Discussion_8

Slide 1

Introduction

Welcome to Purchasing and Materials Management. In this lesson we will discuss supplier evaluation and supplier relations.

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Slide 2

Topics

The following topics will be covered in this lesson:

Measuring supplier performance;

Evaluating methods;

Supplier ranking;

Supplier relations;

Partnerships; and

Strategic alliances.

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Slide 3

Measuring Supplier Performance

Let’s get started by discussing the topic of measuring supplier performance.

There are many metrics that can be used to measure a supplier’s performance. Some organizations use a few critical key measures, whereas other organizations use a system to track dozens of performance measures. No matter how performance is measured, there should be a clear link between data and decisions to avoid expending excessive resources to capture information that is never used in the decision making process.

Some key performance indicators include direct measures that quantify supplier performance at the time the work is completed. Examples of these indicators include number of rejects, on time delivery, increase in sales, and improved cycle time. Examples of real time metrics to measure performance include quality, quantity, and price.

In all, regular supplier performance assessment is essential for continuous improvement.

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Slide 4

Evaluating Methods

Now let’s discuss some evaluation methods.

There are two major evaluation methods. These are formal and informal evaluations.

Formal evaluation methods track actual performance over time. For example, as orders are delivered, quality, quantity, delivery, price, and service objectives are tracked in a formal manner. More detailed evaluations include a summary of supplier performance over time.

Informal evaluation methods include assessments of the supplier by internal users and others anywhere in the buying organization where supplier contact takes place. For example, the information can be obtained from informal conversations, professional meetings, or conferences.

It is normal to track a suppliers’ quality performance closely and in sufficient detail to pinpoint corrective action. In many organizations, only certified suppliers are considered for potential future business, and extensive evaluations on performance and other attributes are carried out accordingly.

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Slide 5

Supplier Ranking

Now let’s discuss supplier ranking. Suppliers are ranked on a scale from unacceptable to exceptional.

Unacceptable suppliers consistently fail to meet the operational and strategic needs of the buying organization. If this is the case, it is normal to discontinue business with these suppliers and find better suppliers.

In comparison, exceptional suppliers anticipate operational and strategic needs of the purchaser and are capable of meeting and exceeding them. Exceptional suppliers need to be treasured, for they can be a source of competitive advantage for the buying organization. These suppliers can also provide an opportunity to experiment with new and different approaches to supply management.

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Slide 6

Supplier Relations

Now let’s discuss supplier relations.

Strategic supply management is founded on the conviction that a significant competitive advantage can be gained from the suppliers an organization has developed a relationship with. Any organization’s desire to satisfy its customers and provide continuous improvement in its customer service is dependent on its suppliers to help it accomplish this goal.

Supplier performance has a greater impact on the productivity, quality, and competitiveness of the organization than most supply managers realize. Outstanding supplier relations require extensive communication and cooperation between representatives of the buyer and supplier organizations over a long period of time. Moreover, the ability to develop effective working relationships with suppliers will be dependent on supply’s ability to develop effective working relationships internally in the organization.

In all, the primary objective in supplier relations is to develop a supply link that will provide a short-term and long-term strategic competitive advantage. Effective supply management is not simply engaged in the exchange of money for goods and services, but also in the management of the buyer-seller relationship.

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Slide 7

Check Your Understanding

Slide 8

Partnerships

Our next topic deals with partnerships.

A large number of organizations have started to develop partnerships with their suppliers in the last three decades. The interest in supplier partnerships was born in the 1980’s through the study of Japanese companies that maintained a very close relationship with their suppliers. This relationship was seen as one of the key elements of achievement of quality, fast delivery, and continuous improvement. North American companies that adopted suppler partnerships in the 1980’s included Honeywell, Motorola, Xerox and IBM.

In the 1990’s buying organizations continued to develop partnerships with suppliers. For example, CompUSA initially formed a partnership with a large printing company to print and replenish forms to two-hundred and ten retail stores. As a result of this partnership, supply expenditures for CompUSA were reduced by thirty-two percent.

The benefits from partnering come from inter-corporate closeness. Partnerships require hard work from both buying and selling organizations to make them effective. They require tolerance from mistakes and a real commitment to make the relationship work. The main idea is that each partner might enhance its own competitive position through the knowledge and resources shared by the other.

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Slide 9

Strategic Alliances

Finally, we will discuss strategic alliances.

Strategic alliances in a supply sense represent special arrangements with key suppliers that make a strategic difference to both buyer and seller and seek sustainable competitive advantage.

Strategic alliances are often technology based. These alliances require substantial investment of both buyer and seller to achieve major market breakthroughs. These alliances are of major concern to top management and reinforce the perspective that suppliers and supplier relationships are of strategic concern to any organization.

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Slide 10

Summary

We have reached the end of this lesson. Let’s take a look at what we’ve covered.

First we discussed the topic of measuring supplier performance. There are many metrics that can be used to measure a supplier’s performance. Some organizations use a few critical key measures, and others use a system to track dozens of performance measures. No matter how performance is measured, there should be a clear link between data and decisions to avoid expending excessive resources.

Next we discussed evaluating methods. There are two major evaluation methods. These are formal and informal evaluations. Formal evaluation methods track actual performance over time. Informal evaluation methods include assessments of the supplier by internal users and others anywhere in the buying organization where supplier contact takes place.

The next topic was supplier ranking. Suppliers are ranked on a scale from unacceptable to exceptional. Unacceptable suppliers consistently fail to meet the operational and strategic needs of the buying organization. In comparison, exceptional suppliers anticipate operational and strategic needs of the purchaser and are capable of meeting and exceeding them.

Our next topic addressed supplier relations. Strategic supply management is founded on the conviction that a significant competitive advantage can be gained from the suppliers an organization has developed a relationship with.

We next explored partnerships. Partnerships require hard work from both buying and selling organizations to make them effective. The main idea is that each partner might enhance its own competitive position through the knowledge and resources shared by the other.

Finally, we covered strategic alliances. Strategic alliances represent special arrangements with key suppliers that make a strategic difference to both buyer and seller and seek sustainable competitive advantage. They are often technology based.

This completes this lesson.