Performance Measurement of your Businesses Suppliers

The question of how to manage and measure suppliers can be complex. An effective supplier can positively influence your bottom line whilst a bad supplier can cause manufacturing delays, impact on the customer and ultimately effect revenues. Supplier measurement doesn’t have to be difficult. By basing measurement around three basic principles businesses can begin to analyze their supplier base and begin to identify poorly performing suppliers that negatively impact their business. These measures are Quality, Cost and Delivery.

Quality.

Measuring the quality of a supplier refers to the quality of the goods or services supplied. For example how many rejections of products appear at goods receipt – are their consistent poor quality products received. Is the technical specification of your orders not met? Quality problems may be categorized depending on the nature of the problem, for example is the nature of the problem the goods themselves or accompanying paperwork?

Cost

Do your suppliers constantly increase their prices – are they inline with the volume of goods purchased. Are there any discounts received. How do their costs relate to the marketplace. Monitoring cost can be difficult – for example lots or batches purchased may vary, services may be subtly different. Monitoring costs however, is an important indicator of supplier performance.

Delivery

Do the suppliers always deliver on time – are you always having to hasten delivery? One quick way of measuring suppliers is to review their Delivery Schedule Adherence. Divide the number of on-time deliveries by the total number of deliveries in a period to obtain the Delivery Schedule Adherence percentage. Analyzing this figure across your supply chain will give you an average figure – how do individual suppliers compare – who are the worst suppliers? How can they be improved?

These are three simple ways to measure suppliers. Monitoring these elements over time will enable you to form a basic supplier measurement system that overtime will produce trends. Different organizations may apply different weighting to each measure – no business is the same but these three areas should form the basis for most supplier measurement systems.

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