Value Chain

Supply chain management — a day in the life

Sherry Gordon — Fri, 27 Aug 2010 11:40:52 +0000

A tip of the hat to Benjamin Benulis at Silicon Laboratories in Austin, TX for alerting me to two funny supply chain videos. Well, they would be even funnier if it weren’t so painfully true. Here are the links:

I want my widgets now

Where are the widgets I ordered?

What strikes me about these two videos is how little things have changed since I worked in supply chain in manufacturing (then called materials management), years ago in another time and another galaxy. I remember when I played catcher on the AMAPS Allstars, the company softball team. AMAPS was a mainframe-based MRP system that my company used and that I had to help implement. And when I put on my catcher’s protective gear, everyone said it was perfect for working in supply chain, as I was ready to take a beating. Since then, ERP has been greatly enhanced. There are all kinds of tools for supply chain planning, visibility and whatnot. But the daily life of supply chain managers in some companies remains essentially the same — fequently driven to the brink of insanity by chasing parts. And somehow the cast of characters hasn’t changed, either. Remember the signs hung around the office that said “Lack of planning on your part does not constitute an emergency on my part”? Everything is an emergency. Or at least that’s what it seems to some of the adrenaline jockeys who call supply chain their natural habitat. What can make the different ? Good IT can certainly help. But having capable and smart people can make all the difference between living in a constant state of emergency or have a more orderly, well-run supply chain organization.

-Sherry R. Gordon

Supplier performance management: new article

Sherry Gordon — Thu, 26 Aug 2010 13:20:56 +0000

There’s a new article on the eSourcingwiki, Understanding and Improving Supplier Performance. The wiki paper is also available for download on this page. It’s a good overview of the benefits and process of supplier performance management. If you haven’t read my book yet, this article provides an overview of some of the key concepts in it. In general the eSourcingwiki is an excellent source of information about many facets of sourcing and supplier management.

Also, please stay tuned to the next issue of AME Target, the magazine of the Association for Manufacturing Excellence. Coming out in the September issue is a feature article that I wrote about two companies and their supplier evaluation processes and journeys, “Supplier Performance Management: It’s More than Scorecards.” I’ll add an update to this blog as soon as the issue is published.

-Sherry R. Gordon

When measuring supplier performance, it’s how well, not how many

Sherry Gordon — Thu, 29 Jul 2010 21:41:20 +0000

Recently I was asked about how many suppliers are typically monitored and measured, on average, using a supplier performance management (SPM) system or solution and whether there is a best practice. I have never come across a best practice in terms of numbers of suppliers to measure.

I know of one large company that was measuring 1200 suppliers and another large global company that is tracking about 35 and trying to increase to maybe 75. For some companies, 100 is too many and for others it is too few. The SPM process is much more scalable using a system rather than say, Excel spreadsheets, and the information can be much more timely. The number of suppliers that can be monitored is typically limited by one thing — the size and bandwidth of the staff managing the suppliers. How much time do purchasing or supply management staff need to monitor the performance of suppliers? How much time do they have to do so? People should focus on the quality rather than the quantity of customer-supplier relationships and interactions.

An SPM system helps scale the performance management process and there is typically exception reporting. That means that one could, in theory, measure a large number of suppliers. In contrast, a manual process is far less timely and can suck up a lot of staff time that should otherwise be used for more strategic and important activities. One large company that I know had a manual scorecard process that took so long that the information was already too old and did not to have much credibility with the suppliers by the time they got their scores.

But supplier managers should not lose sight of an important aspect of the SPM system — giving feedback to suppliers on their performance, typically in the form of periodic reviews. Less important suppliers can access their scorecards without actually having to speak or meet with them and you can contact them on an exception basis if performance issues arise. But you should communicate with the key and critical suppliers on their performance at some regular interval not only to discuss any performance issues but also to develop the relationship and share information. Such communications help companies develop customer-supplier relationships, share information and derive the true benefits and value of SPM. So the question is not how many but how well. One large global company, for example, starts with a face-to-face performance review meeting whenever possible, then subsequently meets regularly via a web meeting, spacing out the review meetings as time goes on and as the supplier gets the hang of the scorecards and improves and stabilizes or improves performance. These meetings are, of course, for key and critical suppliers – not for just any supplier.

