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Sometimes you need to engage one supplier to get access to another. But then, whose performance do you measure? A question that has come up several times recently is: how do you measure the performance of the products from value-added resellers (VARs)? Most companies are set up to measure the performance of their direct suppliers, which in this case would include their resellers. However, it’s the resellers’ suppliers’ and their products that directly impact the customer and its end users. Yet, the reseller has no control over the quality and the performance of the products it sells. Typically, information on the the performance of resellers’ products and suppliers is not collected and gets buried in reseller performance information, if it’s collected at all. Often large companies do not have a direct fiduciary relationship with the company whose products and services they are using because many software companies require customers to go through VARs. The impact of these products on a company can be large, yet it’s supply chain is somewhat hidden and there may be little or no the visibility into its performance. This situation can result in abdicating responsibilities and finger-pointing, since it’s often unclear who is responsible for what.
The VAR relationship can vary widely. Some VARs do provide installation, training and support. Many do not. If a customer has to contact the software company’s support directly to get help, then they may wish to measure both the support from the manufacturer and the performance of the VAR. However the relationships are structured, the customer may need to collect performance information on both the software and the VAR. The typical way to do this is through internal stakeholder satisfaction surveys — asking those who use the product and come in contact with the supplier for their input on performance. In the case of software, additional types of metrics should be captured, such as uptime, bugs, and issue resolution responsiveness.
While there is more than one way that VAR relationships can be structured, the bottom line is that the performance characteristics and issues around product being procured via the VAR should still be captured and reported separately in an organization rather than becoming buried in VAR metrics. This allows a firm to evaluate both the value of the VAR and the performance of the product being provided. With the increasing prevalence of cloud computing, resulting in fewer or at least different installation issues, the role of the reseller is changing, making the visibility of of the software’s performance even more important.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
In an earlier post, I described what it takes to be an exceptional supplier. In that post, I said that good suppliers need good customers in order to enhance, even permit good performance. While the capabilities of supplier firms is important, so are their customer’s performance, business relationship and interactions with suppliers. Many supply managers will readily admit that more than half of supplier performance problems are due to the customer. Here are a some examples of supplier performance issues caused by customers:
- Orders submitted within less than the supplier’s lead time. Customers, often themselves subject to the vaguaries of order volatility, launch orders to suppliers in less than the suppliers’ known or published lead time. Then, when the supplier is unable to deliver within that compressed lead time, the supplier misses the delivery date and scores lower in on-time delivery.
- Turning your supplier into your banker through long accounts payable cycles can push financially weak suppliers into a worse financial condition.
- The customer does not update the product specification given to the supplier, and the supplier builds to the wrong specification. Or, the customers gives the supplier incorrect information on the order.
- Customers’ put pressure on suppliers to reduce costs with the threat of sending the product out to bid if the cost targets aren’t met. Customers may suggest value engineering or even work with suppliers on cost reduction projects. However, some customers try to finance cost reductions from the supplier’s profit margin, before the supplier has had a chance to realize the benefits of the suggested improvements, leaving suppliers in a weakened position. This helps neither party.
- Customers require suppliers to use their approved sources with whom they claim to have negotiated the best deal. But sometimes the “deal” isn’t really a deal. Suppliers then have quality, delivery and/or responsiveness problems with these required suppliers who adversely impact their performance.
- JIT (aka Jumbo Inventory Transfer). Suppliers are often asked to shoulder the burden of additional inventory in order to help customers hold less inventory and increase inventory turns. Supplier who practice lean may readily be able to meet customer requirement without the additional inventory, as they are able to be highly responsive without materially increasing their own inventory. However, those whose operations are not demonstrating rapid cycle times may find the extra inventory a costly burden.
