Creating and Managing

Supplier Relationships
Developing true partnerships is not easily achieved, and much has to be done to get the partnership to work. Several
key ingredients for developing successful partnerships are discussed

Building Trust Commitment and Top Management Support Performance Metrics

Shared Vision and Objectives

Change Management Continuous Improvement
Personal Relationships Information Sharing and Lines of Communication
Key Points
Mutual Benefits and Needs Capabilities
Creating and Managing
Supplier Relationships

Examples of Supplier Performance Metrics

1. Cost/Price 2. Quality
Competitive price Zero defects
Availability of cost breakdowns Statistical process controls
Productivity improvement/cost reduction programs Continuous process improvement
Willingness to negotiate price Fit for use
Inventory cost Corrective action program
Information cost Documented quality program such as ISO 9000
Transportation cost Warranty
Actual cost compared to: historical (standard) cost, target cost, Actual quality compared to: historical quality, specification quality, target
cost-reduction goal, benchmark cost quality
Extent of cooperation leading to improved cost Quality improvement compared to: historical quality, quality-improvement
goal Extent of cooperation leading to improved quality
Creating and Managing
Supplier Relationships

Examples of Supplier Performance Metrics

4. Responsiveness and Flexibility
3. Delivery Responsiveness to customers
Fast Accuracy of record keeping
Reliable/on-time Ability to work effectively with teams
Defect free deliveries Responsiveness to changing situations
Actual delivery compared to promised delivery window (i.e., two Participation/success of supplier certification program
days early to zero days late) Short-cycle changes in demand/flexible capacity
Extent of cooperation leading to improved delivery Changes in delivery schedules
Participation in new product development
Solving problems
Willingness of supplier to seek inputs regarding product/service changes
Advance notification given by supplier as a result of product/service changes
Receptiveness to partnering or teaming
Creating and Managing
Supplier Relationships
Examples of Supplier Performance Metrics
5. Environment 6. Technology
Environmentally responsible Proactive improvement using proven manufacturing/service technology
Environmental management system such as ISO 14000 Superior product/service design
Extent of cooperation leading to improved environmental issues Extent of cooperation leading to improved technology

7. Business Metrics
Reputation of supplier/leadership in the field 8. Total Cost of Ownership
Long-term relationship Purchased products shipped cost-effectively
Quality of information sharing Cost of special handling
Financial strength such as Dun & Bradstreet’s credit rating Additional supplier costs as the result of the buyer’s scheduling and shipment needs
Strong customer support group Cost of defects, rework and problem solving associated with purchases
Total cash flow
Rate of return on investment
Extent of cooperation leading to improved business processes and
performance
Creating and Managing
Supplier Relationships
Supplier Evaluation and Certification

A supplier evaluation and certification process must be in place so that organizations can identify their best
and most reliable suppliers
 Creating and Managing
Supplier Relationships
1. Select the key dimensions of performance mutually acceptable to both
customer and supplier.
The Weighted Criteria Evaluation System 2. Monitor and collect performance data.
3. Assign weights to each of the dimensions of performance based on their
relative importance to the company’s objectives. The weights for all
dimensions must sum to 1.
4. Evaluate each of the performance measures on a rating between zero (fails to
meet any intended purpose or performance) and 100 (exceptional in meeting
intended purpose or performance).
5. Multiply the dimension ratings by their respective importance weights and
then sum to get an overall weighted score.
6. Classify vendors based on their overall scores, for example: • Unacceptable
(less than 50)—supplier dropped from further business • Conditional
(between 50 and 70)—supplier needs development work to improve
performance but may be dropped if performance continues to lag • Certified
(between 70 and 90)—supplier meets intended purpose or performance •
Preferred (greater than 90)—supplier will be considered for involvement in
new product development and opportunities for more business
7. Audit and ongoing certification review.
 Creating and Managing
Supplier Relationships
Road to Supplier Performance Excellence Supplier Rating Criteria Overview
Introduction
Federal-Mogul Corporation uses the following criteria to rate the performance of our suppliers for all Federal-Mogul manufacturing and distribution facilities
Purpose
Identification of continuous improvement and cost-savings opportunities Promote and encourage improved communication on performance issues Provide objective data for
use in supplier management and sourcing decisions Recognition of exceptional supplier performance
Terminology
Category: These are the main groupings by which suppliers will be measured. The initial set of categories for which measurements will be compiled are Delivery, Quality
and Supplier Cost-Saving Suggestions (SCSS). Each category has assigned weighting, which is rolled into the overall score. Category scores range from 0 to 100 points.
Overall Rating:
The Overall Rating is a description of the performance level of supply as viewed by Federal-Mogul. Scores for each category are multiplied by the weighting, and the
summation entails the overall score for the supplier. Overall Ratings associated to the overall score are as follows:
Overall Rating Weighted Point Score:
Preferred: 90 to 100
Acceptable: 70 to 89
Developmental: 0 to 69
 Creating and Managing
Supplier Relationships
Road to Supplier Performance Excellence Supplier Rating Criteria Overview

