Supplier relationship management key metrics

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supplier relationship management key metrics

“Supplier Relationship Management is a key priority for 97% of are based upon the key performance indicators your procurement team. Section. Page. Introduction. 4. Segmentation. 6. Governance. SRM Process and Procedures. Supplier Performance Management and KPIs. Appendix. KPIs: Measuring Indirect Material Suppliers and Service Providers. Karen M. Fedele on your organization's industry and the type of supplier relationship.

If you have a large number of suppliers that do not have the capability to send you an ASN, how much is it costing you to work with them and are there any alternative solutions? Another area to examine could be receiving. Do you require delivery appointment scheduling? If so, how many suppliers or transportation companies are complying with your requirements?

What do you do if they do not comply, and what is the overall cost to your operation? You might have bar coding requirements. If so, is there a particular placement on the carton that is required? Do you require pallet identification? Use your completed detailed process flow and questions as a baseline for developing a specific list of performance metrics that you can deploy both internally and externally and then follow the guidelines below to validate the feasibility and necessity of each item.

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.

supplier relationship management key metrics

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. 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.

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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.

supplier relationship management key metrics

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. It focuses on the order and does not include the creation and delivery of the product or material itself.

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On our illustration aside, we see that the cycle decreased to 3,9 days at its minimal in Marchbefore increasing up to 6,3 days in June.

The suppliers are divided into three categories classifying their purchase cycle time: This is a factor to take into account when purchasing: Performance Indicators Reducing your cycle time can improve the turnaround of other key activities, and improve staff productivity and the overall cost of the procurement function.

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In an era of fast-changing consumer habits, where the lines between different channels are blurred, and where mobile-commerce, online purchases, in-store consumer-specific marketing all merge in one retail experience, it is important to manage suppliers as efficiently as possible to guarantee availability of stocks. It measures the percentage of products received from suppliers that do not meet the compliance specifications and quality requirements.

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The Supplier Defect Rate is more critical in some industries that have high-risks and multi-tiered supplier bases like the aerospace and defense or the automotive. On our example aside, it is obvious that the first supplier is more reliable than any of the five others: Performance Indicators Measure and track the different defect rates amongst your suppliers and identify the ones that are performing best and that are the most reliable.

Relevant Showcase Dashboard see rich examples of interactive real-time kpis in datapine view our live procurement dashboard Lead Time Measure the total time to fulfill an order Our next procurement KPI measures the interval of time between the initiation of a procurement action, and the receipt of the production model into the supply system, purchased as a result of such action. In other words, it is the latency between the initiation and the execution of a process.

supplier relationship management key metrics

It is composed of production lead time and administrative lead time. For instance, the lead time between the placement of an order and the delivery of printed circuit boards from a manufacturer can span from 2 weeks to 3 months, or sometimes more.

Lead time is different from purchase order cycle time as it starts when the request is made till the final delivery and testing, while cycle time ends at the confirmation of the order. Set a target amount of days under which the lead time should stay; if you see that it repeatedly fails it over time, measures should be taken.

supplier relationship management key metrics

Performance Indicators The idea is to reduce lead time as much as you can while keeping a good quality level. In theory, this metric represents the average costs of processing an order, from purchase creation to invoice closure. So, when measuring this metric, it comes down to what you decide to consider: Performance Indicators The idea is to improve the efficiency of the procure-to-pay cycle, so as to prevent errors and reduce costs.