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Welcome to Measuring Purchasing Performance
What do we want from
- ur Suppliers? We want
THE PROGRAMME: WEEK 9 Reminder: 2 WEEKS STUDY & REVISION - - PowerPoint PPT Presentation
THE PROGRAMME: WEEK 9 Reminder: 2 WEEKS STUDY & REVISION - - PowerPoint PPT Presentation
Measuring Purchasing Performance THE PROGRAMME: WEEK 9 Reminder: 2 WEEKS STUDY & REVISION OVERVIEW CHAPTER INTROS AND SUMMARIES Effective Negotiation Welcome to Measuring Purchasing Performance What do we want from our Suppliers? We
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Welcome to Measuring Purchasing Performance
To reduce the risk of non- supply buying departments carry out research and performance measurement
- f both new and existing
suppliers
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Welcome to Measuring Purchasing Performance
There are a number of performance tools and techniques that measure performance
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Welcome to Measuring Purchasing Performance
Tools such as
Ratios (Pareto), Supplier Segmentation/Tiering Benchmarking, Vendor Rating Balanced Scorecard Standards (ISOs) Matrices PQQs
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Over last few weeks we have reviewed:
Common Financial Ratios & Exam Practice
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FINANCIAL RATIOS Key Learning:
- 1. What do we want to
measure?
- 2. What Formula should
we use?
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FINANCIAL RATIOS What do we want to know? Example: We want to know if the supplier can meet their
- bills. Is the cash flowing in
more than the cash flowing
- ut?
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Measuring Purchasing Performance
What financial ratio will tell us this? The Current Ratio
CURRENT ASSETS CURRENT RATIO = ___________________ (1:1) CURRENT LIABILITIES
NB: Includes Stock. Alternative is ACID Ratio which does not include stock. Stock being an asset which if sold to pay off debt would mean nothing left to sell to bring in cash.
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LAST WEEK Vendor Rating (1)
- Segregating Suppliers
- Different Relationship
styles & KPIs for different quadrants
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Using a 2x2 box matrix suppliers place buyers into one of the 4
- quadrants. This tool is
known as: Supplier Preferencing Model
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Not all Buyers are treated the same
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Supplier Preferencing
a C A t High High Low High Relative Value of Account £ Attractiveness of Account
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nuisance develop exploitable core
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Using a 2x2 box matrix buyers place suppliers into one of the 4
- quadrants. This tool is
known as: The Kraljic Matrix, it has many variations
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We can use Kraljic matrix to segregate our suppliers. Not all suppliers are treated the same
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Segregating Suppliers
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By segregating our suppliers we can decide what relationship style should be adopted for each quadrant
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By segregating our suppliers we can choose the right objectives & KPIs for each of the 4 different groups of suppliers
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Time Management-Suppliers
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How should the buying department divide up its time between suppliers in the four different quadrants
?
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The "critical" suppliers in the top right quadrant (strategic) are the
- nes on which purchasing should
spend most time, e.g. 70%.
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are likely to be no more than 10% of your total suppliers. These suppliers will account for a significant proportion of your purchasing spend (could be > 80%). They will also have most affect on your business Measuring Purchasing Performance
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Therefore 70% of buying department‟s time should be spent with just 10% of its suppliers which are (strategic).
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split suppliers into 'tiers' as follows: A or First Tier: Preferred strategic suppliers capable of managing lower tiers. B or Second Tier: Daily managed by and supplier of components to the first tier. Prudent to be approved and chosen by your purchasing organisation
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split suppliers into 'tiers' as follows: C or Third Tier (tiertiary): suppliers receive subcontracted work from the first/second tier and/or providing simple low-value products and services direct to your
- rganisation.
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The supplier segmentation and supplier tiering support: Planning a supplier rationalisation programme Ensure right number of suppliers in each of the 4 quadrants Prevents deletion of possible critical suppliers Measuring Purchasing Performance
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Supplier Performance Measurement Tools Three categories
- 1. Systems & Info
- 2. Measurement
- 3. Management
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- Supplier Performance: PROCESS
- Tool Box – When to use
I) Organisation viability II) Prior to Contract III) Post Contract
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Supplier Performance
Tools - When to Use
I) TO PROVIDE THE BEST OPPORTUNITY FOR ORGANISATION SUSTAINABLE BUSINESS
II) TO GAIN MARKET KNOWLEDGE AND SOURCE NEW SUPPLIERS III) TO MANAGE GOODS OR SERVICES OVER LIFE OF SUPPLIER RELATIONSHIP/ CONTRACT/FRAMEWORK, ETC.).
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Welcome to Measuring Purchasing Performance
There are a number of performance tools and techniques that measure supplier performance
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Performance Measurement Tools For example:
- Balanced Scorecard
- Vendor Rating
- Benchmarking
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Performance Measurement Tools
- Balanced Scorecard
Looks at both the Business Strategy for financial sustainability plus its Vision to satisfy customers, shareholders & stakeholders
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Kaplan & Norton – Balanced Scorecard
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Organisation Vision & Strategy Balanced scorecard - Financial Measuring Purchasing Performance
To succeed financially, how should we appear to our shareholders?
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Organisation Vision & Strategy Balanced scorecard - Financial Measuring Purchasing Performance
In isolation could result in shareholder needs dominating to detriment
- f quality, whole-life
costing and customer/ stakeholder satisfaction,
Balance is addressed by including qualitative as well as quantitative measures
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Organisation Vision & Strategy
Balanced scorecard – Internal Business Processes
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To satisfy our shareholders and customers, what business processes must we excel at?
Balancing shareholder and customer needs
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Organisation Vision & Strategy
Balanced scorecard – Learning and Growth
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To achieve our vision, how will we sustain
- ur ability to change
and improve?
