Performance Reviews by pub14358

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									Supplier Performance Evaluation


     A Partnership Approach
            To Quality
An Analysis Of Supplier Evaluation

 By Becoming More Competent In
  Supplier Evaluation, Firms Can Expect
  A Number Of Financial And Non
  Financial Benefits

 Each Particular Quality Sought In A
  Supplier Provides A Different Type Of
  Benefit
 Benefits – Technical Capabilities
 Selecting Suppliers That Are Technology
  Leaders Rather Than Followers

   Translates Into Ability For Buying Firm To
    Be A Technology Leader

   Both Sides Are More Likely To Continually
    Improve Products & Equipment
Benefits – Quality & Reliability

 Suppliers Who Provide Products That
  Meet Requirements On The First
  Delivery And Every Delivery

   Save Time And Money On Inspections

   Eliminate Costs Associates With
    Discrepant Materials
 Benefits - Delivery
 Exceptional Delivery Eliminates Waste
   Inventory Costs

   Storage Expenses

   Costs Of Transferring Materials

   Reduces Downed Production Costs

   Saves Unnecessary Transportation Costs
Benefits - Flexibility

 Suppliers Offering Flexibility Provide

   Seize Opportunities Or Avert Crises Due
    To Last Minute Changes

   Survive Unavoidable Changes
Benefits – Fair Price

 Suppliers Offering Fair Price

   Provide Buyers Cost Reduction

   Provide Themselves A Fair Profit
Fair Price - Considerations

 Suppliers Earning Lower Profit
  Margins Than Competitors

   Likely To Cut Corners

   Exit The Business
Benefits – Cost Control

 Change To More Cost-Effective
  Designs

 Reduce Packaging Costs

 Economic Lot Quantities
 Benefits - Familiarity

 Selecting Responsive Suppliers Results In
  Benefits When Issues Arise

   Supplier Knows Buyers Business Well
    Enough To Resolve Issues Properly

   Buyer Knows Who To Call When Time
    Is Of Extreme Importance
Benefits – Financial Stability
 Selecting Firms With Financial And
  Business Stability Increases
  Likelihood Than The Partnership Will
  Survive Through Tough Times

 Firms That Are Financially Stable Are
  Likely To Offer Long Term
  Relationships, Quality Products And
  Development Services
Costs
 A massive Commitment Is Required
  By Both Buyers And Sellers To
  Achieve A Truly Valuable Relationship

 Suppliers’ Engineering Team And
  Buyers Product Engineers Must Be
  Integrated Into The Decision making
  Process
Costs
 Firms Can Become Captive To Their
  Strategic Supply Partners Due To
  Excessive Switching Costs

 Firms Run The Risk Of Partners
  Leaking Information Gained From A
  Long Term Buyer-Supplier
  Relationship
The First Steps
 Determine Attributes To Be Considered

 Focus On What Is Most Important

 Some Attributes Are Easy To Measure

 Some Are Not

 Consider Total Costs
The Metrics
  Quality Level

  Service Level

  Correct Quantity

  On-Time Delivery

  Price/Cost of Product
More Metrics

 Willingness To Share Sensitive Info

 Presence Of Certification Or Other
  Documentation

 Flexibility To Respond To Unexpected
  Demand Changes
& More Metrics

 Communication Skills, Systems

 Quick Response Time In Case Of
  Emergency, Problem Or Special
  Request
& Even More Metrics

 Willingness To Change Their Products
  And Services To Meet Your Changing
  Needs

 Willingness To Participate In Your
  Firm’s New Product Development And
  Value Analysis
Supplier Evaluation


  Common Approaches
Most Common Approaches

 Categorical System

 Weighted Point Average System

 Cost-Based System
Categorical System

 Chose Attributes Most Important To
  The Particular Situation



 Assign Preferred (+), Neutral (0)Or
  Unsatisfactory (-) For Each Selected
  Attribute To Each Supplier
Categorical System
 Total Ratings For Each Supplier

 Example: Two Preferred (++), One
  Neutral (0) & One Unsatisfactory (-)
  Equals One Positive (+)

 Comparison Of Total Scores Reveals
  Highest Rated Supplier
Categorical System

 Easiest Approach To Implement

 Suffers From Subjectivity

 Lacks Detailed Insight Into Supplier’s
  True Performance Because All
  Attributes are Weighted Equally
Categorical System

