The use of contract, named and enterprise scorecards allow for the capture of on-going weighted performance category and key performance indicators, measured on a timely basis. Information and scores inserted by both buyers/contract managers and suppliers can be reported on and viewed as a graphical representation, allowing trends in performance to be measured over time.

An organization has the ability to consolidate the performance of each supplier and category by the use of scoreboards. A scoreboard can be created containing a collection of scorecards with defined weights which when combined will yield a final scoreboard score.

BENEFITS OF SUPPLIER PERFORMANCE MANAGEMENT

Process efficiencies

Manual scorecard creation and review is time consuming and labour intensive. Supplier Performance Management technology accommodates both automated and manual scorecard generation and processing along with automated data capture from multiple information sources, freeing buyers and managers from time consuming manual processes.

Knowledge-inconsistent metrics

Supplier Performance Management allows an organisation to implement company-wide performance and compliance processes, proactively measuring their entire vendor base against agreed enterprise or contract uniform metrics.

Visibility – greater number of vendor performance and compliance under management

Supplier Performance Management allows the organisation the ability to standardize, capture and make visible vendor performance data and compliance across their entire supply base.

Connecting internal stakeholders and supply base in performance expectations

Supplier Performance Management facilities buyers and managers to effectively collaborate with both their internal stakeholders and vendor base ensuring that performance expectation are clearly defined and monitored, allowing for immediate action should any issue impacting the vendor performance arise.

Taking corrective actions

Following identification of under performing vendors the buyers has the ability to initiate a process driven corrective action plan, allowing them follow a best practice approach working with the vendor to improve their performance score and rank.

Unlock service credit / penalties

As Supplier Performance Management facilitates structured and continuous monitoring of vendors, the buyer has the relevant data necessary to track performance against the agreed target values within a contract, unlocking any exceptions which incur a service credit or penalty.

Tender management

Continual scorecard assessment and KPI monitoring of both enterprise and contracts, allows trends to be monitored over time and viewed using sophisticated graphical representations.

SUPPLIER PERFORMANCE MANAGEMENT

Supplier Performance Management is a critical component of the entire supply chain governance and integrates with supplier quality and supply chain management processes. It includes critical processes to define, measure and control supplier performance to meet business goals.

An effective Supplier Performance Management system addresses the following:

Supplier Management

Ä  Define key suppliers in the supply base

Ä  Define and create contracts for goods and services from suppliers

Ä  Link suppliers with the contracts for performance management against contracts

Ä  Define quality, financial and operational metrics in the contracts

Supplier Performance Measurement and Management

®    Define Service Level Agreement for contracts

®    Define metrics and key performance indicators (KPI) for contracts

®    Manage the certification status and compliance requirements of their suppliers

Evaluating Supplier Performance through Scorecards and Supplier Rating

Ø  Evaluate and measure supplier performance through supplier scorecard

Ø  Generate executive dashboard reports for entire supplier base and supply chain performance

In particular, supplier scorecards are an integral part of the supplier performance management process. It should define categories or groupings of metrics/KPIs by which suppliers will be measured, such as, cost of poor quality, delivery cost, inventory cost, response index, order fulfillment score, order visibility score, returns/charge-back score and can be extended to custom categories such as vendor risk, innovation, customer complaints and corporate social responsibility.

An effective supplier scorecard system for supplier performance measurement should use data based on real-time information, allow weighting of their various components to determine an overall score, providing trending information on the supplier's performance over time, and enable comparison to other similar suppliers that server the company.

Increasing global competition, changing product customization, price and margin pressures and increasing customer expectations are forcing companies to evaluate their external supplier performance system as part of their supply chain governance initiative. A proactive and effective organization should take necessary steps to manage supplier performance by defining and managing supplier scorecards and evaluate supplier effectiveness against SLAs laid out in contract.

LOWER SUPPLY CHAIN COSTS

There are steps to identify and eliminate surplus inventory from a network that would improve efficiency and lower overall supply chain costs.