Balance shareholder, customer and organisation needs
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Organisation Vision & Strategy
Balanced scorecard - Customer
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To achieve our vision, how should we appear to our customers?
Balance shareholder, customer and organisation needs from the customer‟s perspective
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Performance Measurement Tools
- Balanced Scorecard
Can support an organisation to choose the right supplier performance measures that will align their business vision and strategy
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Performance Measurement Tools
- Vendor Rating
Ensuring the supplier is delivering against SLAs & KPIs
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Performance Measurement Tools
- Vendor Rating
Developing the vendors to reduce cost, to improve performance and to affect growth by diversification and expansion. Measuring Purchasing Performance
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Performance Measurement Tools
- Vendor Rating
Buyers can measure using simple checks to complex computerised assessment systems.
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Performance Measurement Tools
- Vendor Rating
Measurement style will be based on what quandrant the supplier sits within the Kraljic matrix.
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Performance Measurement Tools
- Vendor Rating
5 Common Checks?
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Performance Measurement Tools
- Vendor Rating: Review
- 1. Quality _ right 1st time deliveries
- 2. Delivery _ to schedule
- 3. Cost/Price
- 4. Capability – Know-how
- 5. Service – Key personnel
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Performance Measurement Tools
- Vendor Rating
Simplist checks could be just noting poor performance and providing the supplier with feedback and plan improvement if necessary.
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Performance Measurement Tools
- Vendor Rating
Simple checks might be based on performance of 5 Rights and whether Good, Satisfactory, or Unsatisfactory
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Performance Measurement Tools
- Vendor Rating
More complex checks for more strategic suppliers might be based on performance of 10 Cs and Weighted on importance
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Performance Measurement Tools
- Vendor Rating
What is Weighting?
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Performance Measurement Tools
Weighting of Scores Definition
Weighting is a process whereby a higher score can be achieved on areas of delivery that are most important (some times critical to the business) for example Quality, Time or Cost Measuring Purchasing Performance
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Performance Measurement Tools
Weighting of Scores Definition
The scores a supplier is awarded for main criteria which can be weighted differently to reflect differences in the significance of the criteria Measuring Purchasing Performance
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Performance Measurement Tools
Weighting Example Suppose a vendor receives 80 points for the criterion “Price” and 80 points for the criterion “Service”. Say the price of the material is more important to you than the service the vendor provides.
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Performance Measurement Tools
Weighting Example
You assign the criterion “Price” a weighting factor
- f 3 and the criterion “Service” a factor of 1.
The 80 points for Price are then worth three times more than the 80 points for Service when the
- verall score is calculated.
For example: max score for Service @ 80x1 = 80 whilst max score for Price @ 80x3 = 240
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Performance Measurement Tools
Weighting Example Compare Supplier „A‟ and Supplier „B‟ Weighting: Service 1 & Price 3 Supplier „A‟ scores Total of: 250 (70+180) 70/80 on Service = 70 + 60/80 on Price = 180 Supplier „B‟ scores Total of: 260 (50+210) 50/80 on Service = 50 + 70/80 on Price = 210
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Performance Measurement Tools
- Vendor Rating
Is an easy to use tool which can both evaluate a single supplier‟s performance against agreed deliverables and/or be used as a Supplier Comparison Chart. As such VR is a useful tool for purchasing, supply chain, and quality management professionals.
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Performance Measurement Tools
- Vendor Rating
When used as a Supplier Comparison Chart this tool: Ranks and visually compares suppliers on critical quality features. Uses common quality drivers or your
- wn business specific drivers.
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Performance Measurement Tools
- Vendor Rating: Benefits
- Acts as an early warning system against
risk of supply
- Facilitates better communication with
suppliers
- Provides an element of control
- Develops performance based culture
- Establishes continuous review
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Performance Measurement Tools
- Vendor Rating: Limitations
- Past experience is not an indication
- f future performance
- Needs resources to manage and
review effectively (buyer & supplier)
- Can be subjective
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Performance Measurement Tools
- Benchmarking
Is a tool that can be used to compare internal departments/sites, sectors, market, competitors, commodities, suppliers, etc., with the objective of selecting from the best and sharing with the rest to improve your supply chain (to Q-T-C).
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Performance Measurement Tools
- Benchmarking
Is a useful tool to compare your organisation results against your competitors, plus it can also look beyond your sector (e.g. Public, private, charity/non- profit). The objective is to learn from the best and understand how issues are handled by competitors and other
- sectors. It provides the knowledge to then
Set aspiration goals Develop a brand reputation for service To achieve continuous improvement
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Performance Measurement Tools
- Benchmarking
Is useful for comparing your suppliers and then using best practice found as the means to improve those who‟s performance is unsatisfactory
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Performance Measurement Tools
- Benchmarking
Comparing suppliers Operational: 5 Rights Strategic: 10 Cs
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Performance Measurement Tools
- Benchmarking Example
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Exam practice Check past MPP exam papers for examples of questions that relate to the tools covered in this session. Plan_Answer_Review
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Exam practice Plan_Answer_Review
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32 32 28
Series 1
01/05/2002 01/06/2002 01/07/2002
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We have now covered Part II of the syllabus: Measuring the Performance of the supplier: Weighting 30% Supplier Appraisal (choosing the right supplier to do business with) Supplier/Vendor Rating (the right performance measurement under Contract, SLAs & KPIs) Measuring Purchasing Performance
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Week 10 to cover Part III of the syllabus: Measuring the Performance of the buyer: Weighting 30% Pages 135-159
Benefits of measuring individual performance Improvement Techniques Purchasing role within Organisation
- bjectives