MULTIMEDIA UNIVERSITY OF KENYA

FACULTY OF BUSINESS AND ECONOMICS

PROCUREMENT AND LOGISTICS MANAGEMENT

UNIT NAME: Supply Chain Performance

UNIT CODE: BPL 2415

Lecturer: Dr Okanda

Group 7:

CAROLINE NDUTA KAMAU- BUS-245-095/2018

Synthia Lucy Opango- Bus-245-033/2018

Charlene Bosire- Bus-245-063/2018

Marion Range- Bus-245-005/2018

Mercy Wamuyu- Bus-245-087/2018

Brian Chumba- Bus-245-019/2018

 Measuring Supplier Performance

Introduction

Supplier performance measurement is a business practice used to measure, analyze and manage
the performance of a supplier in an effort to cut costs, alleviate risks and drive continuous
improvement.

Supplier performance measurement is conducted to determine whether the company’s

suppliers are doing their work as expected. Supplier performance can be measured by using
tools such as paper-based check lists or electronic performance measurement systems (Goswami
& Ghadge, 2020). Data collected when measuring the supplier performance is recorded on a
supplier scorecard. A supplier score card allows businesses and organizations to grade their
suppliers and maintain their history records for review.

There are various key elements that are considered when measuring the performance of
suppliers. They include; timeliness, completeness, quality, productivity, regulatory compliance,
social responsibility and innovation. The measurement areas are influenced by the business
needs; this means that they should reflect the requirements of the stakeholders. Measuring
supplier performance is important to an organization as it can enable them to know which
suppliers to develop, the suppliers to stop working with therefore saving the company money and
resources (Wong, 2021).

In most cases, non financial measures are used to assess supplier performance. They
include; the level and degree of information sharing, the number of buyer vendor cost saving
initiatives and extent of mutual assistance in problem solving efforts (Goswami & Ghadge,
2020). Other non-financial measurements include product quality and delay reliability; these
measurements can shift attention from short term goals towards long term goals.
 Key performance areas (what to measure)

Timeliness – this is measured by the on-time delivery of goods, information and services. It
assesses whether work is completed on time and within the specified time period.

Quality- this is measured in terms of low defect rate, errors, unplanned failure and complaints
(Wong, 2021).

Cost reduction – this is measured through the level of innovation. Innovation leads to continuous
improvement which results in improved outcomes and reduced prices.

Completeness- this is measured by assessing whether delivery of goods is done in full or whether
services required are completed for the expected duration or within the expected outcome.

Productivity- this is measured in terms of output process efficiency and utilization of available
resources.

Regulatory Compliance- this is measured by assessing whether the suppliers are working within
legal, health and safety standards and within the organizational guidelines.

Social responsibility- this is measured in terms of diversity and community involvement or

community initiatives undertaken by the suppliers.

Responsiveness- this refers to how quickly suppliers respond to buyer communication. This can
include acknowledging new orders, accepting or rejecting order changes or responding to
customer questions.

Steps to measure supplier performance

According to Sherry Gordon (2005), the following seven steps comprise a process for developing
and deploying supplier assessment;

1. Align supplier performance goals with organizational goal and objectives

It is necessary to have a supplier strategy that relates to overall organizational goals and
objectives. Currently, many organizations are pursuing continuous improvement through
various techniques such as six sigma, lean enterprise, lean sigma, operational excellence
and total quality management. For an organization to achieve next level excellence, key
suppliers need to align with the strategies in place. Lack of synchronization can
negatively impact cost, quality and delivery. If an organization has not articulated an
enterprise improvement strategy, the drive to allocate resources to measure and improve
supplier performance will be weak.

2. Determine an evaluation approach

Aspects of supplier performance that should be considered include;

Financial health -this is key especially for long term suppliers and indicators for financial
strength include factors such as sales, profitability and liquidity.

Operational performance metrics -this covers a wide area and includes metrics such as
on-time delivery, quality, lead times responsiveness, inventory turns and customer
service call response time.

Business processes and practices -business processes and practices can be reviewed to see
how a supplier run its business and provides a product at best value, on time and exactly
as required for its customers.