1. Reduce lead time. Internal contributors to lead time include order creation, inbound order receipt, and reorder check times. Any reduction of the time needed to perform these functions will assist in reducing overall lead times. For international shipments, significant delay can occur at customs and roughly 90% of these delays are attribute to administrative errors. A lot of this interruption can be avoided by creating a clean process that ensures the proper paperwork is being delivered the first time. This will reduced the amount of rework needed and will take valuable days out of global lead times.

2. Effectively manage on-time compliance. After working with suppliers to reduce them, it is essential to agree with them on specific standards that are developed on an origin-to-destination basis. Once an agreement is made, it is incumbent on your procurement and operations managers to hold suppliers and carriers responsible to those agreed-upon standards. Managing each vendor and carrier by real data and requiring a high level of accountability will help ensure that extra inventory is not creeping into your network to buffer against unreliable service.

3. Order more frequent. By ordering more often in fewer quantities, you can effectively cut the amount of cycle stock inventory in your facilities. When this is accomplished, max inventory levels for each item are lowered, resulting in freed up space for other products. This is a particularly successful strategy for domestic suppliers that have shorter, more predictable lead times. It is difficult to take inventory out of transit for these suppliers so focus on approaches that require less of that inventory in your warehouses.

4. Optimize your design network. In multiple-echelon operational networks across large geographical areas, significant inventory reductions can be made through network design optimization. The fewer stocking facilities used the better, as safety stock inventory is proportional to the number of warehousing locations.

COMPETITIVE ADVANTAGE – SHORT LEAD TIME

Lead time can be possibly important competitive advantage when stock is not held in advance. Many organizations, including many not for profit and service organizations where the customer is directly involve in the process are necessarily make-to-order business. The order might for a standard item or a special item that has to be designed but the item still can be made and delivered to customer within the time-frame that customer is willing to wait.

Lead time is extremely important thing in customer’s perception of business performance. In make-to-order business the lead time has a direct impact on business and customer.

Total lead time is the result of total work in process. This is primarily driven by :

1 ) excessive queue time / work-in-process.

2 ) batching of product.

3 ) batching in time.

Making Money Out Of People In A Rush

è If our actual manufacturing lead time is shorter than our standard lead time, or if we have a lot of spare capacity , or we can reduce transfer batch size on “hot” orders easily, then offering “rush” service at a premium price is a tactic to increase cash flow. Aim to bring in new customers who haven’t yet availed themselves to the standard service.

Making Money Out Of People With Time To Spare.

è Customers with time to spare are also a good source of additional revenue. Again it is dependent upon having sufficient spare capacity on hand. By offering a discount for long lead time for additional work, we can slot this work in to fill-out your work load. Care needs to be taken segment these clients (isolate them) from the standard work, or else we will simply downgrade (discount) our existing clients without increasing throughput. Again we are aiming to bring in new customers or new work that hasn’t yet availed itself to the standard service.

Having a shorter lead time then competitors in a market constrained make-to-order environment is a important advantage. Obtained a shorter lead time is mostly policy driven in the form of reduced total work-in-process, reduced transfer of process batch size, and increased frequency of scheduling.

PURCHASING PROCEDURES AND E-PROCUREMENTS

Organizations are beginning to re-evaluate their purchasing processes, and identify new types of e-procurement tools that will meet their needs purchasing process, and identify discrepancies in the process that may exist.

1.    Identify or anticipate material or service needs.

2.    Evaluate potential suppliers.

3.    Select suppliers.

4.    Release and receive purchase requirements.

Continuously measure and manage supplier performance

A document flow accompanies the movement of orders and material throughput the purchasing process. Most firms have streamlined the document flow process to reduce the paperwork and handling required for each purchase. The suite of tools used to achieve efficiency in purchasing transactions is broadly defined as “e-procurement. The benefits of electronically generating and transmitting purchasing-related documents include

•           A virtual elimination of paperwork and paperwork handling

•           A reduction in the time between need recognition and the release and receipt of an order

•           Improved communication both within the company and with suppliers

•           A reduction in errors

•           Lower overhead costs in the purchasing area

•          Purchasing personnel spend less time on processing of purchase orders and invoices, and    more time on strategic value-added purchasing activities.

