Supplier Scorecard Handbook Revision Date 07-22-05
SUPPLIER PERFORMANCE EVALUATION ABG holds suppliers accountable to maintain or exceed performance requirements that have significant impact on our supply chain operations. We work with our suppliers to identify opportunities for improved efficiency and are focused on partnering with those who are aligned with our business goals. This handbook contains definitions and examples of these metrics. All suppliers are measured on the following quantitative metrics: Perfect Order Quality Delivery Order Fulfillment Invoicing Lead Time Pricing Additional qualitative evaluations are provided to select suppliers, including: Service Technology Quality SUPPLIER STATISTICS To help provide a complete picture of supplier performance, in addition to the quantitative and qualitative metrics, the Supplier Scorecard contains a variety of supplier statistics. Segmentation Status: If available, the current classification is listed by commodity (Alliance Partner, Preferred, Approved, Conditional, or Eliminate), along with the applicable Sourcing Strategy Team (SST). Spend History: Total receipts ($$) Fiscal Year to Date Freight Terms Payment terms Number of Purchase Orders: Fiscal Year to Date Number of Purchase Order Lines: Fiscal Year to Date Page 2 of 8
PERFECT ORDER The Perfect Order metric is an aggregate of the key scorecard metrics. ABG expects all orders to be received on-time, in the right quantity, with no quality issues, and with accurate invoices. The Perfect Order metric evaluates each order to determine if there were any issues. Each of the subordinate metrics is defined elsewhere in this manual. PERFECT ORDER Quality No Quality Issues (DMDO s or ADR s) Delivery Item Received within the On-Time Delivery Window Fill Rate Quantity Ordered = Quantity Received (+/- 5%) Invoice Accuracy Error Free Invoice An order meeting all the criteria above will be considered Perfect. ABG will track the number of Perfect Orders against the total number of orders received. PERFECT ORDER EXAMPLE Number of Purchase Orders Received 10 Number of receipts with issues (quality, fill rate, invoice, OTD) 2 Perfect Order % 80% Page 3 of 8
QUALITY The Quality Rating measures a supplier s ability to meet agreed upon specifications. All nonconforming product is assigned a DMDO (Defective Material Disposition Order). An ADR (Arrival Defect Report) is written for all non-conforming shipments (missing or inaccurate paperwork, bad pallets, lack of shipment confirmation or missed dock appointment, inaccurate labeling, etc). Each DMDO or ADR is assigned a severity factor based on the impact to the operation. Quality Severity Factor Upon receipt, material is over, short, damaged (OSD) 0.25 Upon receipt, shipment has an arrival defect (ADR) 0.50 Material Released Under Deviation (RUD) 2.25 Material Returned to Supplier 3.00 Scrap Material at Supplier Expense 3.25 Rework Material at Supplier Expense 4.00 Quality ( Rating = 300 X Quality Rating Formula The formula utilizes the sum of all quality severity factors and the total number of shipments received to derive a quality rating based on a 100-point scale. ) X 100 sum of quality factors ( ) number of shipments -1 400 100 QUALITY RATING EXAMPLE Total number of shipments received 1 receipt with an Arrival Defect ( Factor = 0.5) 1 receipt returned to supplier (Factor = 3.0) Sum of Quality Severity Factors (0.5 +3.0) Quality Rating = ((300-(3.5/10-1)*100)/400)*100 = 10 0.5 3.0 3.5 91.3 Quality Rating Percent = 91.3% Page 4 of 8
INVOICE ACCURACY Invoice Accuracy measures errors that appear on an invoice. A score is derived based on the number of invoices received with an error versus the total number of invoices. Purchase Order, Receipts, and Accounts Payable data is used to derive the score. The key invoice elements that will be evaluated include: piece price, quantity received, sku #, PO #, unit of measure, and payment terms. INVOICE ACCURACY EXAMPLE Number of Purchase Order Invoices received Number of Perfect Invoices (no errors) 10 9 Invoice Accuracy Percent = 90% FILL RATE In order to optimize inventory levels and maintain smooth production schedules, ABG expects to receive the quantity specified on the purchase order. Fill Rate measures the quantity received against the actual quantity ordered. FILL RATE EXAMPLE PO #1 Quantity Ordered 100,000 units PO #1 Quantity Received 90,000 Average Fill Rate: Percent fill rate using the fill rate variance for all PO s in a given period. Absolute Fill Rate: Percent fill rate using the absolute value of the fill rate variance for all PO s in a given period. PO # 1 Fill Rate Variance = - 10,000 PO #2 Quantity Ordered 100,000 units PO #2 Quantity Received 104,000 PO #2 Fill Rate Variance = + 4,000 Average Fill Rate (194,000 / 200,000) = Absolute Fill Rate 1 (14,000/200,000) 97% 93% Page 5 of 8
ON-TIME DELIVERY The On-Time Delivery (OTD) calculation measures supply chain performance in meeting agreed upon delivery times as stated on the purchase order. On-time is defined as a delivery that is received on-site no more than 5 calendar of the requested delivery date or on the requested delivery date. ABG calculates the percent of shipments that are received within the on-time window. 6 5 4 3 2 1 day DUE DATE 1 day late Early ON TIME WINDOW Late ABG further evaluates collect shipments with the following metrics: On-Time Shipping: Evaluation of the scheduled pickup time versus the requested Ship Available Date on the Purchase Order. On-Time Confirmation: Evaluation of ABG s requirement for 48 hour notification prior to pickup (Ship Available Date). ON-TIME DELIVERY EXAMPLE Number of shipments received 22 Number of On-Time shipments 20 Number of Late/Early shipments On-Time Percent (20/22) = 2 90.9% Page 6 of 8
SERVICE RATING The Qualitative Service Rating allows ABG to monitor performance of select suppliers in areas that fall outside of the quantitative measurements. Cross functional Sourcing Strategy Teams (SST s) evaluate suppliers in key service related areas. The following categories are evaluated: Customer Service Support Sales Representation Ordering / Scheduling Flexibility Continuous Improvement Lowest Total Cost To meet and exceed customer demands for new technologies and faster time to market, ABG evaluates suppliers in service, technology, and lead-time. Continuous improvement in these key areas will not only help meet customer requirements, but will also help ABG understand the total value our suppliers are providing. TECHNOLOGY RATING The Qualitative Technology Rating measures suppliers in key technology related areas based on feedback from R&D and cross functional Sourcing Strategy Teams (SST s). The following categories are evaluated: Manufacturing Capability ABG Product Development Support Development Capability Access to Innovation Technical Experience Page 7 of 8
LEAD TIME ABG expects all suppliers to meet the planned lead-time 100% of the time. In addition, all suppliers are expected to continually work toward reducing the planned lead-time. Lead-time is evaluated using the following metrics, as based on the planned Supplier lead-time (by item) in the ABG item master database. Planned Lead-time average of all items received in the current reporting period. Actual Lead-time average of the actual measured time from order placement to receipt of goods on-site at ABG. Lead-time variance difference between the planned and actual lead-times. PURCHASE PRICE VARIANCE ABG actively monitors the purchase price for all items, and continually seeks opportunities to reduce total cost. The following metrics are available: Purchase Price Variance (PPV): Based on Fiscal Year Receipts, the PPV metric compares the actual price paid in dollars against ABG s annual standard cost. Purchase Price Variance as Percent of Spend: Comparison of the calculated PPV over the total supplier receipts for the current fiscal year. For more information, please visit: www.supplier.alticor.com Page 8 of 8