 Team Members Assign Ratings

 Involves Perceptions Rather Than
  Qualitative Data
Weighted Point Method

 Select Relevant Attributes

 Assign Each Attribute A Weight Based
  On Importance

 Team Reaches Consensus To
  Minimize Subjectivity
Weighted Point Method

 Weight For Each Attribute Multiplied
  By The Performance Score That Is
  Assigned To It

 Total Weighted Scores To Determine
  Final Supplier Rating
Weighted Point Method

 Often Used

 Highly Reliable

 Combines Qualitative and
  Quantitative Data
Weighted Point Method

 Change Weights Or Performance
  Categories Depending On Strategic
  Priorities Of The Firm

 Sometimes Difficult In Practice
Cost Based System

 Quantify Additional Costs Associated
  With Poor Supplier Performance

 Calculate Cost Of Doing Business By
  The Supplier Performance Index (SPI)
Cost Based System

 Calculated For Each Item Or
  Commodity Provided By A Supplier

 Base Value = 1
Cost Based System

 SPI = (Purchase Price +
  Nonperformance Cost) / Purchase
  Price

 The Closer SPI Is To 1, The Better
  The Supplier
Cost Based System

Benefits:
   Ability To Source Based On Total Cost
    Consideration

   Methodology To Increase Supplier
    Accountability And Control

   Equitable & Consistent Evaluation Tool
Cost Based System
 Benefits:
   Definition Of Supplier Performance
    Expectation

   Communication Of Firm’s Buying
    Priorities To Suppliers

   The Ability To Perform Sourcing Risk
    Assessment
Cost Based System
 Benefits:
   Enhances Internal Communication For
    Reporting Sourcing Information

   Ability To Provide Positive Supplier
    Reinforcement

   Basis For Supplier Award System
Cost Based System

 Least Subjective

 Quantifies Total Cost Of Doing
  Business By Considering
  Nonperformance Costs
Cost Based System
 Difficulties:
   Complexity

   Requires Well Developed Cost
    Accounting System

   Difficult To Identify Costs Of Supplier
    Nonperformance
Other Methods Of Evaluation


 Statistical Analysis

 Total Cost Of Ownership
Total Cost Of Ownership (TCO)

 Similar To Cost Ratio System

 More Comprehensive

 Considers Costs Associated With
  Quality, Delivery And Service
TCO Method
 Considers Costs Of Non Value Added
  Activities
   Service Costs

   Receiving Costs

   Inspection, Rework Reject Costs

   Failure Costs

   Administrative Costs
TCO Method

 Proactive

 Comprehensive

 Examines Issues Outside Of
  Supplier’s Cost Structure
TCO Method


 Complex To Implement & Maintain

 Consumes A Great Deal Of Time
TCO Method

 Frequency Of Assessment:

   Monthly

   Quarterly

   Annually (Most Common)
TCO Method

 Frequent Supplier Meetings Facilitate
   Prevention Of Inefficient Practices
   Continuous Improvement


 Beneficial Only If Both Sides
   Cooperate
   Provide Necessary Inputs
Supplier Evaluation


  Getting Started
When Is An Evaluation Appropriate?
 Type of Product
 Expected Price

 Quantity

 Complexity

 Potential Impact on End Products
Initial Supplier Meeting

 Product’s Application

 Availability

 Pricing

 Technical Issues
Gather Preliminary Data

 Completed Supplier Survey

 Copy of Quality Manual or a Written
  Description of Quality System

 Company Financial Data
Preliminary Evaluation

 Organizational History and
  Background
 Critical Material or Labor Issues

 Technical Support Issues
Preliminary Evaluation

 Computer Systems Capabilities

 Warehouse and Inventory
  Capabilities

 Transportation and Delivery Issues
Supplier Facility Tour

 Employees’ Knowledge and
  Understanding of the Supplier’s
  Quality Policy

 Extent and Adequacy of Operating
  Controls to Ensure Consistent Quality
Supplier Facility Tour

 Production Methods and Efficiencies

 Extent of Reserve Production Capacity

 Location and Extent of Production
  Bottlenecks
Supplier Facility Tour

 Plant Equipment’s Age, Cleanliness
  and Suitability for the Products
  Considered

 The Facility’s Overall Housekeeping

 Working Conditions and Turnover
Supplier Facility Tour

 Use of Safety Equipment

 Harmonious Working Relationships
  Between Operating Personnel and
  Management
Supplier Facility Tour
 Manufacturing
 Assembly
 Final Inspection
 Inventory Control
 Packaging
Supplier Facility Tour