Objectives of Purchasing procedures and E-Procurement

1. To identify the steps in the conventional purchasing cycle.

2. To understand the differences between buying and purchasing.

3. To identify the main activities of a typical purchasing department.

4. To identify routine versus non routine purchasing/buying methods.

5. To identify technical requirements for e-purchasing.

6. To identify the differences between EDI and e-purchasing.

7. To introduce the RFID technology.

E-PROCUREMENTS

The term "e-Procurement" (for Electronic Procurement, sometimes written procurement) refers to the use of new technologies to automate and optimize the purchasing function of the company.

The term refers to a B2B exchange, i.e. a transaction between two companies, which allows a buyer to consult the product catalogue of a seller online and to directly place orders according to a well-defined purchasing workflow. Thanks to e-procurement, the process of requesting estimates, issuing a purchase order and billing is handled electronically and in a centralized manner at the level of the two enterprises, which makes it possible to shorten the ordering and delivery times while simplifying the purchasing process. Overall, e-procurement therefore makes it possible to cut cost and improve handling of purchasing matters.

INVENTORY MANAGEMENT

One issue is infrequent large orders vs. frequent small orders. Large orders will increase the amount of inventory on hand, which is costly, but may benefit from volume discounts. Frequent orders are costly to process, and the resulting small inventory levels may increase the probability of stock-outs, leading to loss of customers. In principle all these factors can be calculated mathematically and the optimum found.

A second issue is related to changes in demand (predictable or random) for the product.  For example, having the needed merchandise on hand in order to make sales during the appropriate buying season.

And a third issue comes from the view that inventory also serves the function of decoupling two separate operations. For example work in process inventory often accumulates between two departments because the consuming and the producing department do not coordinate their work. With improved coordination this buffer inventory could be eliminated.

Inventory management problems can interfere with a company’s profits and customer service. They can cost a business more money and can lead to an excess of inventory overstock that is difficult to move. Most of these problems are usually due to poor inventory processes and out-of-date systems.

There are a number of problems that can cause havoc with inventory management. Some happen more frequently than others. Here are some of the more common problems with inventory systems.

1.     Too much distressed stock in inventory. Distressed stock is products or materials in inventory that has or will soon pass the point where it can be sold at the normal price before it expires. This happens all the time in grocery stores. As a particular food product nears its expiration date, the business will discount the item in order to move it quickly before it expires.

2.    Excessive inventory in stock and unable to move it quickly enough. This is probably the most common problem for most businesses. Cash-flow comes from moving inventory. If a company buys an amount of product for their inventory and they do not move it, the company ends up losing money.

3. Computer inventory systems are too complicated. There are many inventory software programs available for business use. The problem is that many of these programs are not user-friendly. Computer software developers do not take into account that most of the people who will actually be using these systems are not tech savvy. A company does not always have the time and money to invest in training of personnel to use software effectively.

4.  Items in-stock is misplaced. Even if the computer accurately shows the item as in stock, it may have been misplaced somewhere at the warehouse, or in the wrong location within a store. This can lead to a decrease in profits due to lost sales and higher inventory costs because the item must be re-ordered. Plus, the company must spend the time for employees to track down the misplaced item.

5.  Not keeping up with the rising price of raw materials. This falls more into the accounting end of inventory management. By not keeping current with the rising price of raw materials, a company will lose profits because they are not adjusting the price of their finished products. Finished items in inventory must be relative to the cost of raw goods.

MATERIAL MANAGEMENT

Materials management can deal with campus planning and building design for the movement of materials, or with logistics that deal with the tangible components of a supply chain. Specifically, this covers the acquisition of spare parts and replacements, quality control of purchasing and ordering such parts, and the standards involved in ordering, shipping, and warehousing the said parts.

One challenge for materials managers is to provide timely releases to the supply base. On the scale of worst to best practices, sending releases via facsimile or PDF file is the worst practice and transmitting releases to the supplier based web site is the best practice. The flaw in transmitting releases via facsimile or email is that they can get lost or even interpreted incorrectly into the suppliers system resulting in a stock out. The problem with transmitting EDI releases is that not all suppliers have EDI systems capable of receiving the release information. The best practice is to transmit the releases to a common supplier web base site where the suppliers can view (for free) the releases. The other advantage is that the supplier is required to use the carrier listed in the web site, must transmit an ASN (advanced shipping notification), and review the accumulative balances of the order.

