Supplier Performance

Monitoring and analysing Supplier Performance and reliability enables you to reduce stock levels, improve operational efficiencies, customer satisfaction and increase profitability. This becomes increasingly more critical in the age of 'Source on Demand' ordering and Just-In-Time manufacturing.

A Supplier's performance can be based on 4 factors

• Delivery timeliness
• Quality performance
• Price performance
• Assessment Ratings

Each of these is given a percentage contribution to an overall Supplier Rating. Let's look at these four assessment areas:

1. Delivery Timeliness

The delivery assessment is based on the following.

• Deliveries on time earn a maximum score of 100. Late deliveries earn a lower score.
• Lateness must be 'weighted' because the later an item is delivered the greater the disruption in the production process. An example of a weighting system is:-

  DAYS LATE	WEIGHTING
  1-10	1
  11-20	2
  21-25	3
  26+	4

  The conversion from actual days late to weighted days would be as follows:-

  If 4 days late	4 X 1 = 4	4 weighted days
  If 13 days late	10 X 1 = 10 )	16 weighted days
  	3 X 2 = 6 )
  If 24 days late	10 X 1 = 10 )	42 weighted days
  	10 X 2 = 20 )
  	4 X 3 = 12 )

• Over a period of time a Vendor Delivery rating would be as follows:-

  Index = 100 - (Weighted Days Late)
              --------------------------------------
                       (Number of Deliveries)

  E.G. Three Deliveries of 8, 0, and 14 Days late

  Index = [100 - (8 X 1)] + [100 - (0 X 1)] + [100 - ((10 X 1) + (4 X 2))]
              ------------------------------------------------------------------------------
                                                  3

  = 91.0

  The above lateness is derived by comparing the date when the Receipt is registered against the Purchase Order Line Date. Note:- Early deliveries are not penalised as these can be rejected at GRN stage. Therefore, any negative days late are to be assumed as zero.

2. Quality Performance

In trying to establish a Quality Index in a similar format to the Delivery Index it could be considered that a completely rejected receipt should incur a greater penalty than a partially rejected receipt. The weighting factor is therefore based on the ratio of deliveries accepted (including partial receipts) to total deliveries. Therefore the Quality Index is:-

	Items Accepted	*	Deliveries Accepted
100 *	-----------------------		--------------------------
	Items Received	*	Deliveries Received

For example:- Assume 10 deliveries, 1 delivery completely rejected, 5000 items received in deliveries retained, 4700 items accepted in deliveries retained then

	4700		9
Index = 100 *	--------	*	-------
	5000		10

The Quality Performance is derived as follows

We need to record the quantity rejected within each receipt. This allows us to determine:

• If all received items in a Receipt are flagged as returned to Supplier then this constitutes a delivery completely rejected.
• Receipts where Items are partially returned are subtracted from total items received to give total items accepted.

Calculate the Supplier Rating.

3. Price Performance

Once again it is intended to relate a Supplier to an index of 100. In this instance, however, the resultant index may be greater than 100.

The Purchase Price is expressed as a ratio of the Standard Price. i.e.

	Standard Buy Price
100 *	--------------------------------
	Supplier Purchase Price

The Standard Buy Price can be extracted from the ITEMMASTER.

If no Standard Buy Price exists then assume Supplier Purchase Price (to give a ratio of 1)

The Purchase Price can be extracted from a Purchase Order record.

If no Purchase Price exists then assume Standard Buy Price (to give a ratio of 1)

Calculate the Supplier rating.

4. Assessment Ratings

This allows the buyer to create attributes related to Service and to quantify these.

Example of attributes

• Ability of Supplier to be flexible in accepting variable volumes, unusual requests and difficulties
• Ability of Supplier to give technical support and advise after sale, and willingly and promptly visit site
• Ability of Supplier to offer ideas on design improvement and cost reduction
• Ability of Supplier sales reps to tackle both commercial and technical problems relating to products sold
• Ability of Supplier to maintain an efficient communication link with the buying company

Depending on the your company and your priorities, you might allocate up to 20 points for each of these aspects, thus developing another 100 point index system to compare Supplier services performance.

This would require a User-Defined screen to enter Attributes. Each attribute has a description and the number of points it contributes. The total points would add up to 100. For each Supplier these are displayed along with additional facility to award points to each attribute. For example:

ATTRIBUTE	CONTRIBUTION	AWARD
1	20	18
2	20	17
3	20	19
4	20	20
5	20	20
	--	--
	100	94

5 Overall Weightings

Separate indexes for price, service, quality and delivery might make the appraisal unwieldy. The objective of having a weighted points plan is to produce just one index. This is achieved by applying an 'importance' factor to each of the four categories.

e.g.	Delivery	40%
	Quality	30%
	Price	20%
	Service	10%

These 'importance' factors add up to 100.

This would then be applied to the already weighted factors of performance as previously determined. For example

Delivery	98.0 * (40 / 100) =	39.2
Quality	90.0 * (30 / 100) =	27.0
Price	85.0 * (20 / 100) =	17.0
Service	90.0 * (10 / 100) =	9.0
		----
Overall Performance Index =		92.2