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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
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.
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:-
For example:- Assume 10 deliveries, 1 delivery completely rejected, 5000 items received in deliveries retained, 4700 items accepted in deliveries retained then
The Quality Performance is derived as follows
We need to record the quantity rejected within each receipt. This allows us to determine:
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.
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
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:
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.
These 'importance' factors add up to 100.
This would then be applied to the already weighted factors of performance as previously determined. For example