“Preferred” Supplier Rating:

1. Federal-Mogul will work with these suppliers on new product development.
2. Federal-Mogul will assist these suppliers in maintaining a competitive position.
3. Federal-Mogul will maintain a listing of “Approved for New Business” suppliers.
“Acceptable” Supplier Rating:
1. Federal-Mogul will require a plan from the supplier outlining how to achieve preferred status.
2. Federal-Mogul will monitor supplier improvement.
“Developmental” Supplier Rating:
1. Federal-Mogul requires corrective action if the supplier is rated at this level for three consecutive months during the calendar year.
2. The supplier must provide plans to improve performance to an acceptable level.
3. Federal-Mogul will look at alternative sources if performance does not improve.

Supplier Rating Qualifications:

The rating system will entail any supplier deemed appropriate by the Federal-Mogul Manufacturing/Distribution Purchasing Team.
 Creating and Managing
Supplier Relationships
Road to Supplier Performance Excellence Supplier Rating Criteria Overview
As illustrated, there are three main categories by which suppliers are measured:
Delivery 40 percent Quality 40 percent Supplier Cost-Saving Suggestions (SCSS) 20
percent A value is displayed in each category on the Global Scorecard for every
Federal-Mogul facility receiving product(s) or service(s) from the supplier.
 Creating and Managing
Supplier Relationships
Road to Supplier Performance Excellence Supplier Rating Criteria Overview
Quality Category: Rating Criteria
The Quality category is comprised of two components: Parts Per Million (PPM) 50 percent Quantity of supplier corrective action
requests (SCARs) issued 50 percent PPM is based on SCARs. Both the number of SCARs and PPM are reported monthly. SCAR
responsiveness does not factor into the supplier’s Overall Score. Currently, it is only displayed on the Scorecard.
 Creating and Managing
Supplier Relationships
Road to Supplier Performance Excellence Supplier Rating Criteria Overview

Delivery Category: Rating Criteria

On-time delivery: The delivery score is based on the average percentage across using plants for the current month. On-time delivery percentage has a window of one day
early and zero days late to the due date and +/- 5 percent of order quantity. The on-time delivery percentage is determined by line items received on time divided by the
number of line items due by the supplier for the month. Consignment programs receive a 100 percent delivery percentage unless a stockout is caused. The score is reduced
by 10 percent for each day of the stockout.

