copyright © 2009, supply chain education, inc. just the facts please! the quantitative approach to...
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Copyright © 2009, Supply Chain Education, Inc.
Just the Facts Please! The Quantitative Approach to Rating Suppliers
Presented to ISM-Dallas, July 9, 2015
Just the Facts Please! The Quantitative Approach to Rating Suppliers
Presented to ISM-Dallas, July 9, 2015
10
9.5 89
Copyright © 2009, Supply Chain Education, Inc.
How is rating suppliers like
dating and marriage?
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system.
OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability.
OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance.
The Three Key Objectives The Three Key Objectives
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system.
OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability.
OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance.
The Three Key Objectives The Three Key Objectives
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
What is wrong w/the: YOUR OK –
I’M OK approach?
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Not Always Apple Pie
http://www.youtube.com/watch?v=dy-xz0WQWB0
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Was it something I said?
http://www.youtube.com/watch?v=XuBpOkoroKc
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system.
OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability.
OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance.
The Three Key Objectives The Three Key Objectives
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Key Rating ElementsKey Rating Elements
1. Quality
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
What is Quality?
Quality has two components:
• What the item or service must look like or do (i.e.specifications).
• A frequency measure of how often it must conform to the specifications (i.e.parts per million).
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
How to calculate PPM
Assume that in a shipment of 1,000 pieces –25 were defective,
Then 25/1000 = .025 = .025 x 1,000,0000
= 25,000 PPM
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Conditionof Excellence
ConformanceTo
Requirements
Fitn
ess
for
Use
Acceptable
Price
No
Def
ects
Aes
thet
ics Product
Attributes
Copyright © 2009, Supply Chain Education, Inc.
Transcendent
1
2Product
3
Use
r
4
Manufacturing
5 Value
C
ompo
nent
s6
Copyright © 2009, Supply Chain Education, Inc.
Key Rating ElementsKey Rating Elements
1. Quality
2. Delivery
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
The Delivery Delimma:THEY WERE A LEGEND IN
THEIR OWN MIND
http://www.youtube.com/watch?v=5QK82ow3FS4
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Key Rating ElementsKey Rating Elements
1. Quality
2. Delivery
3. Customer Service
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
What is Customer What is Customer Service?Service?
Copyright © 2009, Supply Chain Education, Inc.
ServiceQuality
Dimensions
Tangibles
Assurance
Empathy
Reliability
Responsiveness
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Key Rating ElementsKey Rating Elements
1. Quality
2. Delivery
3. Customer Service
4. Price/Cost
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Assume that you have a supplier thatyou have been doing business with for past 50 years. In this 50 years, they haveNever raised their prices.
Should you still be concerned about theirCOST STRUCTURE?
Assume that you have a supplier thatyou have been doing business with for past 50 years. In this 50 years, they haveNever raised their prices.
Should you still be concerned about theirCOST STRUCTURE?
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives:
X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces
For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you shouldBe concerned about their cost structure:
You are the Supply Manager for Sugar Daddy Candies w/ sales of $5B to all the major candy stores in the world. You are primarily known for your chocolate product lines: including the X, Y, Z exclusives:
X-Cessive - Oprah Winfrey Rich Nougat Y-Watchit - Jerry Springer Nut Cluster Z-Rotalnt - Brittney Spears Imitation Pieces
For the last 50 years, your supplier Roturteethout has never raised their prices. But here is why you shouldBe concerned about their cost structure:
Case Study: From Bitter To Sweet
Copyright © 2009, Supply Chain Education, Inc.
The Underlying Problem
http://www.youtube.com/watch?v=FGfplQ1FUFs
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Key Rating ElementsKey Rating Elements
1. Quality
2. Delivery
3. Customer Service
4. Price/Cost
5. Technology
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Is TECHNOLOGY a solution or a toolor not?
http://www.youtube.com/watch?v=ssYgejIBH_g
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Factors To RateFactors To Rate
Quantitative Qualitative
1. Price/Cost
2. Financial
3. Inventory
4. Delivery
5. Quality
6. Lead Time
1. Capabilities
2. Global Reach
3. Service History
4. Tech Support
5. Mgmt Attitude
6. Best-In-Class
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Rating Method – Categorical
The Steps
1. Determine the evaluation factors2. Assign a grade that reflects the supplier’s performance on each factor3. Determine the overall grade average
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Rating Method – Weighted-Point
The Steps
1. Determine the evaluation factors2. Establish a weight for each factor3. Determine the supplier’s performance on each factor4. Multiply the performance for each factor by the weight and then sum
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Rating Method – Cost-Ratio
The Steps
1. Determine the evaluation factors2. Determine your costs for non-performance in each of these areas3. Calculate the costs actually incurred for each shipment - ratio of cost to shipment
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
Rating Method – Cost-Ratio (cont’d)
The Steps (cont’d)
4. Total the ratios for all factors5. Calculate the adjusted price = PRICE x (1 + OVERALL COST RATIO)6. Use the adjusted price to evaluate suppliers for future business
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
OBJ 1: Discuss the importance of an objective, quantitative (formula based) supplier rating system.
OBJ 2: Discuss and show the application of key rating elements including the three progressive levels of acceptability.
OBJ 3: Discuss and show the application of a ratings committee along with rewards and penalties tied in with performance.
The Three Key Objectives The Three Key Objectives
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
SRC – Supplier Relationship Committee
1. Drive Cost Savings
2. Utilize SOMI
3. Encourage
Innovation
4. Penalize Mediocrity
Just the Facts Please! – The Quantitative Approach to Rating Suppliers
Copyright © 2009, Supply Chain Education, Inc.
INNOVATION: What do you think about:
1. Ford = Fix or repair daily 2. Ford = Found on the road dead 3. Ford = A Preferred Customer
http://info.detnews.com/video/index.cfm?id=1189
Copyright © 2009, Supply Chain Education, Inc.
The Ten-Tale Tale Signs Of A
Poor Supplier 1. C ost Increase Passers Vs. Cost Cutters
2. O rder Terms And Conditions Are Ignored
3. M inimal To Zero Sales Visits
4. P rocurement Is Bypassed In Favor Of Other Departments
5. L ack Of Management Support
6. A n Unresponsive Customer Service Staff
7. C ustomer Treated According To Sales $
8. E mphasis On “Use As Is”
9. N o Innovation
10.T heir QA dept. Is Your QA dept.
Copyright © 2009, Supply Chain Education, Inc.
Questions?
Copyright © 2009, Supply Chain Education, Inc.
Just the Facts Please! – The Quantitative Approach to Rating Suppliers