When companies first implement an SPM system, they should start out with a subset of suppliers and expand the rollout as they use the system. So while some companies may eventually want to track hundreds of suppliers, most probably do not want to start out measuring that many until they get a good business process up and running and see how many suppliers they actually need to track, adding more as they derive value out of the evaluation and have adequate resources to expand the process. The ROI comes from closing the performance loop, not just from sending out large numbers of scorecards.

-Sherry R. Gordon

Purchasing Mousketeers

Sherry Gordon — Fri, 23 Jul 2010 13:33:24 +0000

I once worked in quality improvement capacity as Director of TQM for a distribution company for whom the term supply management was a new concept. Purchasing in particular felt that it had no clout or influence over suppliers. The rest of the company saw purchasing as the price choppers and the whipping boy for stock outs. I was facilitating an improvement project with this group and we quickly ran up against resistance from other departments who thought that purchasing problems needed to be solved by purchasing alone and who weren’t interested in owning their contributions to problems. This was, of course, not entirely the case. In this company, Sales was the king to whom all others had to defer. Not to minimize the importance of sales, since they were the revenue generators. But they often created unnecessary waste and cost (and fire drills for purchasing) due to their focus on making their numbers. This resistance to working with purchasing rather than dictating to them turned out to be a bigger problem than recalcitrant suppliers. At one of our meetings, I jokingly described the way something was done as “Mickey Mouse”. One of the purchasing staffed replied that of course it was, as they were working for a Mickey Mouse company. After a few days, mouse ears and white gloves popped up all over purchasing on the tops of monitors and filing cabinets. I had struck a sensitive spot, and we had stumbled upon an inadvertent team-building tool.

However, continuous improvement meant working counter to a culture that had existed in this company since its inception and was very challenging. In this family-owned business, the staff was getting mixed messages. On the one hand, they were told that they were “empowered” to improve things. On the other hand, the empowerment went only so far before it could be squelched by the owner who, although he wanted his company to improve, felt that deep down, improvement was for everyone but him.

-Sherry R. Gordon

Download a book chapter from Supplier Evaluation and Performance Excellence

Sherry Gordon — Tue, 06 Jul 2010 18:26:04 +0000

Subscribers to the Value Chain Group site may now download Chapter 1 of Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results. This download includes:

Table of Contents
Preface
Acknowledgements
About the Author
Chapter One — Introduction, including why the book was written and the business case for supplier performance management

The book has been praised by its readers as being practical, hands-on, an excellent how-to guide. At least one major international corporation has used the book to implement a new supplier performance management system — without the author’s assistance. The author is, of course, in the business of helping firms improve supplier performance, but has apparently revealed much useful information in this book to help you get started. Links to reviews in periodicals are here. And you can find reader reviews of the book on Amazon here.

You can try before you buy. Should you decide to buy the book, it is readily available through Amazon, Barnes and Noble, and directly from the publisher, J. Ross Publishing.

After you download the chapter (and/or read the entire book), dear readers, you are welcome to post your comments and questions here.

-Sherry R. Gordon

A cereal killer is thwarted

Sherry Gordon — Mon, 28 Jun 2010 15:04:34 +0000

On June 17th, 2010 at midnight, someone got by PR Newswire’s vetting process and issued a fake press release about cereal maker General Mills. The press release falsely claimed that President Obama was launching an investigation into General Mill’s supply chain. The press released was confirmed to be a hoax and immediately retracted. The Wall Street Journal reported that investors and shorted sellers have previously used false rumors as a means to manipulate stock prices. But it is still unclear how this hoax actually occured or who did it.

Several aspects of this situation are interesting. One is the use of a false rumor about a major corporation’s supply chain as a means of harming that corporation. This event illustrates how important the integrity and functioning of supply chains have become to the overall success of a company. But what’s even more interesting is how universal the understanding of a supply chain’s importance has become. Until the last few years, when various supply chain events such as food, drug, and consumer products contamination and other failures became widely known, supply chains were a weird term that only some manufacturing and purchasing geeks cared about. If you mentioned that you were involved in supply chain management at a cocktail party, people would nod politely, glaze over and change the subject. The general public’s personal interest has increased at least in terms of awareness about how a tainted product might make its way to them or their children. Now the public knows that somehow supply chains make the world go round. They are recognized as providing an essential, competitive advantage and their failure as causing disastrous results for consumers and corporations alike — plus a public relations nightmare for corporations.