- Supplier material can sit on a customer’s dock for days, then be accepted in receiving. The supplier has shipped on time, but the customer’s system shows a late delivery. Another strike against the supplier in the area of on-time delivery
While customers cannot be held responsible for all supplier problems, they should be aware of how their business practices could adversely impact key suppliers. Being a good customer requires the willingness to address the problems your firm causes.The first rule is: do no harm. In a future post, I’ll discuss being a customer of choice.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
What really is lean procurement? From some of the descriptions of lean procurement that I’ve seen, it seems to have morphed into something that is either myopically focused and/or totally unrecognizable as lean to me. Let’s start with myopically focused. Yes, it is a good thing to do more with less, i.e., run procurement with fewer people. But what are the survivors doing? Are they focused primarily on transactions or are they focused on strategic activities? Reducing procurement headcount is much like reducing inventory in manufacturing. It is typically a byproduct of lean, not a focus. It has to be done intelligently. Workflows need to become more efficient, and more importantly, the actual workflows and their underlying assumptions need to be questioned. When procurement asks: how would what I’m doing add value to the customer (both internal and external), then many exciting possibilities will open up.
Lean procurement can be viewed as a way to:
- Improve the procurement process and workflow, reducing time and eliminating waste
- Reduce/lower costs while improving the quality of products and services
- Improve the performance and responsiveness of suppliers
- Increase the focus on activities that add value to the firm
- Enhance procurement’s strategic rather than transactional focus
Many companies need to get beyond the notion that lean is primarily for manufacturing companies and the associates on the factory floor. While manufacturing historically has led the lean charge, opportunities can and should go well beyond it. It’s natual to assume that lean means lean manufacturing, as it’s the area that has gotten the most focus and has shown the most dramatic transformations. Lean procurement is applicable to all industries, in the manufacturing and service sectors.
Lean procurement questions why particular activities are being done and how to increase procurement’s total value. Cost reduction is, of course, important. However, how lean helps procurement add value should remain foremost in mind. The lean mindset knows that adding value typically requires eliminating waste and cost. The approach to lean procurement should be holistic and not solely cost-focused.
Many tools in the lean toolset (value stream mapping, 5S, Kaizen, standard work) can apply. However, as in all lean practice, focus should be on the overall strategy, people and culture rather than primarily on the tools.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
As a speaker at the 2012 IndustryWeek Best Plants conference last week in Indianapolis, I had the chance to sit in on some of the sessions and keynotes. I found one keynote speaker, Mary Adringa, CEO and President of Vermeer, an international, family-owned agricultural, construction, environmental and industrial equipment manufacturing company, particularly interesting. Mary Adringa is also the Chair of the Board of NAM (National Association of Manufacturers), the first woman to hold that post. First, I found it inspiring that IndustryWeek had chosen a female manufacturing executive of her stature as a keynote. The dearth of women as both attendees and presenters at this conference was notable. There don’t seem to be more women in attendance at a manufacturing conference than when I worked in manufacturing a while back. It made me wonder if the reported fall-off in women entering the STEM (Science Technology Engineering and Mathematics) careers is being felt in manufacturing, where high-paying jobs are going unfilled. This leads me to Mary Adringa’s stating that 600,000 jobs in U.S. manufacturing remain unfilled. This is 5% of manufacturing jobs. And, only 25% of those who do apply have the requisite skills for these jobs. Ms. Adringa said that this 5% rate of unfilled jobs is true at Vermeer and that qualified people to fill them are hard to find. This seems tragic, given current U.S. unemployement rates. While this indicates a mismatch of trained workers and the job requirements, one needs to ask: Why? The U.S. still has 21% of global manufacturing (with China at 15-16%). And increased efficiencies (in both business practices and technology) are helping U.S. manufacturers compete with lower cost countries and nearshore some of their manufacturing. Why are young people eschewing jobs in manufacturing? The public’s general impression of manufacturing is that it’s dirty and uninteresting. Perhaps this negative view has become a cultural bias in the U.S. And few young people, let alone their parents and teachers, have ever even been in a manufacturing facility. And perhaps they don’t understand the thrill of actually making a real, tangible product — maybe not with their very own hands but in the company they work for. Vermeer is trying to remedy this situation by offering teacher internships in the summer to show teachers what manufacturing really is and what skills are needed. Teachers leave the program with both enthusiasm for and an understanding of the skills their students need to get this high-paying, highly-skilled jobs.
