There is a saying that claims we teach people how to treat us both in our personal and well as in our professional lives. For that reason, smart professionals know that to achieve and sustain world-class supplier performance, we each must take an active role in asking for what we need and want. In other words, when we get involved in the process by truthfully sharing our needs regarding supplier performance, we open the way towards realizing a more successful business. If on the other hand, youre not getting what you want and you do nothing to explain your needs, you are actually teaching the supplier that it doesnt matter. Plain and simple, its up to you to take responsibility for excellent supplier performance by asking for what you want.
Improve Levels of Supplier Performance!
Based on my many years as a senior supply chain executive, business owner and consultant, I have discovered that there are specific ways to improve levels of supplier performance and one of those is using an effective supplier rating system. Without a good system in place, supplier performance is difficult to improve. Founded on that premise, not only have I achieved and sustained a great deal of improved supplier performance, but I feel safe in stating that using a rating system has proven to enhance levels of supplier performance significantly. In fact, my experience has led to the creation of a ten-step process that I use faithfully, and which has been instrumental in my consistently reaching upwards of 20% improvement in supplier performance.
Achieve Upwards of 20% Improvement!
In support of your efforts in achieving improvement in supplier performance, I am about to share this ten-step process, which will help in sustaining world-class supplier performance as well as achieving upwards of 20% improvement. But before presenting the ten-step process, I want to suggest that improving sustainable supplier performance takes more than just having the tools and strategies; it takes the application of an established and disciplined approach. Anyone can use maximum purchasing leverage or even twist the arms of suppliers in an effort to gain improved performance, but that isnt the way to go and its certainly not a means of sustaining excellent performance. In short, achieving consistent performance in delivery, price, quality and other areas requires diligence and consistency along with a well thought out strategy. The ten-step process I have outlined below will work as you diligently apply the principles.
The Ten Step Process To Sustainable Supplier Performance Improvement
Step 1. Involve Senior Management in the Process!
The first and one of the most important steps in the process is to involve Senior Management. What that entails is aligning supplier performance targets with total corporate targets within your business plan. In short, your goals can be centered on cost containment, new technology development, new markets, cost of quality and productivity, but approach Senior Management first, prepared with an initial plan to obtain their support in going forward. If and when Senior Management is involved, they are more likely to assist in resource allocation, thereby assuring that targets are achieved.
Step 2. Develop a Daily Measurement System!
The most powerful opportunities come about by communicating the standards expected, as well as conveying the achievement expected towards those standards every day. Based on this premise, when suppliers realize that you are tracking them on a daily basis, they respond with greater urgency. You know that old saying: Its the squeaky wheel that gets the grease. Well, a sound rating system that is monitored both by you and your suppliers can definitely lead to at least a 10% improvement, even if you do nothing else. And that can be achieved in one to two years at the most. Improving long-term supplier performance comes about through a clear, easy to understand daily dashboard with just a few key performance indicators, (KPIs). Instead of measuring ten to twenty things a day, pick a few basic areas such as delivery or quality and display them for all suppliers to see. Keep in mind that it is the rare supplier who can focus all their energy on just one or two customers. Suppliers usually have many customers to keep happy so the customer who communicates their standards, and tracks them each day gets the suppliers undivided attention. With those in place, youre on your way to improving long-term supplier performance.
Step 3. Know What You Want in Supplier Performance & Then Communicate It!
My recommendation is that suppliers be given an annual scorecard. This scorecard should cover all critical areas of importance such as responsiveness, service, product management and sales support. The primary key is telling the supplier exactly what makes you happy and what you want and require in reference to supplier performance. I suggest developing a set of unique requirements for each supplier, rather than blanket type scoreboards. It may take a little more work, but in the long run, the effectiveness more than doubles that of traditional annual supplier report cards. I also recommend that the target for the following year be given along with the trend the supplier has been on for the last two or three years. In addition, blend numeric ratings and targets with written text describing your issues and requirements to the individual supplier. For example, many companies issue blanket statements or proclamations on targets such as cost savings of 5% are required for next year. Most suppliers file these away and dont take them very seriously! The bottom line is to make the scoreboard personal. In my experience suppliers find it harder to disassociate themselves when the targets are personalized! The scorecard works with the daily dashboard as they drive home clear standards and accountabilities.
Step 4. Develop a Total Gap Analysis of your Purchasing and Supply Chain Management Practices!
