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Best Practices within
Oracle Application
Module/s
Oracle Purchasing
AuthorVanaja Ragunathan
Consultant Oracle Apps
Reviewed ByDheeraj Sharma
Senior Consultant Oracle Apps
Creation Date:08-June-2010
Version: 1.0
KPIT Cummins Info systems LimitedPlot No. 35/36, Rajiv Gandhi InfoTech Park,
Phase I, MIDC, Hinjwadi, PUNE-411057, India
Tel: +91 20 6652 5000, Fax: +91 20 6652 5001
www.kpitcummins.com
Supplier Scorecard
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Supplier appraisal is one activity which supply chain teams
undertake that can have real bottom line fiscal impact.
Get it wrong or have none at all and the business can find
itself aligned with improper suppliers, ineffective goods andimpractical delivery schedules.
Get it right and the organization can be positioned with
suppliers who are focused and tuned alongside the needs of
the business.
Business Challenges
Abstract of the Best Practice
An effective supplier scorecard should :
Communicate all pertinent information related to the
organization's key performance measures.
Concise, accessible, and understandable to
managers and leaders in both the supplier and
customer organizations.
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Implementing Best Practice (Contd..)
Method ReferenceQuantitative/QualitativeParameters
Advantages Disadvantages
Cost Ratio Timmerman(1986)
-Quality-Delivery-Service-Price
The evaluationprocess is clearand systematicInexpensive
-Requires a
minimumPerformancedata
-Attributes areWeighted equally
-Subjective
-Imprecise
Categorical Timmerman(1986)
-Quality-Delivery-Service-Price
Subjectivity isreduced
-Flexibility
Complexity andrequirement for adeveloped costaccounting system
-Performance Measures(cost ratios) areartificially expressed inthe same Units
NeuralNetworks
Wei(1997) -Performance-Quality-Geography-Price
-Saves a lot oftime and moneyof the systemdevelopment
Lack of experts andRequires a software
PrincipalComponentAnalysis
Petroni&Braglia(2000)
-Quality-Delivery-Price-Reliability
Considerssimultaneouslymultiple inputsand outputs
without priorassignment ofweights
-Knowledge ofadvanced statisticalmethod is required
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Implementing Best Practice (Contd..)
Method ReferenceQuantitative/QualitativeParameters
Advantages Disadvantages
TotalCost ofOwnership
Ellram(1995)
Price-Quality Costs-UnreliableDelivery Costs-Transport Cost
-Ordering Cost-Reception Cost-Inspection Cost
SubstantialCost savings
-Allows variouspurchasing
policies to becompared withone another
Complex
AnalyticHierarchyProcess(AHP)
Nydick &Hill (1992)
-Quality-Delivery-Service-Price
-Simplicity-Captures bothqualitative andquantitativecriteria
-Inconsistency on themethod
Weighted
Point
Timmerman
(1986)
-Quality
-Delivery-Service
-Price
-Attributes
weighted byImportance
Subjective
-Difficult to
effectively considerqualitative criteria
One of the simple yet effective method called the weighted point method has
been described in detail, which considers attributes that are weighted by the
buyer.
The weight for each attribute is then multiplied by the performance score that
is assigned.
Finally, these products are totaled to determine a final rating for each
supplier
This method is designed to utilize quantitative measurements and minimize
subjective factors in evaluation
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Functional flowchart
Identify key supplier evaluation categories.
Decide which performance Metrics to includeGenerally the Most obvious and most critical areas that affect the buyer
Weight each evaluation category
The performance categories are weighed to reflect their relative importance.
The total of all the weights must be equal to 100.
Define scoring system for categories and subcategories
A quantitative scale of measurement is defined in the scoring system
In a 5-point scale, 1=poor, 2=weak, 3= marginal, 4=good, 5=outstanding
Evaluate supplierScores of different suppliers are compared and selected one
over the another based on the evaluation score.
Review evaluation results and make selection decision
The primary output from this step is recommendation aboutwhether to accept a supplier for a business.
Identify and weight subcategories
Performance subcategories are decided within each broader category.
