste removal services.

What are the key requirements that you have for each of them?

At a minimum, three to five key performance requirements should be defined for each supplier group. These same requirements should be defined for any particular single supplier that constitutes a significant percentage of daily expenses.

Operations, purchasing, and quality management should work with their key suppliers to define those customer requirements that each type of supplier is expected to meet or exceed. There should also be a direct and clear linkage between these requirements and the key performance measures that are defined for each supplier group – at least one measure should be defined for each key requirement.

How do you measure key supplier performance in each performance area?

Most operations groups are responsible for improving performance in four main performance areas – safety, quality, cost, and people. As suppliers are relied on to help manufacturing make their performance goals in these four areas, they should be held to their own set of performance goals, and measured regularly against those goals, in these same four areas.

Supplier performance is typically measured in three key ways:

•  Periodic supplier audits – Supplier performance should be audited using a formal audit process on at least an annual basis. The form that is used for this process should be consistent across supplier groups, be similar in design and content to the form that is used to pre-qualify suppliers, and capable of being scored so that audit performance over time can be trended. In addition to simply tracking audit findings, as the more basic audit approaches do, you should strive to (1) prioritize your audit findings from a risk perspective and (2) add extra weight as you score a given audit to those findings that are of a 'repeat' nature.

•  Daily supplier scorecard performance – Supplier performance on a ‘per order' (shipment received) basis should also be tracked using at least 3-5 key metrics (key performance indicators). The linkage between these measures, and those for the organization, should be evident across all performance areas.

A performance summary spreadsheet can be used to capture daily supplier performance statistics. Typical people that are responsible for tracking supplier performance in this manner include warehouse supervisors, quality department personnel, or receiving lead people.

An example supplier performance scorecard is provided below:

Supplier Group

Safety

Quality

Cost

People

Raw materials

# of reportable accidents

# of near misses

Regular audit score

On time %

% orders in spec

Order accuracy %

Average unit cost

Average cost to place order

Monthly exception cost

Internal customer rating

% participation in learning events

Supplies

# of reportable accidents

# of near misses

Regular audit score

On time %

% orders in spec

Order accuracy %

Average unit cost

Monthly exception cost

Internal customer rating

% participation in learning events

Packaging

# of reportable accidents

# of near misses

Regular audit score

On time %

% orders in spec

Order accuracy %

Average unit cost

Monthly exception cost

Internal customer rating

% participation in learning events

Staffing (temporary service)

Reportable accident rate

# of near misses

Regular audit score

On time %

Average wage rate

Labor cost per unit produced

Internal customer rating

Absenteeism %

Turnover %

Maintenance Materials

# of reportable accidents

# of near misses

Regular audit score

On time %

Order cycle time

Order accuracy %

Average cost to complete order

Average $ in inventory

Monthly exception cost

Internal customer rating

% participation in learning events

•  Exception incident tracking – As with each operations process, the details of each supplier waste incident should be recorded and tracked on a daily basis. A waste incident database should be used to track significant waste incidents and their details. Example waste incidents specific to suppliers include late shipments, out of spec shipments, short or damaged shipments, and onsite accidents or near misses.

A waste incident report should be produced and shared with suppliers on at least a monthly basis as part of the monthly supplier performance summary. Suppliers should be expected to work with the operations team to identify root causes and corrective actions for recurring types of waste incidents on a regular basis, and report progress at least monthly. The company intranet can be used to allow for this type of two way communication and monitoring (suppliers are required to both log on regularly to receive information and post performance information to the company's intranet).

How do you work with suppliers to help further improve performance?

High performance organizations use five common approaches to work with their key suppliers in an effort to drive performance to higher levels. These approaches include:

Supplier conferences – The operations team should meet with representatives from each of their key supplier group at least annually, and ideally, quarterly. A one day event that brings together all such representatives from these groups is suggested. A typical agenda for such an event includes activities for (1) reviewing company performance trends, (2) reviewing supplier performance trends, (3) identifying corrective actions for waste incident trends, (4) reviewing and updating improvement projects, (5) recognizing supplier best practices, and (6) providing training on suggested types of high performance work practices.

Involvement in planning events – High performance organizations involve supplier representatives in all, or a portion of, their annual planning activities. It is also recommended that key suppliers are involved in quarterly or monthly progress review meetings that focus on improvement plan execution.

Regular feedback meetings and visits – Suppliers and operations representatives should communicate with each other on a regular (often daily) basis. Efforts should be made to visit each others' facilities on at least a quarterly basis as well. This frequency of contact should be based on (1) supplier criticality to organizational success and (2) the annual purchasing investment being made to that supplier or supplier group.

Monthly or Quarterly Supplier Performance Report – A regular performance summary report should be issued to each key supplier. The contents of such a report often includes (1) summaries of recent performance challenges, (2) trend lines of key measure performance, and (3) a matrix of corrective actions and key projects. This report can also serve as a vehicle for comparing supplier performance within a given group if single sourcing is not being used for that particular supply type.

Supplier Key Project List – The project list is actually a matrix which summarizes the completed, ongoing, and planned projects that have been defined to help improve supplier performance. The contents of this list should also be part of the organization's key project list, and used as a key input into the annual planning process.

Would you like help in improving your supplier management system?

Great Systems! can help you design and improve your supplier management system in three ways – system assessment, one day design workshop, and supplier conference design and facilitation. If you are interested in learning more about these services, please send Kevin McManus an e-mail at kevin@greatsystems.com or give him a call at 206.226.8913. Keep improving!

Would You Like to Learn More?

Click on one of the following links to learn even more about Great Systems! and the types of systems improvements I can help you make:

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Copyright © 2008, Great Systems!
Last Revised - June 9, 2008
Contact me at: kevin@greatsystems.com