Supplier
Performance Measurement (SPM)
By measuring
supplier performance, an organization can understand their strengths and
weaknesses outside of the organization. A supplier’s performance affects the organization
directly, therefore costing time and money in getting the product to the end
customer.
The more
suppliers that are measured and rated, the more accurate the organization is in
creating profitability projections. Many organizations only measure their key
suppliers, providing scores for a limited range of their entire vendor base.
Even a small item such as a screw or washer can hold up production if it is not
delivered on time. For this reason it is good to have a system that is easy to
use and can be used across the entire supplier base if desired.
Nonconformance
reports can locate problems, especially if they are repeating problems.
Measuring the elements that are important to the organization as outlined in
the last section provides a score that all suppliers are measured to. By
measuring supplier performance, an organization can make accurate sales
predictions and create more reliable contracts. Areas where multiple suppliers
are needed can be defined.
Statistical
models can be used to include or eliminate suppliers based on their importance
to the organization. Spearman’s r allows the organization to list elements in
order of importance to the organization. The supplier team then reviews
suppliers and ranks the same elements for each organization. Spearman’s r will
compare and rate each supplier as to their compatibility with the
organization’s needs.
Spearman’s r can
also be used as evidence for sole source providers on projects, such as those
where it is required for high cost items that are not easily produced by less
experienced suppliers. Below is an example of a Spearman’s r ranking performed on
a supplier against organizational requirements.
Altman’s z is a
measure of solvency. Altmans z can be used when choosing suppliers for contract
work, especially that which may last
over longer periods. Altman’s z ratings will predict whether or not a
supplier is likely to remain in business.
Many other
statistical models can be employed that are useful in SPM. When written into
the supplier performance measurement system statistical outputs are products of
the inputs and need not be fussed over.
When a system is
developed that allows the supplier rating team to modify percentages of the
elements based on importance to the organization, more reliable scores are generated dependent upon the item
being ordered. The end data provide information that allows the organization to
reduce spending and increase profitability.
