Supplier Performance – Key to Supply Chain Success

The Problem: Ask yourself these questions, regardless of whether you are a wholesaler, retailer, manufacturer, distributor or even a 3PL trying to manage a supply chain for a client.

– How well does your supply chain work?
– How do you measure your supply chain performance?
– Does the performance measure align with the company’s strategy, goal and direction?
(Note we are talking about key metrics, not a plethora of measures for measures sake.)
– Do you have customer service problems because of a lack of the right product/inventory?
– What are your inventory turns, overall and by category?
– How many dollars of inventory are tied up in inventory—by age?

The answers, especially if they are negative or poor answers, can significantly impact how well the company does or does not build shareholder value, increase profits, add to market share, or build scale.

Often, supply chain performance and customer service results correlate to inventory. Inventory—lack of velocity, poor turns and too many dollars tied up—is both a problem and a symptom of a problem. It does not matter where the inventory problem resides—in raw, WIP or finished goods. The issue is not just a matter of managing the inventory on-hand. It is a matter of how to improve supply chain and customer service while improving inventory—velocity and turns and reducing dollars—at the same time.

This is not a contradictory or impossible challenge. The inventory failures shown above usually go beyond forecasting or demand planning. They start and end with supplier performance. Not surprisingly, many companies with inventory problems do not have a sourcing strategy as part of its supply chain management effort. These companies focus primarily, if not exclusively, on price, landed or contract.

Performance is not a concern. Yet analysis of supplier performance shows that often suppliers, for over 25% of purchase orders, fail to ship or deliver on-time. The effect of such service failures ripple through the business with customer service problems, too many dollars tied up in inventory, serious aging of inventory, poor turns and poor return on the capital investment required for the inventory, larger than needed warehouse space in terms of capital tied up and/or reduced warehouse productivity from having to travel extra distance around the excess inventory.

Sometimes, for orders shipped on time, there may be quality problems. Poor quality brings its own set of customer service, inventory and other costs and problems.

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