Key Supplier Performance Metrics and Process

Bill Kohnen

General Guidelines

• Measurement of Suppliers should be meaningful and drive improved performance

• Measurement requires time and $$$ so should focus on critical suppliers and those we can impact– Estimated total cost to formally measure a suppliers performance is

$8,000 to $12,000 per year. (See attachment)

• Highest rating should exceed expectations and be hard to reach• Low ratings should result in action.• Time frame is quarterly with publishing of data in timely

manner• Provide relevance with prior quarters data as well as average

for all suppliers.

Specific Guidelines for this Model

• Rating is between 0 and 100• There will be a central point of contact to manage the process

of preparing and sending the ratings.• The central contact will document the process and actions taken and

have this available for audit as needed.

• Send out summary scores to Suppliers quarterly and share details as needed in Supplier Review Meetings

• Categories for rating are:– Quality – Delivery/Service– Administrative

Quarterly Supplier RatingSingle Supplier Example

Q1 Q2 Q3 Q465

70

75

80

85

90

95

Supplier RatingAverage

Categories and Guidance For Rating

Category Score 100% 75% 50% 25%Quality 40 No Issues Issues Reported But No Production

ImpactIssues Reported requiring fix by Buyer or Supplier

Issues reported and Production Impact

Service Delivery

40 SLA or PO performance better than commitment

Issues arise but within SLA/PO agreement

Potential Downtime averted because of Buyer fix (Usage of Safety Stock or Substitution)

Downtime

Administrative Support

20 Proactively Meeting NeedsImmediate response to requests. No Billing Issues. Best Value Price in Market. Bringing innovation to Buyer. Proactive and transparent in providing data for Buyer Audit Requirements.

Normal Performance for response.Price competiveness. Product and Service meets Buyer Needs. Quickly provides requested information needed for Buyer audit.

Buyer must request response and follow up.Unclear Value and cost competitiveness. Requires follow up on Buyer audit information.

Lack of response or no contact. High Cost. No innovation.No response to Buyer audit information request.

100

Rating Guidelines

Results and Action'sRating Designation Result

90 to 100 Outstanding Preference for New Business

80 to 90 Good Performance Maintain. Include in consideration for new opportunity.

60 to 80 Acceptable Performance Mutual Work between Rearden and Supplier to Improve. Equal evaluation with other “new” suppliers for new business.

Below 60 Immediate Corrective Action

Senior Level Meeting held and Action plan to Improve. Regular progress reporting to E Staff Sponsor. No new projects

Roles and Process

Quarter End

Process Starts

Quality Data Collected

Consolidate Input

Prepare Charts for Suppliers

E-Mail to Suppliercc. Key Contact

Score Above

60

Service and Admin

Ratings from Buyer Key Contacts

Discuss at Next review

Yes

NO

Set Up Meeting

with Supplier

and Report to E Staff

Owner

Critical Supplier PerformancePrgram SummarySample

Q1 Q2 Q3 Q40

0.5

1

1.5

2

2.5

ActionAcceptableGoodOutstanding

Detail Critical Supplier Ratings(For Bigger Organization make as a commodity or division chart)

Q1 Q2 Q3 Q430

40

50

60

70

80

90

100

Supplier ASupplier BSupplier CSupplier DSupplier EAverage

Description

Action N

eeded

Ac-

ceptable

Good

Outstand-

ing

Comment about Compliance with Audits

• Reviews of Supplier Performance Process are often part of audits (ISO, TS, Customer, even internal)

• Generally they will never question the details of any given supplier rating

• What auditors look for:– Is there a process?– Is it followed?– Is it documented?– Is action taken in a timely basis?

Summary

• Focus on Most Important Suppliers• Time is of the essence for supplier performance

measures to be meaningful (preparation, review, sharing and action)

• Share information with a very high level at Suppliers.

• Include overall supplier performance trends as a metric for your Supplier Management process.

• On a yearly basis recognize the best performing suppliers.

Attachment

Program Total Cost Per SupplierQuartely Cost

Normal Costs Hours Hourly Cost

Quarterly Prep 4 $ 125.00 $ 500.00

Time Reviewing 2 $ 125.00 $ 250.00

Maintenance of Process 1 $ 125.00 $ 125.00

Documentation 0.5 $ 125.00 $ 62.50

Audit Costs Formal Audit Cost

Formal Audit Assuming once every 2 years $ 10,000 8 $ 1,250

Quarterly Cost Single Supplier $ 2,187.50

Annual Cost Single Supplier $ 8,750.00

Other Costs

Cost If Action Required (one Supplier) Hours

Meeting and Review 16 $ 125.00 $ 2,000.00

Travel $ 2,000.00

Documentation 4 125 $ 500.00

Quarterly Cost Single Supplier $ 4,500.00

Annual Cost Single Supplier Issue per Quarter $ 18,000.00

Cost For recognition Of Suppliers $ 20,000.00

Total Other Costs $ 38,000.00 Number of Suppliers Measured 10

Progarm Overhead per Supplier $ 3,800.00

Total Annual Cost Per Supplier $ 12,550.00

Assumptions you may need to modify:

Hourly Cost – although unless this is done outside the US these total costs are close

Formal Audit Costs and Frequency –Key supplier suggests a formal onsite audit will be done occasional

Total # Suppliers you will measure

What type of recognition you will do - $20K represents modest trophies, press release, and dinner