SCSS (Supplier Cost-Saving Suggestions): Rating Criteria

5 percent target performance: SCSS are targeted at 5 percent of the year’s forecasted dollars spent. The supplier must make SCSS submittals to the plant or the commodity
manager..
 Creating and Managing
Supplier Relationships
Global Certified

ISO 9001 ISO 18001

ISO 14001 ISO 22000

ISO TS 16949 ISO 27001

INTERNASIONAL ORGANIZATION For STANDARDIZATIO

Creating and Managing
Supplier Relationships
Supplier Recognition Programs Supplier Development Supplier Relationship Management

Identify critical goods and services

Identify critical suppliers not meeting performance requirements

Certified Supplier Award (CSA) Companies Offering SRM Software

Preferred Quality Supplier (PQS) Form a cross-functional supplier development team Source • Negotiate • Buy • Design Collaboration •
Supply Collaboration
Meet with top management of suppliers.
Supplier Continuous Quality Improvement SRM processes include the evaluation and
(SCQI) Award. selection of suppliers, negotiation of supply
Rank supplier development projects.
terms, and communication regarding new
products and orders with suppliers.
Define the details of the buyer-supplier agreement

. Monitor project status and modify strategies.

 Creating and Managing
Supplier Relationships
Supplier Relationship Management
Examples of Companies Offering SRM Software
EcVision (www.ecvision.com/) Oracle (www.oracle.com/)
Customers: JC Penney, MAST Industries, Inc. (buying arm for The Limited Customers: Dartmouth-Hitchcock Medical Center, Gwinnett County Public
family of Schools,
stores including Express, Lerner New York, Lane Bryant, Limited Stores, Sprint, The Hackett Group, City of Los Angeles
Structure and Henri Bendel) (Acquisition of PeopleSoft in 2005)
JDA Software Group, Inc. (www.jda.com/) SAP (www.sap.com/)
Customers: Samsung Electronics Company, Nippon Steel Corporation, Dana Customers: Lockheed Martin, Mercedes-Benz Espana (Spain), Deutsche
Corporation, Ashland Inc., eLSG.SkyChefs, Airbus, PEMSTAR Inc., Hitachi Bank,
Global Storage Technologies, Honeywell Kimberly Clark, Proctor and Gamble, Royal Dutch/Shell
(Acquisition of Manugistics in July 2006; i2 Technologies in January 2010) SAS Institute (www.sas.com/)
Customers: BayerCropScience, Schneider Electric.
SupplyWorks (www.supplyworks.com/)
Customers: BorgWarner Morse TEC, Ingersoll-Rand, Associated Sprin
 Creating and Managing
Supplier Relationships
Offering SRM Software

• Automation of transactional processes between an organization and its suppliers.

• Integration that provides a view of the supply chain that spans multiple departments, processes and software applications for
internal users and external partners.
• Visibility of information and process flows in and between organizations. Views are customized by role and aggregated via a
single portal.
• Collaboration through information sharing and suppliers’ ability to input information directly into an organization’s supply chain
information system.
• Optimization of processes and decision-making through enhanced analytical tools such as data warehousing and online
analytical processing (OLAP) tools with the migration toward more dynamic optimization tools in the future.
ETHICAL AND
SUSTAINABLE SOURCING
ETHICAL
That which attempts to take into account the public consequences of organizational buying or bring about positive social
change through organizational buying behavior.”
5 Ethical sourcing practices include CSR( Corporate social responsibility), promoting diversity by intentionally buying
from small firms, ethnic minority businesses, and women-owned enterprises; discontinuing purchases from firms that
use child labor or other unacceptable labor practices; or sourcing from firms with good labor treatment or
environmental protection credentials
SUSTAINABLE
Sustainability, as applied to supply chains, is a broad term that includes green purchasing as well as some aspects of social
responsibility and financial performance. It can be defined as “the ability to meet the needs of current supply chain members
without hindering the ability to meet the needs of future generations in terms of economic, environmental and social
challenges”.
 REFERENCE
Wisner D., Tan., & Leong (2012). Principle of Supply Chain Management. 37–70. ISBN 13: 978-0-538-47546-4

Chopra S., & Meindl P (2013). Supply Chain Management

STRATEGY, PLANNING, AND OPERATION. 38–59. ISBN 13: 978-0-13-274395-2

Jaipur National University (2013). Supply Chain Management. 50–59.