  In-Process Inspection

  Tooling

  Production Control

  Shop Floor Control
Supplier Facility Tour

  Surplus & Scrap Staging

  MRB Bonded Storage

  Research & Development
Supplier Facility Tour

  Order Entry

  Documentation Control

  Training & Development

  Information Services
Supplier Facility Tour

  Purchasing
  Shipping & Receiving

  Receiving Inspection

  Stores
Approval Process Steps

 Place Initial Order

 Pass First Article Inspection

 Contingent Approval

 3 Production Orders With No Issues

 Added to Approved Supplier List
After Approval

  All Deliveries Subject to
   Receiving Inspection

  Discrepant Material Reports
   (DMRs)

  Corrective Action Requests
   (CARs)
Annual Performance Evaluation

 Sourcing Review Team
   Purchasing

   Procurement Quality Assurance

   Engineering

   Manufacturing
Rating System

 Objective: Based on Data &
  Documentation (Max=100 points)

   Conformance: 50 Points

   Delivery: 25 Points

   Service: 25 Points
Conformance: Start With 50 Points
 Points Are Deducted As Follows

   DMR / Use-As-Is: -2 Points

   DMR / Return to Supplier: -3 Points

   Second DMR for Same Non-
    Conformity: -4 Points
Conformance: Point Deductions

 Corrective Action: CAR Causes No
  Initial Deduction of Points. No
  Written CAR Response: -3 Points

 Continuation of Same Non-Conformity
  After CAR Response: -10 Points
Delivery: Start With 25 Points

 All Deliveries Support Build Plan:
 No Point Deductions

 Each Incident Which Impacts Build
  Plan: -5 Points
Service: 0 to 25 Points

 Responsive to Changes in Demand and
  Schedule

 Communication / Keeps Agent Informed

 Technical Support / Samples

 Continuous Improvement
Subjective Consensus Points


 Up to 20% (5 Points) Can Be Added
  or Subtracted Based on a Consensus
  Agreement of the Evaluation Team
  That Such an Adjustment Is
  Appropriate
Case Study SolarWorld (SWIA)

 70-100 Points: Approved

 Less Than 70 Points
     Disapproved
     CAR Issued
     Re-Review After 3 Months
     If No Improvement: No New Orders
How Measurements Are Used
 Ratings Data Valuable Only If Both
  Sides Use It To Improve Their
  Partnership
   Track Performance Of Supplier
   Identify Supplier Improvement
    Opportunities
   Develop Supplier
   Benchmark Suppliers Against Best
    Practices
Supplier Performance Ratings


  Using Scores In Bid Evaluations
Case Study: Graphite Rebid

 Graphite Rebid In 1999 & 2005

 Used Weighted Bid Evaluation As
  Secondary Screening Technique
Bid Evaluation Strategy

 Bid Tabulation Prepared (Actual Bid
  Prices)
   Actual Bids: Low and 2nd Low Bids
    Highlighted for Each Item
   Any Supplier with <3 Marked Items
    Eliminated

 Remaining Bidders Evaluated
  Based on Weighted Bid Pricing
Bid Evaluation Strategy
 Weighted Bid Evaluation to Determine
  Final Qualified Bidders

 Best Bid Determined
   Low Cost Per Run
   Best Bid Based on Material Grade
   Quality & Technical Considerations May
    Override Commercial
Why Use Weighted Bids?
 Supplier Performance Issues Cost
  Money
   Lost Production Causes Significant
    Financial Impact
   Purchasing Replacement Parts
    Increases Costs
   Domino Effect Causes Losses in
    Camarillo Plant
   Impacts on Customer Deliveries Cost
    Reputation, Lost Market Share
Weighted Bid Evaluation
 Bid Weighting Factor = Reciprocal of
  Supplier Performance Score

   Supplier A: Score = 90 Points
  _1_= Factor x Actual Bid = Weighted Bid
  .90   1.11 x    $100     =    $111


   Supplier B: Score = 70 Points
  _1_ = Factor   x Actual Bid = Weighted Bid
  .70 = 1.43     x    $95     =    $135
Are the Weighting Factors Fair?

 All Graphite Suppliers Have Same T&C,
  Performance Expectations

 All Graphite Suppliers Treated Similarly
  During PO Term

 All Graphite Suppliers Performance
  Reviews Held on Same Day to Ensure
  Equal Treatment/Scoring
What Did We Accomplish?
 Cost Reduction for Purchased Parts

 Consistent On-Time Deliveries

 Significantly Reduced Machine
  Downtime

 Improved Hotzone Performance

								
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