Supplier Performance “How to Measure It, Communicate It and Improve it ” September 13 th, 2011

Page 2 8/16/2015 “Great Suppliers are managed not found.” - Debra Powell-Schaeffer 1996

Page 3 8/16/2015 Meet Dan Dan is a Sr. Buyer. Recently his department, ACME, experienced a change in management. A new Director has come on board and one of her first questions was related to Supplier Performance. In a nutshell, she wanted to know what ACME was doing to measure it, communicate it and improve it. Some recent high profile, missed deliveries have only added fuel to an already hot fire. Dan’s Boss assigns him the task of creating an effective Supplier Performance Plan. Dan decides that the first thing to do is to create a Supplier Scorecard. After all he thinks to himself…I can’t fix a problem until I know how bad it is… What would be the primary metrics that Dan should report on his Supplier Scorecard?

Page 4 8/16/2015 Creating a Supplier Scorecard Here are the Key Metrics which Dan used: I. Quality Performance (35% of total score) Supplier Quality on a PPM Basis Certified Ship to Stock % (of all parts supplied by Supplier) II. Delivery (25% of total score) On Time Delivery Performance per Measurement Period III. Pricing (10% of total score) IV. Cost Reductions (10% of total score) V. Service (20% of total score) Communication Capabilities Reliability (honors commitments) Inside Sales Support Outside Sales Support Engineering Support Quality Support VI. Continuous Improvement (additional points possible) Certifications Measurable Improvement over previous Scorecard Participation in Six Sigma or LEAN Events

Page 5 8/16/2015 Dan’s Scorecard Dan creates his scorecard and begins reviewing supplier performance data to fill out his first scorecard.

Page 6 8/16/2015 Dan’s First Scorecard Dan first scorecard goes out to Abby Works. Abby Works is a long-time supplier with some recent quality issues that affected their quality score this quarter. A final score of 73 is not very good…

Page 7 8/16/2015 What’s Next After reviewing scorecards, with his boss, Dan realized that ACME really has some significant supplier performance issues. In fact, almost none of ACME’s top suppliers scored above an 85. ON-Time Delivery and Quality Scores were simply not high enough for the majority of their suppliers. Clearly ACME’s expectations for performance were not being adequately communicated… What should Dan do?

Page 8 8/16/2015 Communicating Supplier Performance Dan decides to call one of his ISM colleagues to see what he should do to effectively communicate Supplier Performance. His friend recommends that Dan that establish a routine schedule for providing scorecards to the participating Suppliers and following that up with quarterly face to face reviews.

Page 9 8/16/2015 Dan’s Plan Dan decides that he needs to establish a routine Supplier Performance Process in order to ensure that his Suppliers are actively engaged in meeting ACME’s expectations for Supplier Performance. ACME Supplier Performance Process Purchasing will provide Supplier On-Time Delivery Data at the end of each month. Quality will provide PPM data at the end of each month. This data would be summed each quarter and provided to the respective suppliers in a Quarterly Scorecard, which Purchasing will submit. Individual Buyers will also be responsible for managing the subjective elements of the scorecard for their specific Suppliers. Any Supplier with a score below 85 would be required to attend a face to face meeting at ACME to create an improvement plan to improve the scores in whichever area was deficient. And this improvement or lack thereof would be documented in the Supplier’s next Quarterly Scorecard. What else might Dan consider?

Page 10 8/16/2015 Improving Performance What actions should Dan consider? At this point, Dan has effectively measured and communicated ACME’s critical Supplier Performance Metrics…but a quick check of his shows some critical missed deliveries and ongoing quality problems. Simply documenting and communicating requirements was not necessarily go to ensure compliance…frustrated Dan wondered what tools or actions he could take that would ensure Supplier’s were meeting the required performance metrics.

Page 11 8/16/2015 Some Tools for Success… ● Dan decided that he needed some key tools to utilize in order to foster continued Supplier Performance Improvement.  1. Working together with ACME’s other departments, Dan creates a Supplier Partnership Manual which clearly documents all the required performance activities and metrics for servicing ACME.  2. Dan creates a Supplier Continuous Improvement Progress (CIMP) form, which is provided quarterly to suppliers in addition to their Scorecard. This CIMP records all deficient performance metrics and documents on a quarterly basis the Supplier’s actions to improve, correct or eliminate the root cause of their deficiencies. It is a living document that is referred to throughout the year and at all face to face meetings to ensure Supplier Performance Improvement.  3. Value Analysis Study – Dan decides to conduct and utilize Value Analysis Studies of key components purchased from his key Suppliers to determine areas for cost, quality and performance improvements with ideas generated by these same Suppliers.

Page 12 8/16/2015 Supplier Partnership Manual ACME’s Supplier Partnership Manual contains the following: Quality Requirements Delivery Performance Requirements An Explanation and Example of the Supplier Scorecard Process Cost Reduction Expectations Process Improvement Expectations Communication Requirements Accounting Requirements Credit Application Information Billing and Shipping Addresses for all Locations Key Contact Information for all Locations Shipping and Packaging Requirements Transportation Routing Instructions/Bulletins Intellectual Property Protection/Non-Disclosure Agreement Requirements

Page 13 8/16/2015 Supplier Continuous Improvement Progress (CIMP) page 1

Page 14 8/16/2015 Supplier Continuous Improvement Progress (CIMP) page 2

Value Analysis Study Page 15 8/16/2015

Page 16 8/16/2015 What did Dan learn? Over the course of the next year, Dan was able to accurately measure Supplier Performance and communicate it to his respective Suppliers. Managing improved performance proved to be more difficult, but he discovered that maintaining a continuous improvement process with each Supplier generated huge benefits in terms of improved Supplier Performance, much to the satisfaction of Dan’s Boss and to Dan’s relief…