Strategic Purchasing

Rating Supply Chain Performance

Measuring supplier performance has always been a key part of strategic purchasing. Most electronics purchasers regularly issue supplier scorecards that rate suppliers on cost, quality, delivery, responsiveness, and technology—and more are factoring in suppliers’ ability to meet environmental laws and regulations and social responsibility requirements when they evaluate suppliers.

However, many electronics companies also rate their own internal performance on supply chain criteria and how well a supply chain organization’s goals support the company’s business goals and strategies.

Lalit Wadhwa, vice president, global supply chain operations for Avnet Electronics Marketing, recently addressed procurement executives attending the IQPC 2014 Chief Procurement Officer Exchange about how supply chain/procurement scorecards and metrics can be used to align procurement goals with companies’ overall business strategies.

After the meeting, he told me that purchasing leaders say that often there is a “misalignment or lack of perfect alignment between a company’s business strategy and the supply chain strategy or procurement goals and the goals of its supply chain.” The problem is more acute with large global companies that may have numerous locations and multiple divisions than it is with smaller companies.

“The line of site at smaller companies is a bit more clear from the executive leadership to the procurement or supply chain leadership,” Wadhwa said. “With very large companies there may be multiple layers between executive leadership and procurement or supply chain leadership.”

Supply chain/procurement scorecards can help align goals—for big and small companies—if standard metrics are used across the enterprise. Metrics used in procurement scorecards are wide-ranging and can include results from supplier scorecards. However, supplier scorecards are a small part of supply chain/procurement scorecards.

“A traditional supplier scorecard only focuses on a supplier’s tactical performance. It is a much smaller measure of your supply engagement than a procurement scorecard, which measures supplier-facing attributes and internal attributes,” said Wadhwa.

Many companies use metrics based on the supply chain operations reference model (SCOR) model developed by the Supply Chain Council. SCOR measures attributes including supply chain reliability, responsiveness, flexibility, and costs. Metrics used to measure attributes include delivery performance, order fulfillment lead times, supply chain response time, total supply chain management costs, warranty/returns processing costs, and inventory days of supply, among others.

 “All of those things are baked into the procurement scorecard,” he said.

Wadhwa added that a robust procurement scorecard has standardized metrics for attributes such as inventory turns and transportation costs as well as metrics that are specific to the company or industry. Some metrics can be more important than others in terms of supporting a company’s overall business strategy.

For instance, an electronics company may have a business strategy that calls for a high finished goods inventory so that its customers never have to wait to buy the company’s products. An example would be a smart phone OEM. When such a company introduces a new phone, it needs to have enough phones in stock to meet high demand, so it must build a high level of inventory.

“Obviously, if you have that strategy the implication is you will probably end up carrying a lot more inventory than your competitor might,” said Wadhwa. In this case, asset management metrics are less important than the customer service metrics of order fulfillment.

“At the end of the day, there is a tradeoff between working capital, the cost of doing business, and overall responsiveness to customer service. If you try to improve one of those, you will have to give a little bit on the other two attributes,” said Wadhwa.

The order of importance may change depending on how the company’s business changes. In some cases, supply chain/procurement scorecard metrics need to change.

“Metrics is a living model and must be revisited frequently,” said Wadhwa. “When it makes sense, some metrics should be removed and new metrics should be should be added.”

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