Supplier Performace Maagemet usig Priciple DMAIC CONTROL IMPROVE ANALYZE MEASURE DEFINE
Itroductio I today s Procuremet world of icreased supply maagemet complexities, it is very importat for ay supply chai maager to have i-depth kowledge of his suppliers. Apart from how a supplier is performig o certai criteria, such as quality, cost, delivery, service, etc., it is imperative to have detailed kowledge of a supplier s fiacial health, the geographies where the supplier is buyig, risks associated with such geographies, operatioal risks, other orgaizatios buyig from the same supplier, ad such other factors which ca be a potetial risk to the supply chai. May such factors are already evaluated at the time of short-listig the supplier through RPF (evaluatig quality, cost, fiacial stability, etc.), coductig supplier facility visits, ad accessig iformatio from sources like D&B, Hoovers, etc. However, oce a supplier is o- boarded, it becomes more critical to evaluate ad moitor these factors efficietly. If we look back, we have may examples of big compaies losig reveue ad share value due to supply chai failures. Some of the examples are: Hershey's Hallowee Nightmare 1999: New order maagemet ad shippig systems fail to start properly, ad Hershey caot fulfill critical Hallowee orders; $150 millio i reveue is lost as stock drops 30%. (Source: Supply chai Digest) Nike's 2001 Plaig System Perplexity: New plaig system causes ivetory ad order woes, blamed for $100 millio reveue loss as stock drops 20%. (Source: Supply chai Digest) Aris Isotoer's Sourcig Calamity i 1994: The a divisio of Sara Lee, Isotoer decides to shut their successful Maila glove/slipper plat to pursue eve lower costs elsewhere; costs rise, quality plummets, reveue is cut by 50%; soo the divisio is sold to Totes Ic. (Source: Supply chai Digest) Apple Misses Power Mac Demad: I 1995, Apple plays coservative with commitmets ad capacity ad caot meet the demad for ew PCs. Market share takes permaet hit. (Source: Supply chai Digest) All the above examples clearly show what happes if o close moitorig system is i place. A poorly-performig supplier ca disrupt our operatios, make our orgaizatio fail i the eyes of our customers, icrease our costs, ad threate our profits. So, oce a supplier is o board, the ext importat step is to evaluate ad moitor your supplier from time to time.
Methodology - Usig DMAIC Priciple I order to implemet a Supplier Performace Program i ay orgaizatio, the first step is to shortlist the suppliers. The approach should be to start with some suppliers, ad the slowly get all suppliers o board. While selectig a supplier, it is very importat to cosider some of the factors, such as: Critical suppliers suppliers critical to the operatio. High-sped suppliers suppliers with whom the orgaizatio is spedig a lot of moey. Some orgaizatios also do a supplier segmetatio assessmet i which they categorize all their suppliers o a graph by plottig stregth of relatioship agaist supplier risk. Oce you have shortlisted your suppliers, the efficiet way of evaluatig ad moitorig the suppliers is to go with the six sigma DMAIC approach. CONTROL Cotrolad check compliace to the supplier performace process o regualr basis ad, the strategies devised at the improvemet stage. DEFINE Determie KPIs to measure supplier performace. IMPROVE Segraggate suppliers basis their performace ito 'Performig' ad 'o-performig" categories. Set-up improvemet strategies for each category. MEASURE Measure ad track suppliers o the pre-defied KPIs. Determie the frequecy ad scorers/raters for performace assessmet. ANALYZE Study the supplier performace ad the performace tred vis-a-viz the KPIs.
DEFINE The first step is to develop the criteria o which the suppliers are evaluated ad tracked. These criteria are also called KPIs (Key Performace Idicators). KPIs ca be set at differet weights ad differet scorecards. KPIs ad Scorecards will differ from orgaizatio to orgaizatio, from idustry to idustry. KPIs are created by takig differet factors, like idustry of the orgaizatio, category, ad key result areas ito cosideratio. KPIs are desiged i such a way that a supply maager is able to capture all the imperative iformatio about a particular supplier like Performace Data Performace like cost, delivery, quality, service, etc. Supplier Risk Risk is further divided ito operatioal risk like liquidity, health safety, supply failure, etc. ad regulatory risk, such as labor laws, domestic govermet regulatios, etc. MEASURE Oce the criteria have bee defied, the ext importat step is to measure ad track the suppliers agaist the set criteria. For measurig the performace of a supplier, the poits below are very importat. Frequecy of Measuremet It is importat to decide the frequecy of measuremet. For example, if the supplier is very critical for the operatio, the frequecy of measuremet should be weekly or mothly. Recurrig evets ormally give a supply chai maager a tred like supplier performace over a period of time. Scorers/ Raters Scorers or Raters are those people who evaluate the selected suppliers for the defied criteria. Category maagers, stakeholders ad ed users are geerally ivited to participate i the scorig process. It always makes sese to ivite suppliers for self-evaluatio. ANALYZE Oce the measuremet is fiished, the ext step is to aalyze the results. Aalyzig a supplier s performace agaist each defied criterio is very importat. Aalyzig the tred is also ecessary. If a supplier is supplyig multiple categories ad is part of multiple evaluatios (differet scorecards), it is imperative to aalyze the overall performace of the supplier ad the performace agaist each score card separately.