-Sherry R. Gordon

Quality measurement challenge: when a supplier’s performance is tied to your review

Sherry Gordon — Fri, 11 Jun 2010 14:23:53 +0000

Recently a supplier quality manager asked me about a dilemma he was having with the way his manufacturing facility was measuring in-process supplier quality. If they found defects in supplier parts during the manufacturing process, each defective item was tallied as part of the total. That is, each defective part counted against the total quality performance rather than each shipment counting as a whole against the total. If one shipment was bad and had 25 of the same defects in it, all 25 defects counted against the supplier’s quality performance rather than just counting it as one defective shipment and essentially just one defect. The problem is that his staff is evaluated, in part, on the basis of supplier performance. One supplier quality incident can appear much more serious than it actually is, and it negatively impacts both the supplier’s scores and the performance reviews of the supply management staff that is responsible for managing that supplier.

The supplier quality manager felt that each quality defect should be counted in the overall quality performance score, as each defect is a problem, even if a number of parts have the same defect (and in many cases, a minor defect, which is a whole other issue). His staff feels that this approach is unfair, as one defect is typically addressed as one problem, even if it has occurred multiple times within a shipment. Mostly, however, they seem to be unhappy about the larger impact on their own performance reviews.

What should this company do? One approach is to calculate quality performance as they do now, but take the frequency and severity of quality incidents into account in the performance review. If there is one incident with 25 parts, the staff reasons, it’s much better than 25 incidents involving one part. And the one larger-size incident should have less impact on the performance review compared to multiple incidents with fewer parts. This approach is more subjective at review time and depends on the discretion of the manager. Is this subjectivity unfair? What do you think of each approach?

I would love to hear your views on how this company should handle this measurement challenge.

-Sherry R. Gordon

Choosing good supplier performance metrics

Sherry Gordon — Mon, 07 Jun 2010 12:51:16 +0000

I’ve discussed previously how supplier performance metrics work best when they are aligned with and support overall corporate goals and strategies and reasons why they can fail. But the challenge remains of how to tell whether you’ve come up with a good metric. There are many ways to look at a metric to judge how effective it will be. Here are a few basic questions to ask about a metric:

Does the metric support the expectations you have of your suppliers’ performance?

Firms need to define and communicate performance expectations for suppliers. Then they should measure supplier performance against these expectations. Thus, the metrics need to provide insight into whether performance expectations are being met. For example, if you expect your suppliers to be responsive when problems arise, how do you measure that? You many need to measure more than just the quantity of corrective actions (CARs) you’ve issued to a supplier. The metric may need to be CAR response time and how many CARs are resolved or closed. Or alternatively, track how quickly suppliers resolve performance issues by tracking when identified and when resolved.

Is the metric based upon reliable and credible data?

Disputes over inaccurate performance data cost time and money and they can result in distractions and misplaced focus. For example, if you measure suppliers for on-time delivery, is your data accurate? Be sure that items are not sitting on the dock for days before they are received. Or, if you measure product or service quality, having a common understanding of the definition and the calculation of the metric is necessary to avoid a distracting focus on the calculation rather than actual quality.

Is the metric relevant?

If you track a supplier’s inventory turns, what does that tell you? Do they have internal bottlenecks? Do they use poor inventory management practices? You will never really know from tracking their inventory turns. It is preferable to find metrics that provide more insights.

Is the metric actionable?

Some firms choose measurements simply because they are readily available. Metrics calculations can expose problems, but cannot always lead to resolving them because it is unclear why a problem is occurring. For example, knowing a supplier’s quality performance is important. But you may need to track additional metrics to understand other dimensions of quality. Knowing why it is getting worse helps the supplier take action. Often underlying business practices will reveal the root causes of problems.

-Sherry R. Gordon

Supplier defects: preventing the ultimate sacrifice

Sherry Gordon — Mon, 17 May 2010 13:56:00 +0000

Supply chain failures seem inevitable these days, but are especially disconcerting when they indicate a larger systemic problem in critical equipment that is supposed to save lives. The U.S. Army just announced a recall of 44,000 Advanced Combat Helmets (ACH) manufactured by ArmourSource LLC (formerly Rabintex) due to concerns that they provide substandard ballistic protection. Another similar recall of 34,218 ACHs manufactured by Gentex Corp. occurred in May 2009. The Army did not reveal exactly how they discovered these defective helmets and what led them to quarantine some of the inventory. This recall affects about 4 percent of the one million ACHs in inventory. The helmets do not meet Army specifications. According to an announcement by the Army, “There is evidence that ArmorSource and Rabintex ACHs were produced using unauthorized manufacturing practices, defective materials and improper quality procedures which could potentially reduce ballistic and fragmentation protection.” The Army is not sure about either the exact risk to soldiers wearing the recalled helmets or whether any are being worn in a war zone. In the Gentex recall, the company alleged that a subcontractor had falsified certificates of compliance for the steel screws that it supplied. The exact nature of the ArmourSource recall has not been reported yet.