Enabling behaviors or cultural factors -a supplier should have a continuous improvement

culture so as to be in sync with demands of a customer that values continuous
improvement methodologies and expects the same drive to improve in its supply base.

3. Develop a method to collect information about suppliers

Methods of information collection include questionnaires, extracts from current systems,

site visits and third-party standard certification. Customers should integrate the most
appropriate data collection design, expose it to internal supplier relationship managers
and give suppliers access to their performance indictor to increase their collaboration.

4. Design and develop a robust assessment system

Organizations should choose an approach to evaluating suppliers and this could be;
accepting a third-party standard such as ISO 9001, benchmarking performance against
industry leaders, developing KPIs and scorecards based on system data or internal
customer feedback or even developing their own certification. Designing and developing
a robust supplier performance measurement system requires deep business knowledge,
familiarity with high performance system and knowledge of measurement methodologies.
 5. Deploy a supplier performance assessment system

Deploying the assessment system will differ depending on the system you choose. It I
important to ensure that personnel involved undergo training to have the correct expertise
in survey instrument development and knowledge of IT to avoid pitfalls in deploying all
these approaches.

6. Give feedback to suppliers on their performance

Organizations need to discuss with their importance suppliers on performance and work
on critical issues of the relationship. If the results of performance measurement are not
actionable or the expectations are not communicated, those actions will not occur.

7. Produce results from measuring supplier performance

If all important components of a good supplier assessment are in place, then the supplier
can take the next step of improving their performance. Supplier performance
measurement can lead to supplier development and supplier improvement can impact the
customer organization financially and competitively. Organizations should monitor
performance to the plan put in place.

Benefits of measuring supplier performance

Collaborating with suppliers- measuring supplier performance enables businesses to find

out suppliers that are reliable to work and collaborate with. They are also able to find out the
suppliers that need supplier development so as to be of added value to the business.

Reduced costs- lack of timely and accurate information about suppliers can lead to high
costs incurred by the businesses. For examples, failure to detect suppliers who are under
performing can lead to the losses incurred by businesses due to factors such as poor quality or
late deliveries.

Improving company’s reputation- measuring supplier performance allows businesses to

detect suppliers that are performing well and collaborating with them. This leads to efficient
business processes which in turn lead to improving of the company’s image and reputation.
 Reduces supply chain disruptions- supplier performance management provides in depth
visibility into the risk a supplier may pose to the business (Goswami & Ghadge, 2020).
Businesses therefore are able to put measures in place to reduce or eliminate the risks.

Facilitate data driven decision making- data collected from measuring supplier
performance is recorded on a supplier scorecard. This data enables businesses to make decisions
based on known facts to avoid conflicts of interest.

Categorize and rank vendors- measuring supplier performance enables businesses to

categorize and rank vendors based on how well they fulfill their orders and how well they meet
expectations (Joensuu-Salo & Sorama, 2021).

Conclusion

In conclusion, it is important for every organization to measure supplier performance to

ensure competency on the part of suppliers. Good supplier performance will reflect in the overall
performance of an organization as it improves productivity, product quality and profitability.
Organizations should develop a supplier performance measurement system that is in line with
their aims and objectives and caters for their needs.
 References

Goswami, M., & Ghadge, A. (2020). A supplier performance evaluation framework using single
and bi-objective DEA efficiency modelling approach: individual and cross-efficiency
perspective. International Journal of Production Research, 58(10), 3066–3089.

Wong, R. S. (2021). An Alternative Explanation for Attribute Framing and Spillover Effects in
Multidimensional Supplier Evaluation and Supplier Termination: Focusing on
Asymmetries in Attention. Decision Sciences, 52(1), 262–282.

Joensuu-Salo, S., & Sorama, K. (2019). Information Sharing and Integration of Buyer-Supplier
Relationship in Small Suppliers’ Performance. Journal of Enterprising Culture, 27(2),
177–199.

Sherry Gordon.(2005). Seven steps to measure Supplier performance. Quality progress 38 (8),
20-25.