IMPROVE Oce the aalyzed data ad results are ready, the supply maager should segregate suppliers based o performig ad o-performig. This segregatio is importat as differet strategies will be applicable for these two types. For the suppliers that are ot performig well, developmet plas should be i place. The supply maager should uderstad why a supplier is ot performig o a set criterio. I the developmet pla, the supply maager should sit with the supplier to uderstad his view poits ad challeges which the supplier may be facig. A supplier developmet program must have objectives with ed dates which both supplier ad supply maager have agreed upo. At the same time, a supply maager should also give feedback ad express appreciatio to best-performig suppliers. For stregtheig relatioships with suppliers, it is importat to recogize the best performace of suppliers. Some orgaizatios distribute certificates to suppliers as Best Performig Suppliers ad some also have supplier days to ecourage suppliers. CONTROL At this stage, the supply maager has to esure that the process is improvig day by day. There should be a mechaism i place to alert the supply chai maager if the performace of a supplier is chagig. The supply chai maager should also moitor the KPI o which most of the suppliers have performed well ad the KPI o which most of the suppliers have performed poorly, ad ru timely reports to esure that everythig is uder cotrol.
Leveragig Techology to Measure Supplier Performace Implemetig a supplier performace maagemet program is very labor itesive i ay orgaizatio. Vast data eeds to be gathered, cleaed ad maitaied. Maual processes lead to errors ad are ever a foolproof system. This is where supply chai maagers ca leverage sophisticated procuremet techology to measure ad track supplier performace. It gives a automated platform which facilitates to ru a supply performace maagemet program with ease ad icreased accuracy. Some of the beefits of usig techology for measurig supplier performace are: KPI ad scorecard library to make sure there are stadard KPIs ad Scorecards maitaied across categories. Stadard dashboard to get a sigle view of the performace of differet suppliers across categories ad speds. Remiders ad alerts ca be set for differet criteria. Very effective method of selectig suppliers for evaluatio. Aalysis of supplier performace across category, sped, facilities, ad compay level. Creatig a supplier developmet program ad trackig it with the tool itself. Robust reportig capabilities. Coclusio Suppliers are a orgaizatio's parters i growth or failure. So it's importat for the supply chai maager to work closely with suppliers ad track their performace o a regular basis. Multiple tiers of suppliers across the globe ca leave supply chai maagers baffled by the vast amout of supplier-related data. By idetifyig ad implemetig the right techology solutio with the right process, the supply maagers ca ot oly aalyze the vast supplier data, but ca also make profitable decisios drive by facts. About the Author: Rahul Raia is a SCM Cosultat. He has worked with more tha 10 Fortue orgaizatios ad has played a key role i egagemets ivolvig sourcig, cotract maagemet, supplier performace ad iformatio maagemet, procuremet trasformatio ad eprocuremet implemetatios. He ca be reached at rahul.raia@zycus.com
Zycus is a leadig global provider of complete Source-to-Pay suite of procuremet performace solutios. Our comprehesive product portfolio icludes applicatios for both the strategic ad the operatioal aspects of procuremet - eprocuremet, eivoicig, Sped Aalysis, esourcig, Cotract Maagemet, Supplier Maagemet ad Fiacial Savigs Maagemet. Our spirit of iovatio ad our passio to help procuremet create greater busiess impact are reflected amog the hudreds of procuremet solutio deploymets that we have udertake over the years. We are proud to have as our cliets, some of the best-of-breed compaies across verticals like Maufacturig, Automotives, Bakig ad Fiace, Oil ad Gas, Food Processig, Electroics, Telecommuicatios, Chemicals, Health ad Pharma, Educatio ad more.