As Pat Panchak, Editor-in-Chief of IndustryWeek and Emcee Extraordinaire of the Best Plants conference, noted during the conference: manufacturing jobs are high tech. Unfortunately, the public is still misinformed. It’s much more glamorous and lucrative to be a sports hero, a movie star or an investment banker, but highly unlikely for most people as a realistic career path. Too bad. Maybe the real scoop will get out and young people will understand how financially rewarding — both personally and to society– manufacturing can be and how manufacturing is the growth engine that fuels our economy and lifestyle.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
I’ve read a lot about the characteristics of good leaders and of good employees. But what about the other important stakeholders of the enterprise — suppliers. I was reading an article, ”Everybody comes to work wanting to do a good job” by Harry Hertz in Inside Quality Insider about critical characteristics of exceptional employees. It struck me that many of these characteristics apply to good suppliers as well. Similar to employees, suppliers are stakeholders, too and their behaviors, capabilities, attitudes and performance can have a profound impact on a customer. Here are eight characteristics of exceptional suppliers:
1. Good suppliers want to meet more than the minimum requirements. They want to exceed their customers’ expectations and are willing to go the extra mile.
2. Good suppliers are leaders in what they do and role models. Their companies are the ones that the a customer wishes its other suppliers would emulate.
3. Good suppliers have a positive, can-do attitude.
4. Good suppliers are team players. They want to work with their customers so that both of them are winners.
5. Good suppliers communicate well and keep their customers informed. Good news as well as challenges. No surprises.
6. Good suppliers strive for excellent performance and want to make their customer (and customer contact) look good.
7. Good suppliers are flexible. When they learn of a good idea or business practice that they believe can improve their company, they will adopt it. Exceptional suppliers are early adopters, and their customers can learn from these suppliers.
8. Good suppliers want to improve and know how to improve. Continuous improvement is not a slogan. It’s reality. Good suppliers do not become complacent. They are always looking to improve, as they know the benefits of never standing still. If their customer uncovers important opportunities for improvement, good suppliers are positive about pursuing these opportunities and happy that their customer brought them to their attention.
Good suppliers can’t be exceptional for every customer. Good suppliers need good customers to be great suppliers. Most of the above characteristics will not be realized or may not even be discernible to a poor customer. Poor customers can prevent suppliers from being good and will not realize the benefits and ROI that a good supplier can enable. In fact, the very same supplier can seem fair-to-middling to a poor customer and outstanding to a good customer. I’ll address the characteristics of a good customer in a future post.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
A recent conversation I had with the quality manager at a supplier who produces tools for milling, drilling, tooling and turning confirmed that Purchased Price Variance (PPV) is alive and well and still creating unintended consequences. Here’s the story. Production suddenly discovered that the torque wrenches (or keys, as they’re called) were no longer fitting in their shipping boxes. The wrenches looked the same, so this sudden problem didn’t make sense. The quality manager checked with Engineering about whether they had changed the spec. No, there had been no change. He checked the part record. It hadn’t been changed. The wrenches looked exactly the same as always. So why were they no longer fitting into the boxes? A careful visual comparison of the wrenches showed that the handles on the new ones were much larger. The source of these new wrenches was mysterious. So the quality manager checked with Procurement. Sure enough, Procurement proudly explained how they had put the wrenches out to bid and had found the exact same wrench cheaper. They had bought thousands of them and had saved the company $40,000. Procurement hadn’t noticed that the new wrench was NOT exactly the same as the previous ones. And, upon further analysis, it turned out that it was going to cost $60,000 just to analyze, specify and buy new corrugated boxes that fit the new wrenches. This cost was for this company’s US operations and didn’t take into account several overseas operations that were also going to have to get new boxes. Plus, there was a high probability that customers could start breaking screws on their equipment by overtorquing them with this wrench due to its larger handle, adding even more total cost to this purchase. Procurement didn’t know and hadn’t checked to verify that the new wrenches were NOT exactly the same as the previous ones that had been purchased for years. They were just pleased at how much money they thought they had saved the company by putting the wrench out to bid and getting a cheaper price.
