Supplier relationship management metrics definition

supplier relationship management metrics definition

Supplier. Relationship. Management. Gauteng Branch Meeting SRM Defined .. Information refers to Supplier KPI 's Reports available on. commitment to do more in the area of supplier relationship management. . In our definition, Supplier Relationship results: KPI's determine behaviour!. Analytics · Customer Relationship Management · Forecasting · Global Performance Measurements and Metrics: An Analysis of Supplier Evaluation and control; an equitable and consistent evaluation tool; definition of supplier costs, and administrative costs including management time, maintenance.

Don't know the supplier exists, no reason to use them Don't know they exist, might use them Arm's length price relationship Price relationship, informally cooperate on operating level for efficiencies Price relationship, formally cooperate for longer term efficiencies Total cost relationship Innovation and top-line, revenue-driven relationship Joint venture One invests in the other, gains benefits from having done so One purchases the other, vertical integration SRM is mostly found with relationship numbers 3 through 6.

Supplier Relationship Management Insights

The emphasis is on identifying performance attributes wanted from the supplier and managing those aspects of the relationship. Opportunity sourcing number 7 is the practice of scanning a supply market without a current need to source.

This is a pure-discovery initiative to identify what is out there and determine what might be useful in an innovation or new application. It is common in high-tech industries as well as high-margin consumer product industries. Increasingly, supply professionals that have new product revenue as part of their performance metrics visit trade shows and suppliers without an internal requisition waiting back at their desks.

Each type of relationship requires different management and leadership and yields different benefits. As one moves from the arm's length price relationship toward joint venture, the linkages become closer, more defined, and the benefits are broader and deeper beyond just price. Internal relationships are just as important as external ones.

With SRM these links are common with operations, logistics, accounting and engineering.

supplier relationship management metrics definition

Internal ones can work against a concerted effort with a supplier or it can create a strong consistency of purpose. There are two types of measurements: Targets are those end goals being sought price, cost, quality, specific logistics details, order cycle times, time to market, etc.

Means types of measures are those manageable sub-component activities that add up to accomplishing targets. The main difficulty in the use of the system is its complexity and its requirement that users have a developed cost accounting system.

Although this sounds like an ideal way of dealing with costs, it is difficult to identify the costs of supplier non-performance. Against their subjectivity and drawbacks, the categorical method, the weighted-point method and the cost-ratio method are the most widely used techniques in supplier evaluation due to their ease of use and implementation. Several other models and techniques have been proposed for supplier measurement and evaluation.

However, it is more comprehensive because it considers all the costs associated with quality, delivery and service. These costs include a number of non-value added activities such as service costs, receiving costs, quality costs inspection, rework, reject costsfailure costs, and administrative costs including management time, maintenance, disposition and life-cycle costs.

Lifecycle costs are costs incurred throughout the life of a product or service.

Performance Metrics in Supplier Relationship Management

These costs may include maintenance, downtime, repair, overhead, and idle time. Despite the high percentage of the non-value added costs, firms tend to either underestimate or completely ignore them 7. TCO is a proactive and comprehensive system. But using TCO presents the firm with new challenges.

The method is complex to implement and maintain. Thus, it consumes a great deal of time. Frequency of Assessment Supplier evaluation methods are usually time consuming, so they are not performed frequently. In practice, many firms report supplier performance on a monthly or quarterly basis. Measurable Performance metrics are typically recorded and shared with your suppliers in a quarterly report card.

In order to provide a supplier with a performance report, each performance metric must be measured towards compliance. A scorecard is a great way to keep up with the performance metrics and measurement criteria.

Measuring Procurement's Performance

The scorecard should list each specific task and a grade range that typically runs from one to five, with one being the highest best and five being the lowest worst. After each supplier receipt, the receiving department should use the scorecard to complete a quick scoring exercise.

Using bar codes as an example, if all of the inbound cartons are labeled correctly, then the obvious score for that supplier on that task is a one.

ISM - Supplier Relationship Management Insights

Bear in mind, that without this measurement process on the floor, this issue may have never been reported and could be costing you thousands of dollars in time and materials to reprint and reapply labels. As a result of measurement, you now have a mechanism that will provide management with a real time tool that enables them to validate the savings of this compliance program and will provide them with the data they need to work with your suppliers to improve this process.

Attainable Much like goals, you should not create unreasonable expectations or performance metrics. Be realistic in your objectives and build a program that will provide real value to your organization. For example, if you have thousands of suppliers, then it may not make sense to have a reporting process for each one. Also, you may have some small suppliers who cannot afford to implement a computer or bar coding system, or you may have suppliers that you only receive small quantities from on a seasonal basis and it may not make sense to enforce this process on them.

So, select a manageable number of key strategic suppliers, those that have the most impact on your operation, and work from there. Relevant The relevance of this exercise is simple.

supplier relationship management metrics definition

Will the results provide you with recognizable value?