Supplier management
Improve the relationship with your supplier - and improve your operational results!
Most suppliers, producers and resellers expect their ordered product to be
- Favorable price
- Short delivery time
- In saleable and usable condition
- Little effort for resale
How do you measure your supplier's performance to ensure these expectations are met? Many companies evaluate their suppliers based on a gut feeling and previous experience with them. Some companies have objective measurement criteria. The following describes approaches to how suppliers help you achieve your inventory management goals and which of these methods achieve the best results.
Delivery readiness level for customers
The degree of delivery readiness for customers is measured by the number of items that were or could have been delivered before the agreed date. Example: Your customer orders 10 units of a product and you deliver 10 units of this product on or before the agreed delivery date. This gives you a "credit note" for your delivery readiness level. If you deliver less than 10 pieces on or before the agreed delivery date, this is considered a failure of the delivery readiness level. The degree of readiness for delivery for customers can therefore be seen as the degree of fulfillment of the number of ordered to delivered items that were delivered on or before the delivery date. Couldn't your suppliers be measured in the same way, since you are your supplier's customer?
The days late
The delivery readiness level is a "pass - fail" test. If the supplier delivers all ordered items at the agreed time, he receives so-called credit points. If he delivers incompletely (qualitatively or quantitatively) and/or late, he does not receive any credit points. However, up to this point, the delivery readiness level evaluates a delivery that is two days late and one that is two months late as the same. Both are only seen as errors. But aren't you more concerned about deliveries that are delayed? Isn't a delivery that is two weeks late a bigger problem than a delivery that is two days late? To better evaluate your suppliers, a more comprehensive measurement method is needed. The average number of late deliveries can be calculated as follows:
Number of days of late deliveries in a period / (divided) by number of deliveries received in a period
The number of days of late deliveries is the time between the originally agreed delivery date and the receipt of all items or until the order is canceled. For measuring supplier performance, the number of days late is a better method than the delivery readiness level because it quantifies the inconsistency of the supplier. It is important to qualify this inconsistency of delivery days for each individual supplier.
In order to provide the best possible customer service, you must have a correspondingly high stock of items in stock as security to compensate for the inconsistency of delivery times. This additional buffer of safety stock will in turn increase inventory and therefore operating costs, resulting in lower profitability for your business.
Satisfaction analysis of suppliers
In addition to the fact that the items ordered must be delivered on time and in full, they must also be in a resalable condition. The third evaluation criterion is therefore the satisfaction analysis. This criterion is made up of the number of ordered items that could not be resold or are unsuitable for production processes at the agreed time. This analysis classifies each problem article as:
- Supplier
- Item
- Problem that prevents further use
Typical problems are:
- The item was not delivered at the agreed time.
- The product that was delivered is not the product that was ordered.
- The wrong quantity of the item was delivered.
- Necessary descriptions or documentation were not supplied.
- The item was received in a damaged condition.
- An incorrect price was charged.
- The package inserts or invoices are incomplete or incorrect.
You should evaluate the performance of your supplier (at least the key suppliers) at regular periodic intervals by measuring the following criteria:
- Degree of fulfillment of items delivered in time,
- Percentage of products that caused any problem,
- The number of incidents of each problem per item over the last year.
Then determine whether the problems
- Had a negative effect on service to your customers,
- you were forced to stock more items as a result,
- your operating costs have increased.
Discuss the outcome with your supplier. Can you help them solve these problems in the future?
- Collaborative planning - Can you provide your supplier with better information about your future orders? Your supplier may be able to serve you better if they know what you plan to order in the coming months.
- Claim damaged material - Suppliers can use this information to improve packaging or optimize shipping processes to avoid damage in the future.
- Incomplete or missing paperwork - The supplier may not be aware that incomplete or missing paperwork makes it impossible for you to process or sell the products.
The best way to improve your operational processes is to reduce operational costs and optimize customer service by actively addressing their complaints and integrating them directly into your operational processes. Satisfaction analysis of your suppliers is a good way to realize your improvement process towards your customers.