SUPPLIER
MANAGEMENT AND
DEVELOPMENT
CREATING A WORLD-CLASS SUPPLY BASE
“ H E ME A SURE S OT H E RS WIT H H IS OWN YA RD ” .
Prepared By: M. Imran Taseer
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SYNOPSIS
Supplier Measurement Decisions
Types of Supplier Measurement Techniques
Rationalization and Optimization Creating a
Manageable Supply Base
Formal Approaches to Supply Base
Rationalization
Barriers to Supplier Development
Prepared By: M. Imran Taseer
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SUPPLIER MEASUREMENT DECISIONS
What to Measure?
Quantitative Factors:
1. Delivery performance
 Quantity
 Lead time
 Due-date
2. Quality performance
3. Cost reduction
Prepared By: M. Imran Taseer
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SUPPLIER MEASUREMENT DECISIONS
Problem resolution ability
Technical ability
Ongoing progress reporting
Corrective action response
Supplier cost-reduction ideas
Supplier new-product support
Buyer/seller compatibility
Prepared By: M. Imran Taseer
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T YPES OF SUPPLIER MEASUREMENT
TECHNIQUES
1. Categorical System
2. Weighted-Point System
3. Cost-Based System
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1. CATEGORICAL SYSTEM
 This system requires the assignment of a rating
evaluation for each selected performance category.
 Examples of ratings typically include: excellent,
good, fair and poor.
ADVANTAGES
DISADVANTAGES
USERS
Easy to implement
Least reliable
Smaller firms
Requires minimal data
Less frequent generation of
evaluations
Firms in the process of
developing an evaluation
system
Different personnel
contribute
Most subjective
Good for firms with limited
resources
Usually manual
Low-cost system
Prepared By: M. Imran Taseer
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2. WEIGHTED-POINT SYSTEM
PERFORMANCE CATEGORY
WEIGHT
SCORE
WEIGHTED
SCORE
On time
0.10
4
0.4
Quantity
0.10
3
0.3
Inbound shipment quality
0.25
4
1.0
Quality improvement
0.10
4
.04
Comparison with other suppliers
0.15
2
0.3
Cost-reduction ideas submitted
0.10
3
0.3
Problem resolution ability
0.05
4
0.20
Technical ability
0.05
5
0.25
Corrective action response
0.05
3
0.15
New-product development support
0.05
5
0.25
Delivery
Quality
Cost Competitiveness
Service Factors
Total Rating
Prepared By: M. Imran Taseer
3.55
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3. COST-BASED SYSTEM
 Supplier Performance Index (SPI)
 SPI=(Total Purchases + Nonperformance Costs)/Total
Purchases
Prepared By: M. Imran Taseer
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SUPPLIER PERFORMANCE INDEX
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Prepared By: M. Imran Taseer
SUPPLIER PERFORMANCE COMPARISON
Prepared By: M. Imran Taseer
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RATIONALIZATION AND OPTIMIZATION
CREATING A MANAGEABLE SUPPLY BASE
Advantages of a Rationalized and Optimized
Supply Base:
 Buying from World-Class Suppliers
 Use of Full-Service Suppliers
 Reduction of Supply Base Risk
 Lower Supply Base Administrative Costs
 Lower Total Product Cost
 Ability to Pursue Complex Supply Management
Strategies
Prepared By: M. Imran Taseer
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RATIONALIZATION AND OPTIMIZATION
CREATING A MANAGEABLE SUPPLY BASE
Possible Risks of Maintaining Fewer Suppliers:
 Supplier Dependency
 Absence of Competition
 Supply Disruption
 Overaggressive Supply Reduction
Prepared By: M. Imran Taseer
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FORMAL APPROACHES TO SUPPLY BASE
RATIONALIZATION
1.
2.
3.
4.
Twenty/Eighty Rule
“Improve or Else” Approach
Triage Approach
Competency Staircase Approach
Prepared By: M. Imran Taseer
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1. T WENT Y/EIGHTY RULE
 This approach identifies those 20% of suppliers receiving the
bulk of purchase spend or that minority of suppliers that
cause the most quality problems .
 Organizations often use this approach when they require a
rapid reduction in the number of suppliers.
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2. “IMPROVE OR ELSE” APPROACH
 This approach provides all suppliers, regardless of their
performance history, a chance to remain in the supply base .
 It involves notifying suppliers that they have a specified period
of time in which to meet new performance requirements.
 Improved quality levels and delivery performance to lead time
and cost reductions, or any other key performance indicator.
 Suppliers that fall short of expectations may soon become exsuppliers.
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3. TRIAGE APPROACH
 This approach requires the systematic evaluation of the
performance of individual suppliers and placement into one of
three categories.
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4. COMPETENCY STAIRCASE APPROACH
 This method requires suppliers to successfully navigate a
succession of performance milestones or hurdles in order to
remain in the supply base.
 First, all suppliers must meet a buyer’s basic quality
standards for consideration.
 Suppliers must then pass a series of hurdles analogous to
climbing a staircase.
 Each hurdle brings the supplier one step closer to its ultimate
goal of remaining in the buyer’s supply base.
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BARRIERS TO SUPPLIER DEVELOPMENT
 No Immediate Benefit to Supplier Development Is Evident to
the Buying Organization
 Importance of Purchased Item Does Not Justify Development
Efforts
 Lack of Executive Support within the Buying Organization for
Supplier Development
 Supplier Is Reluctant to Share Information on Costs or
Processes
 Supplier Does Not Trust the Buying Organization
 Organizational Cultures Are Poorly Aligned
 Supplier Lacks Required Information Systems
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