Supplier Performance Management Using DMAIC Principle Part I
In today’s procurement world of increased supply management complexities, it is very important for any supply chain manager to have in-depth knowledge of his suppliers. Apart from how a supplier is performing on certain criteria, such as quality, cost, delivery, service, etc., it is imperative to have detailed knowledge of a supplier’s financial health, the geographies where the supplier is buying, risks associated with such geographies, operational risks, other organizations buying from the same supplier, and such other factors which can be a potential risk to the supply chain.
Many such factors are already evaluated at the time of short-listing the supplier through RPF (evaluating quality, cost, financial stability, etc.), conducting supplier facility visits, and accessing information from sources like D&B, Hoovers, etc. However, once a supplier is on- boarded, it becomes more critical to evaluate and monitor these factors efficiently. If we look back, we have many examples of big companies losing revenue and share value due to supply chain failures. Some of the examples are:
Nike’s 2001 Planning System Perplexity: New planning system causes inventory and order woes, blamed for $100 million revenue loss as stock drops 20%. (Source: Supply chain Digest)
Hershey’s Halloween Nightmare 1999: New order management and shipping systems fail to start properly, and Hershey cannot fulfill critical Halloween orders; $150 million in revenue is lost as stock drops 30%. (Source: Supply chain Digest)
The above examples clearly show what happens if no close monitoring system is in place. A poorly-performing supplier can disrupt our operations, make our organization fail in the eyes of our customers, increase our costs, and threaten our profits.
So, once a supplier is on board, the next important step is to evaluate and monitor your supplier from time to time.
So how should organizations monitor their suppliers at regular interval? Especially firms with large supplier base. We recommend using the DMAIC principle. This principle is used to drive improvement in six sigma projects.
Stay with us as in my next blog I cover the application of DMAIC principle for supplier management.
For further reading, you can access our whitepaper “Supplier Performance Management Using DMAIC Principle” by clicking on the download button below.