This is a classic price versus total cost mistake. You can say that the reason was not driven by PPV. It was perhaps due to Procurement’s not understanding specs or not checking with Engineering. You could chalk it up to miscommunication. But what is clear is that buying massive quantities of the wrong part to save money on the price is going to cost a lot more in the long run than the purchase price.
Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
Supply chain risk is a major concern. An increasing array of new software solutions and offerings from consulting firms continue to become available to address supplier and supply chain risks. The large number of tweets on Twitter about supply chain risk on a daily basis point to a widespread, global problem weighing on many firms’ minds — and bottom lines. From the vantage point of my involvement on ISM’s Supply Chain Risk Management Group’s Board, I have seen the interest in this topic mushroom. We have gone from a Risk Track at the ISM (Institute for Supply Management) International Conference, now in its third year, to organizing a full-blown conference on supply chain risk (Buying the Umbrella Before It Rains on July 26-27 in Chicago).
But what if you are just starting out in this area and are not yet up to speed on the tools and techniques for management supply chain risk and do not yet have a risk process or risk organization in your company? Where can you begin? You might watch for any of these potential signs that one of your suppliers may be struggling:
- There is evidence of high employee turnover or especially senior leadership turnover
- Quality and/or delivery performance have been declining
- Management is uncooperative about addressing problems that are impacting the customer
- Requests for cash payments or picking up a check
- Complaints of non-payment from sub-tier suppliers
- Poorly maintained facility and equipment
Supplier performance is a leading indicator for risk. Developing closer relationships with key suppliers and understanding their performance are good ways to spot and avoid supplier problems before they adversely impact a customer’s business.
Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
Outsourcing is, of course, quite a common practice these days. How many companies have not jumped into outsourcing? I was reading the classic list published by Supply Chain Digest: 40 Risks and Mistakes of Supply Chain Outsourcing and stopped at the first mistake: Outsourcing undesirable functions versus the ones that provide greatest competitive advantage. This first mistake reminded me of a difficult outsourcing situation that I came across recently. The organization had a problem supplier. This supplier manufactured a key item for this company. However, the supplier constantly delivered late, and and their quality was abysmal. I asked this firm why they were putting up with such poor performance. Had they not asked the supplier to improve? Or tried to help the supplier improve? Why didn’t they find another source? The answer: it’s complicated.
In further questioning, it seemed that the supplier’s management and command and control culture were problemmatic. Associates had no power to change things and no training even to know what to do to improve the quality and delivery. No one really understood concretely and specifically what needed to be done to improve the situation. And with an indifferent management that thought they were managing the bottom line and inadvertently starving manufacturing into anorexia, the situation was bleak. The problem seemed intractable.
My take: start the process of finding a new supplier ASAP. Problem: the supplier is effectively sole source. While technically the supplier is single source and that other suppliers can be found, switching to another source would be a long and costly process.
Now it’s easy, but too late, to opine about how this customer should never have gotten itself into this bind in the first place. Companies need to outsource for the right reasons. Any product or component that is strategic to an organization’s survival, no matter how badly the company does not want to make that product, should not be outsourced unless there are strategic reasons for outsourcing it and there are viable alternative sources. Avoidance instead of strategic outsourcing can lead to unpleasant and unintended consequences. Viable alternatives mean that the switching time and costs are not prohibitive. However diligent you are, your supplier can start out great and then fall on bad times through mismanagement, a buyout, market conditions or a supply risk black swan event. But it behooves the customer to monitor the supplier closely and not get to the point where supplier poor performance creates a disaster for the customer due to unintended dependence.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
The recent events at August National Golf Club where the CEO of IBM, Virginia Rometty is not being offered membership due to her gender, demonstrate that its membership is made up of Cro-Magnon men who haven’t yet reached even the Bronze Age. Interesting how the club is more than happy to take IBM’s sponsorship money, but is stubbornly sticking to its tradition of an all-male club by not awarding Ms. Rometty the green jacket of membership as it has done for all of her predecessors. What an awkward moment for Ms. Rometty as well as a big opportunity for IBM to rethink its sponsorship of the event.
