best practices - supplier scorecard

7/27/2019 Best Practices - Supplier Scorecard

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2010 KPIT Cummins Infosystems Limited

Best Practices within

Oracle Application

Module/s

Oracle Purchasing

AuthorVanaja Ragunathan

Consultant Oracle Apps

Reviewed ByDheeraj Sharma

Senior Consultant Oracle Apps

Creation Date:08-June-2010

Version: 1.0

KPIT Cummins Info systems LimitedPlot No. 35/36, Rajiv Gandhi InfoTech Park,

Phase I, MIDC, Hinjwadi, PUNE-411057, India

Tel: +91 20 6652 5000, Fax: +91 20 6652 5001

www.kpitcummins.com

Supplier Scorecard


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Supplier appraisal is one activity which supply chain teams

undertake that can have real bottom line fiscal impact.

Get it wrong or have none at all and the business can find

itself aligned with improper suppliers, ineffective goods andimpractical delivery schedules.

Get it right and the organization can be positioned with

suppliers who are focused and tuned alongside the needs of

the business.

Business Challenges

Abstract of the Best Practice

An effective supplier scorecard should :

Communicate all pertinent information related to the

organization's key performance measures.

Concise, accessible, and understandable to

managers and leaders in both the supplier and

customer organizations.


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Implementing Best Practice (Contd..)

Method ReferenceQuantitative/QualitativeParameters

Advantages Disadvantages

Cost Ratio Timmerman(1986)

-Quality-Delivery-Service-Price

The evaluationprocess is clearand systematicInexpensive

-Requires a

minimumPerformancedata

-Attributes areWeighted equally

-Subjective

-Imprecise

Categorical Timmerman(1986)


Subjectivity isreduced

-Flexibility

Complexity andrequirement for adeveloped costaccounting system

-Performance Measures(cost ratios) areartificially expressed inthe same Units

NeuralNetworks

Wei(1997) -Performance-Quality-Geography-Price

-Saves a lot oftime and moneyof the systemdevelopment

Lack of experts andRequires a software

PrincipalComponentAnalysis

Petroni&Braglia(2000)

-Quality-Delivery-Price-Reliability

Considerssimultaneouslymultiple inputsand outputs

without priorassignment ofweights

-Knowledge ofadvanced statisticalmethod is required


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Method ReferenceQuantitative/QualitativeParameters

Advantages Disadvantages

TotalCost ofOwnership

Ellram(1995)

Price-Quality Costs-UnreliableDelivery Costs-Transport Cost

-Ordering Cost-Reception Cost-Inspection Cost

SubstantialCost savings

-Allows variouspurchasing

policies to becompared withone another

Complex

AnalyticHierarchyProcess(AHP)

Nydick &Hill (1992)


-Simplicity-Captures bothqualitative andquantitativecriteria

-Inconsistency on themethod

Weighted

Point

Timmerman

(1986)

-Quality

-Delivery-Service

-Price

-Attributes

weighted byImportance

Subjective

-Difficult to

effectively considerqualitative criteria

One of the simple yet effective method called the weighted point method has

been described in detail, which considers attributes that are weighted by the

buyer.

The weight for each attribute is then multiplied by the performance score that

is assigned.

Finally, these products are totaled to determine a final rating for each

supplier

This method is designed to utilize quantitative measurements and minimize

subjective factors in evaluation


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Functional flowchart

Identify key supplier evaluation categories.

Decide which performance Metrics to includeGenerally the Most obvious and most critical areas that affect the buyer

Weight each evaluation category

The performance categories are weighed to reflect their relative importance.

The total of all the weights must be equal to 100.

Define scoring system for categories and subcategories

A quantitative scale of measurement is defined in the scoring system

In a 5-point scale, 1=poor, 2=weak, 3= marginal, 4=good, 5=outstanding

Evaluate supplierScores of different suppliers are compared and selected one

over the another based on the evaluation score.

Review evaluation results and make selection decision

The primary output from this step is recommendation aboutwhether to accept a supplier for a business.

Identify and weight subcategories

Performance subcategories are decided within each broader category.

The sum of weight of subcategories must equal to the main category weight

Review the evaluation periodicallyThe emphasis shifts from the initial evaluation and selection of suppliers

to evidence of continuous improvement by suppliers.


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Performance Metrics:

QualityNumber of acceptable lots from vendor

divided by total number of lots from vendor

Cost

A subjective evaluation of the factors

deciding the performance of suppliers

on the price perspective

Delivery

Number of on time deliveries from

vendor divided by total number of

deliveries by vendor.

ServiceA subjective evaluation of the

variety of services offered by each vendor.

SupportA subjective evaluation of the advice

and assistance provided by each vendor.


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Delivery:This information can be collected from promise date and actual

receipt information.

Implementing Best Practice (Contd..)Quality :

It is measured using the DPPM (Defective Parts Per Million)

method. This information can be collected using Inspection

Quality Plan.

Score PPM

3 500 PPM

Total no. of items received on time

Total no. of items received

X 100

Score %

3 >99%

2 97-99%

1


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Implementing Best Practice (Contd..)Cost:

The following sub factors are considered for weighing a

supplier on this performance metric.

Cost Reduction Efforts

Performance during Delivery Process

Competitive Price

Quote analysis can help in identifying the competitiveness

The sub factors are given a score as below:

1-Not Good, 2-Poor, 3-Good, 4-Very Good, 5-Excellent

The Total weight for a category is the sum of scores of the sub factors.

Service:



Communication

Responsiveness

Immediate Corrective Action


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Supplier Code of Conduct:



Statutory Compliance

Equality in Treatment

Integrity

Protection of Environment

Fatality & Safety initiativesConfidentiality

Comply with the Cummins Supplier Code

The sub factors are given a score as below:

1-Poor, 2-Good

The Total weight for a category is the sum of scores of the sub factors.


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Example of Weighted point method:

Assume that there are five performance metrics that are being

used to evaluate suppliers, quality, cost, delivery, service and

supplier code of conduct.

These attributes are weighted with their corresponding values on

a 1 (least preferred) to 5(most preferred) scale.

Further, assume that proposals from four suppliers are being

considered (S1, S2, S3 and S4).

The Table below presents the final results.

Weights Supplier1 Supplier2 Supplier3

Quality 35 3 3 2

Cost 15 12 9 6

Delivery 30 3 2 2

Service 6 5 4 2

Supplier Code ofConduct

14 13 10 8

Total 100

Final scores are calculated as:

Supplier 1 = (35*3)+(15*12)+(30*3)+(6*5)+(14*13) =587


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Final

Scores

Supplier1 587

Supplier2 359

Supplier3 284

According to the above results, the higher weight belongs to

supplier 1, and is judged to be the best overall.


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Final Output:


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Scorecard used in Honeywell Industries:


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Implementing Best Practice (Contd..)Scorecard used in Allstate Corp, USA:


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Implementing Best Practice (Contd..)Scorecard used in National Instruments, USA:


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References

Doolen, Toni

Using Scorecards for Supplier Performance Improvement: Case Application in a

Lean Manufacturing Organization

Engineering Management Journal , June 1, 2006

Performance Measurements and Metrics

Supply Chain Management Portal

Christine Dunn

How to: Building a vendor scorecard

Computer World, May 29, 2006

CUMMINS SUPPLIER HANDBOOK

Page 17, May 19, 2008

CUMMINS INC FILTRATION BUSINESS UNIT SUPPLIER QUALITY HANDBOOK

Page 15, June 2007

Cummins Supplier code of Conduct

January 2009

Honeywell ACS Vendor Scorecard (Version 2.1 January 2008)

best practices - supplier scorecard

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