The sum of weight of subcategories must equal to the main category weight
Review the evaluation periodicallyThe emphasis shifts from the initial evaluation and selection of suppliers
to evidence of continuous improvement by suppliers.
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Implementing Best Practice (Contd..)
Performance Metrics:
QualityNumber of acceptable lots from vendor
divided by total number of lots from vendor
Cost
A subjective evaluation of the factors
deciding the performance of suppliers
on the price perspective
Delivery
Number of on time deliveries from
vendor divided by total number of
deliveries by vendor.
ServiceA subjective evaluation of the
variety of services offered by each vendor.
SupportA subjective evaluation of the advice
and assistance provided by each vendor.
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Delivery:This information can be collected from promise date and actual
receipt information.
Implementing Best Practice (Contd..)Quality :
It is measured using the DPPM (Defective Parts Per Million)
method. This information can be collected using Inspection
Quality Plan.
Score PPM
3 500 PPM
Total no. of items received on time
Total no. of items received
X 100
Score %
3 >99%
2 97-99%
1
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Implementing Best Practice (Contd..)Cost:
The following sub factors are considered for weighing a
supplier on this performance metric.
Cost Reduction Efforts
Performance during Delivery Process
Competitive Price
Quote analysis can help in identifying the competitiveness
The sub factors are given a score as below:
1-Not Good, 2-Poor, 3-Good, 4-Very Good, 5-Excellent
The Total weight for a category is the sum of scores of the sub factors.
Service:
The following sub factors are considered for weighing a
supplier on this performance metric.
Communication
Responsiveness
Immediate Corrective Action
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Implementing Best Practice (Contd..)
Supplier Code of Conduct:
The following sub factors are considered for weighing a
supplier on this performance metric.
Statutory Compliance
Equality in Treatment
Integrity
Protection of Environment
Fatality & Safety initiativesConfidentiality
Comply with the Cummins Supplier Code
The sub factors are given a score as below:
1-Poor, 2-Good
The Total weight for a category is the sum of scores of the sub factors.
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Implementing Best Practice (Contd..)
Example of Weighted point method:
Assume that there are five performance metrics that are being
used to evaluate suppliers, quality, cost, delivery, service and
supplier code of conduct.
These attributes are weighted with their corresponding values on
a 1 (least preferred) to 5(most preferred) scale.
Further, assume that proposals from four suppliers are being
considered (S1, S2, S3 and S4).
The Table below presents the final results.
Weights Supplier1 Supplier2 Supplier3
Quality 35 3 3 2
Cost 15 12 9 6
Delivery 30 3 2 2
Service 6 5 4 2
Supplier Code ofConduct
14 13 10 8
Total 100
Final scores are calculated as:
Supplier 1 = (35*3)+(15*12)+(30*3)+(6*5)+(14*13) =587
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Implementing Best Practice (Contd..)
Final
Scores
Supplier1 587
Supplier2 359
Supplier3 284
According to the above results, the higher weight belongs to
supplier 1, and is judged to be the best overall.
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Implementing Best Practice (Contd..)
Final Output:
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Implementing Best Practice (Contd..)
Scorecard used in Honeywell Industries:
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Implementing Best Practice (Contd..)Scorecard used in Allstate Corp, USA:
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Implementing Best Practice (Contd..)Scorecard used in National Instruments, USA:
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References
Doolen, Toni
Using Scorecards for Supplier Performance Improvement: Case Application in a
Lean Manufacturing Organization
Engineering Management Journal , June 1, 2006
Performance Measurements and Metrics
Supply Chain Management Portal
Christine Dunn
How to: Building a vendor scorecard
Computer World, May 29, 2006
CUMMINS SUPPLIER HANDBOOK
Page 17, May 19, 2008
CUMMINS INC FILTRATION BUSINESS UNIT SUPPLIER QUALITY HANDBOOK
Page 15, June 2007
Cummins Supplier code of Conduct
January 2009
Honeywell ACS Vendor Scorecard (Version 2.1 January 2008)