A true gap analysis will focus on known strengths and weaknesses thereby identifying the organizational changes needed to close the gaps. To get the most out of a gap analysis it should be thorough, candid, honest, and realistic. Never compare yourself to the big guys like Wal-Mart or Dells logistic system, particularly if you are a mid-market company. Instead, compare yourself with other companies that are in your competitive league. Plain and simple, benchmark your organization with other similar operations and look for areas of complacency, stagnation, and opportunities for improvement. And if you really want unbiased assessment, consider outside help.
Step 5. Develop a Commodity Team Approach to Supplier Management!
When using a commodity team concept, all functional areas responsible for various aspects of supplier performance are brought together under somewhat of a matrix work structure. In such teams, the buyers are usually the team leaders. Depending on how large and complex the supply chain is, quality, logistics / planning, engineering and other groups are all brought into the commodity team structure. To work well, these teams must have staying power. In short, this is not a temporary assignment to meet and work on a short-term set of goals, but instead commodity team members share in supplier management goals and plans. In other words, the members learn and act together to drive supplier improvement. An effective commodity team approach must become a way of life and become ingrained in daily management so as to drive supplier performance over the long term. The complexity of modern supply chains requires more resources than most purchasing organizations possess, but the gains I have personally seen from commodity teams have been enormous.
Step 6. Training, Training and more Training!
As a Consultant, I am often asked to evaluate a purchasing organization or total supply chain system. What I find is that basic training on internal systems, practices and long-term supplier improvement strategies, as well as the most minimum of industry standards, are usually missing. This translates into a loss of efficiency. Inefficiencies are tough to quantify, but my general experience shows that buyers and supply chain staff are on average 30-50% less efficient than their well-trained counterparts. Buyers need basic reviews on best practices and negotiations training and these should be centered on their supply base, not on some off the shelf course. Remember, improving supplier performance means knowing how to reach out to suppliers, showing understanding about their operations, their systems, their practices and helping them to reach new levels of achievement. Training must be centered on what you need from a supplier and how to get it!
Step 7. Know Your Key Suppliers Well!
When I say know your key suppliers well, I dont mean to audit a supplier and file the paperwork once every year or two. Your commodity teams must visit, and they must visit often. The more they know about the supplier and what goes into the suppliers process, the greater the chances of identifying further efficiencies in cost, quality, delivery, new product development and sustainable supply chain performance. I often find buyers conducting what I have coined as lobby supplier management. This type of buyer never really leaves his desk except to visit the lobby when the supplier comes in for a meeting. This is the closest the buyer gets towards understanding his supplier partner! For greater efficiency, buyers should be encouraged to travel and conduct a hands-on supplier management!
Step 8. Develop Best Practices Policies Among Suppliers!
Look for good ideas and spread them among the rest of the supply base! I have worked and lived in Asia and managed large supply chain operations and what I discovered is that Asian companies simply make it their business to know who has a better process. It is a standard practice among some of the best Asian companies around the globe and once they glean that information, they use it to learn and improve the rest of the supply base! Obviously, one must stay away from proprietary practices, but the concept is well known. I have to remind supply chain professionals that it is not always how well their internal systems perform; the highest priority is how well the suppliers systems perform!
Step 9. Align the Number of Suppliers You Manage to your Resources!
The one area I invariably find seriously out of alignment, even in very large multi-national corporations, is the number of suppliers used to manage resources. You can only effectively manage a finite number of suppliers with a significant hands-on approach. To manage suppliers productively, I would recommend the following. Either have enough staff in possession of modern performance measurement tools and resources from other areas, or shrink the supply base to a manageable level, making sure it fits your available capabilities!
Step 10. Consolidate All of the Above Steps into an Executed Roadmap Document!
A road map of this nature outlines all the steps that will and should take place. This road map must demonstrate who will do what, when and how, and with what resources. It should list the responsibilities, interim goals and targets along with the processes and systems that will be utilized. Most important, it should develop and describe in detail what the desired end state of supplier performance will look like along with all the steps and processes it will take to achieve. In short, involve everyone in the development of this document and then be sure to live by it!
Stay tuned for more articles on how to implement each of these ten steps as Keith Lawrence covers in more detail the process required to reach world-class supplier performance management.
Copyright2006
About the Author
Keith Lawrence is a seasoned supply chain professional, with years of executive level experience. As the owner of The Performance Score and The Transparency Group, he focuses on multi-national corporations in North America, Asia and Europe, and has served as a consultant as well as guest speaker and lecturer on corporate performance management. Keith has assisted numerous companies in achieving breakthrough supply chain performance such as Mitsubishi, FAG Bearings and others. Keith provides a host of corporate performance management software, strategies and tools that lead to significant return on investment. To learn more, you may visit his web site at http://www.theperformancescore.com or e-mail at keithL@theperformancescore.com
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