Many people have already weighed in on the subject and are pressuring August National to give Virginia Rometty the jacket and admit her and other women as members. President Obama and Mitt Romney have both supported membership for women at August National. Margie Arons-Baron calls it “discrimination plain and simple” in her excellent blog post, Augusta National’s all male policy: who wants your ugly green jacket anyway? Another woman, Ellen Burbidge, is starting an on-line petition to ask Virginia Rometty and IBM to pull their sponsorship of the event. Numerous other articles supporting IBM’s pulling of its sponsorship of the Masters are appearing. Some are asking professional golfers to boycott the tournament.
Long ago and far away in another galaxy, I was subjected to exclusion from an all-male executive dining room in Houston, TX. This is not a snub comparable to August National and wasn’t anywhere near the order of magnitude of that being experienced by Virginia Rometty. I was a young consultant working for the Cambridge, MA consulting firm, Arthur D. Little Inc, on a project for an oil well services company in Houston, TX. Besides having to listen to sexist comments from guys in the field about why women could never be hired to do their jobs (one answer: because they aren’t able to lift the heavy equipment), I was subjected to exclusion from a client lunch due to its location in a men-only executive dining room. This dining room was located on the top floor of an oil company’s high rise building. My fellow ADLer, an experienced consultant, did not stand up for me and insist that the lunch be moved to a place where I could attend. He just went along with the client and excluded me, both to my chagrin and protests. The feeling of being discriminated against on the basis of gender could not have been more blatant. And having my own co-worker bail on me when he should have stood up for me was disappointing at the time. Now I can laugh about the incident, but obviously I haven’t forgotten it. And believe me, this was one of many, many incidents of gender discrimination that I had to face in my career. After years of working in male-dominated environments and being subjected to discriminatory incidents, I became so inured to them that sometimes I no longer even noticed when they occurred.
Ms. Rometty is handling the situation professionally and appears nonplussed. She may not feel that a public negative reaction from her in the heat of the moment is appropriate. I can only speculate (and hope) that Ms. Rometty and IBM are not going to let this incident pass without taking some action in the future.
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
As someone who has expertise in both procurement and in lean, I’ve always been interested in what writers and pundits have to say about lean procurement. Mostly, they are saying that lean can help firms save on headcount in Procurement. But that’s only part of the story of what lean procurement can do. I was interested to read the April 1, 2012 article in IndustryWeek, Lean Procurement Processes Mean Fewer Employees by Becky Partida at APQC, which did a benchmarking study on the subject. The study focused on how many FTEs were needed per $1B in purchases. The results are what one would expect: those organization who were implementing lean in procurement needed fewer people. That metric is certainly telling and important. But it only tells part of the story in Procurement. The real story should be a lot more strategic. There are so many other important and strategic factors that can impact the effectiveness and efficiency of Procurement. For example, adoption of supply management and supply chain technologies such as strategic sourcing software and spend analysis, when implemented properly, can help make procurement more lean. Organizations that perform supply base rationalization (and perform it well, of course) will be dealing with fewer, higher performing suppliers. Supplier proliferation is a major reason for increased transactions and waste in Procurement. Or take supplier performance management, which can’t fall directly under the category of how many procurement folks does it take to manage purchases. It helps ensure a higher-performing supply base that requires less expediting results in higher quality and better responsiveness from suppliers – and less cost and more value. This readily translates into a more efficient and cost-effective procurement operation.
Procurement can add to the top line as well as the bottom line as in collaborative product development with suppliers. When new products are being planned, involving suppliers in the process can be a value-added, cost-effective approach to consider. If an organization looks at lean procurement as only increased efficiency in pushing or eliminating paper and the processes surrounding that function, so many more value-added activities will be missed.
Just as lean manufacturing needs to be viewed more strategically than optimizing flow and pull in individual cells, lean procurement needs to be seen more strategically than just buyer transactions. It is so much more strategic than a process flow to buy “stuff”. Looking at lean procurement only in terms of how many procurement FTEs are buying products and services is to miss some of the biggest opportunities for making procurement lean and for adding value to the organization. It also reinforces the traditional and outdated view of Procurement as low-level paper pushers
-Sherry R. Gordon
Author of:
Book: Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results
CloudDVD: Supplier Evaluation and Performance Management
Sphere: Related Content
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