3. MANAGING SUPPLIER
PERFORMANCE
S U P P LY S C O R E C A R D S , I N T H E C O N T E X T O F O P E R AT I O N A L
E X C E L L E N C E
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4. CONTENTS
• Defining operational excellence
• In order to put scorecards in context
• Setting expectations
• Scorecard samples
• The typical components of a scorecard
• The value of scorecards
• What they are good at
• And not so good at
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5. OPERATIONAL EXCELLENCE – TWO KEYS
5
24 month Demand,
Supply, & Inventory
plans
Management
Business Review
Demand
Review
Supply
Review
Product
Review
Finance IR
Review
Start
(Begin Month)
MRP
• Executive led
• One plan aligned
with financials
Doing the Routine Routinely
Sales & Operations Planning
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Modern operational excellence is 75% lean and 25% S&OP in terms
of effort/focus, but S&OP comes first because it sets the direction
6. VALUE OF OPERATIONAL EXCELLENCE
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Company A has core competency in
operational excellence and significantly
outperforms:
• Dow Jones
• B - investing company
• C - operations and marketing
• D - investing
• E – innovation and marketing
Company F prior to attempted
acquisition by Company A,
underperforming to Dow Jones
F tracking to A since
Operational
excellence
can create
as much
value as
innovation,
and more
steadily.
A B D EC
F F A
7. GRAPHICAL REPRESENTATION
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• Requires tight integration in people,
processes, and systems
• Kanban/Pull and S&OP across the supply
chain requires a lot of information sharing
• The scorecards measure the historical
performance of each supply node
8. SETTING EXPECTATIONS
• Start the process by being clear about expectations with
the supplier:
• Zero quality issues
• Does the supplier have the capabilities?
• 100% on-time delivery
• Does the supplier have capacity?
• Competitive pricing
• Domestic, internal?
• Technology you can grow with?
• Inventory levels? A pull system
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Where do you stand
today vs. these
expectations?
How much
performance and
savings can be
accomplished by
meeting them?
9. SAMPLE SCORECARD
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• Targeted at “key” suppliers
• 80/20 rule in spend
• Critical functions
• Must include:
• Description/manual
• The raw data
10. THE COMPONENTS - DELIVERY
• Need three dates (at the line level):
• Promised – the date delivery is measured against
• Expected – when delivery is currently expected (for MRP)
• Actual – final date when line was received complete
• Measure to:
• X (e.g. 7) days early
• Y (e.g. 1) day late
• Outside of ranges (e.g. +/- 10%)
• Formula: # of on-time lines / lines expected
• Can have a cut-off (e.g. <95%=0, 96%=20/100)
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11. THE COMPONENTS - QUALITY
• More variability in both numerator and denominator,
including:
• # of shipments accepted/# of shipments received
• # of lots accepted/# of lots received – 0.05* late SCARs
• # of supplier NCMRs/# of lots received
• # of supplier CARs/# of lots received
• Often weighted more than delivery (40% vs 30%)
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12. THE COMPONENTS - QUALITATIVE
• Ask any communities that interact with the supplier to rank between 1-10
• Quality
• Engineering
• Purchasing
• The key is to detail what the supplier can do better if they did not get a 10
• Can provide prompts such as: how quickly do they respond to
communications
• Average across the communities and provide the detail
• Typically great enthusiasm at the beginning, but tails off
• Can be better to measure quarterly rather than monthly
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13. THE COMPONENTS - OTHER
• Cost reductions are typically handled outside scorecards
• Quarterly reviews
• Contracts
• Spend
• Always important to be aware of the dollars
• In the summary, information on their role in the supply
chain, e.g.:
• What parts they support, and for which customers
• Service vs. raw material
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14. SAMPLE SCORECARD SUMMARY
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• Gives great
view across the
supply chain
• Goal is
continuous
improvement in
the process and
the aggregated
score
15. OTHER CONSIDERATIONS
• Better to report monthly rather than quarterly
• Both sides forget what happened two months ago
• Critical that you are looking for agreement on dates and
quality issues – give the benefit of the doubt
• Result includes alignment on and better management of
dates and quality issues
• Roadblocks include:
• Not receiving the day the parts arrive
• Takes resources to manage
• Large number of suppliers – format needs to be simplified
• What supplier gets: more business
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16. VALUE OF SCORECARDS
• What they are good at
• Improving the integration and information
• Driving continuous improvement across the whole supply chain in
delivery, quality, and customer service
• What they are not so good at
• Changing suppliers quickly
• Can include language such as additional observation for poor-
performers
• Sometimes you can’t change them
• But the process is just as valuable
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