This situation highlights supplier management and supplier performance issues that the Army needs to address and raises more questions than answers. Some of these questions are:

How does the U.S. Army in particular and the U.S. military in general determine whether suppliers are meeting its specifications and meeting its quality standards on an ongoing basis?
How will the Army determine that the defective helmet problem is not more widespread than reported, particularly if so many aspects of ArmourSource’s manufacturing practices and process seem to be out of control?
What is the Army doing about sub-tier supplier risk? What processes and practices are companies such as Gentex using to manage their suppliers and ensure that these suppliers are complying with their standards and government standards? How are these standards communicated to suppliers?
How does defective sub-tier supplier material get into the product in the first place? And how do these quality escapes to the end customer, our troops, occur?
How does the military track and trace products in the field? In the case of products critical to the lives and safety of U.S. troops, why is there no traceability? Soldiers have been give instructions about how to determine whether they are using a defective helmet so that they can exchange their helmets, but there seems to be no tracking system in place to know immediately where defective product has been deployed.

While the suppliers in question are saying that the defects affect a very small percentage of the helmets, why did it take the customer, the Army, not these prime contractors, to discover the defects and in this case, long after the fact? And how did these suppliers allow the defective product to escape to the customer? The supplier management and supplier quality systems do not appear to be in control, and the chances of more widespread problems are very high. The Army needs to do a thorough investigation of its procurement, supply management, and quality processes and practices and uncover how such situations can occur and potentially overhaul its approach to supply management and quality management. Then, it needs to take the necessary preventive measures to avoid these risks in the first place. Quality should not be left to the end user, our troops, to uncover defects in the equipment that their lives depend on. The recalls and finding solutions to these problems are costly to all. But no one should have to pay with their lives.

For more information on sub-tier management, here are a few of my previous posts:

Supply risk: the sub-tier or multitier challenge

Sub-tier supplier challenges loom even for the savvy

Sub-tier risk factors: trying to control the uncontrollable

-Sherry R. Gordon

Take the survey: What’s happening in SRM business practices?

Sherry Gordon — Thu, 29 Apr 2010 15:21:18 +0000

Last year I read with great interest about the results of the Supplier Relationship Management survey done by State of Flux, a procurement and supply chain consulting firm in the UK. The headlines about the results stated that companies were confusing supplier performance with supplier relationships. The 2009 survey found that companies were largely monitoring supplier performance and were not getting to the next step — viewing supplier relationships as collaborative. Customer-supplier collaboration is a key business practice for deriving value from SRM. Last year’s survey produced some good insights into SRM adoption, which is still in its early stages or not adopted at all in many companies. And, as one might expect, many in purchasing functions felt poorly-equipped to handle SRM effectively despite its perceived importance and had difficulty demonstrating its benefits to senior management. Tyically supplier performance issues and cost reductions tend get management’s attention. SRM requires the development of close customer-supplier relationships so that considerable value from areas such as innovation, new product development, operational improvements can be derived.

I thought readers of my blog would be interested in participating in the 2010 SRM survey and in getting the results of it.

Here is some information about the 2010 SRM survey from State of Flux and a link to the actual survey:

“State of Flux has launched its 2010 survey on Supplier Relationship Management (SRM) and is reaching out to supply management and purchasing professionals to complete it. Individual responses are kept confidential. We know that SRM remains a hot topic for organisations, and creating the business case for change in this area is often challenging. All of us understand intuitively that SRM is the right thing to do, but it is difficult to put absolute values on the benefits that can be achieved through an SRM improvement programme.

In 2009 State of Flux focused their survey around the 6 steps for SRM success and for the 2010 survey they have extended the survey to not only focus on how organisations approach SRM and their business cases for change, the implementation and overall approach to SRM, but to also allow organisations to benchmark where their programs are in comparison to the leading practices.

It would be appreciated if you could take 10 to 15 minutes to complete the survey. State of Flux will happily provide the results upon completion of the survey and like last year they are planning to run some cross organisational workshops to discuss further so I’m sure they will be happy to invite you to join those.”

The link to survey is http://www.stateofflux.co.uk//surveys/srm_survey.aspx

-Sherry R. Gordon