Supplier Performance Management

Process Excellence, specifically in a Lean approach, we often speak about closing the loop between the customer’s order (which in a pull system triggers production) and the management of supplies that are to serve that specific process. Indeed, it is the customer (or the Voice of the Customer – VOC) that sets the parade in motion, and it is the customer whom of course, pays for value-added activities that he/she is willing to pay – that is the notion of value in a Lean environment as we all know.

But what about the upstream side of things? Is it important that suppliers be well managed in any given process? And what is actually considered “value” from a supplier’s perspective? How do we go about measuring supplier performance? This post discusses a few mechanisms that will help the continuous improvement (CI) professional when dealing with supplier’s performance management.

Usual assessment tools include, but are not limited to:

Questionnaires: two types are commonly used. The first one is specifically related to the supplier’s quality management system. Does the supplier operate under a Lean environment? Does the supplier offer a raw material (be it a tangible product or a piece of information) that truly is highly valuable to your specific flow? What about delivery? Is it under a Just in Time (JIT) process? If not, can it be? The second survey is directed to your organization’s overall level of satisfaction with the supplier. Does the supplier work seamlessly with your department? What about issues? Does the supplier offer timely and knowledgeable solutions to the day-to-day problems that may affect your Value Stream Map?

Product Data: your organization may want to ask the supplier to provide specific data about the product per se, statistics on defects (and more importantly, why they occur), root cause analysis, significant changes in the process and so on. Think again about your VSM and how changes in the supplier’s processes can affect your own processes.

Delivery Performance: suppliers’ information on early or late delivery. Especially in a JIT environment, delivery times can greatly affect the flow of your process. Think about Dell and Toyota. These organizations rely heavily on a smooth delivery practice from hundreds of suppliers scattered across various locations.

Corrective Actions: does your supplier, in most cases, act proactively towards issues or are they always treating the fever and not the cause of the fever? How can you track the resolution of issues, and moreover, how can you help the supplier with the resolution of issues that ultimately affect your processes? Does the supplier use data-based methodologies to tackle internal issues?

Product Price and Total Cost: does the supplier use quality management concepts and/or design evaluation tools to always seek a lower cost of production? How is the progress of such practices tracked? How is it reported back to your organization? Cost of Quality is a concept that can help suppliers (and all of us really) to consistently aim for improvements in quality without compromising price.

Supplier performance management should be done once your own processes have been a) controlled, and b) improved. However, one can argue that working on both ends is also wise, if at all doable. Supplier performance management is a topic that has been ignored by many industries, and unfortunately the mentality of “less cost at all costs” is still present. As the aforementioned suggests, supplier performance management is a long term commitment, and it can help both the supplier and the organization to achieve higher levels of efficiency in any given process.

We are a process excellence firm which strives to look at all aspects of the analysis we conduct. Supplier performance management is just another expertise that we can offer to your organization in its pursuit of a successful continuous improvement approach.