Materials management plans and designs for the delivery, distribution, storage, collection, and removal of occupant-generated streams of materials and services. It is usually an additional service that is offered as part of a campus planning process or a building design project. It is most beneficial for university, health care, and corporate environments. Materials management looks at the planning and design considerations needed to support the efficient delivery and removal of goods and services that support occupant activity. The streams of occupant-generated materials and activity include mail, office supplies, lab supplies, food, special deliveries, custodial services, building supplies, waste and recycling, and service calls.

A materials management plan may include planning guidelines or full design for the following:

•           Truck delivery and service vehicle routes, to reduce vehicle / pedestrian conflict

•           Loading docks and delivery points, to increase accommodation and reduce queuing and vehicle idling

•           Recycling, trash, and hazardous waste collection and removal, to increase waste diversion and reduce costs

•           Service equipment and utility infrastructure relocation or concealment, to improve aesthetics and realize landscaping goals

•           Regulatory and operation planning

Benefits

The effective materials management plan builds from and enhances an institutional master plan by filling in the gaps and producing an environmentally responsible and efficient outcome. An institutional campus, office, or housing complex can expect a myriad of benefits from an effective materials management plan. For starters, there are long-term cost savings, as consolidating, reconfiguring, and better managing a campus’ core infrastructure reduces annual operating costs. An institutional campus, office, or housing complex will also get the highest and best use out of campus real estate.

An effective materials management plan also means a more holistic approach to managing vehicle use and emissions, solid waste, hazardous waste, recycling, and utility services. And finally, an effective materials management plan can improve aesthetics. Removing unsafe and unsightly conditions, placing core services out of sight, and creating a more pedestrian-friendly environment will improve the visual and physical sense of place for those who live and work there.

The Legal Aspects Of Purchasing.

A key management decision with important legal branch is the level of delegated authority or discretion granted to purchasing staff , are they responsible for routine purchases only or do they control the acquisition of all the company's requirements? This will generally depend on the nature of the goods purchased, levels of available expertise and the degree of autonomy and centralisation of the purchasing function. Other factors to consider include the following:

1.     Authority Limits: It may also be advisable to establish the types of commitment and pre-set financial limits that individual staff are permitted to enter into, with or without a counter-signature or approval from their manager.

2.    Awareness of Contract Law: Purchasing staff should be made aware of the legal issues likely to arise routinely as part of their jobs, especially contract law, and in particular how and when the company may be legally bound and how contracts may be varied or terminated. Training in such areas should be considered.

3.    Quality and Safety: As part of your risk management procedures, you should ensure that only reputable suppliers are selected; that such suppliers comply with their obligations to you under health and safety laws to provide and update safety information for substances and industrial products  and that they cooperate with you generally in your risk management and quality initiatives with respect to customers, employees and others. Such cooperation can be reinforced by including contractual obligations in your purchasing documentation.

4.    Monitoring Supply Contracts: If you have many suppliers, it will be necessary to allocate responsibility for ensuring that purchase or performance levels, ordering requirements and deadlines,  thresholds, contract dates, renewal, notice and termination dates and other contract parameters are monitored and complied with.

5.    Letters of Intent: It is common for goods or services to be provided before formal contractual arrangements have been concluded. In such circumstances, one party may request a letter of intent. Practically, this may be unavoidable but such arrangements can be dishonest, advice should be taken as to the precise wording of letters of intent that you do not become contractually committed before you mean to.

6.    Tenders: If many project is involved, you may consider seeking a competitive tender. An important consideration here is the legal status of a tender especially as to whether you are bound to accept the lowest tender. Going to tender may also mean that expert advice is necessary to assist in terms of drafting the tender specification and the comparison of the bids received which may well have been put together on differing bases.

The purchasing manager is an agent for  the firm. The terms purchasing manager, buyer, and purchasing agent will be used interchangeably. The purchasing manager administers the purchasing function. The purchasing function consists of many tasks within the business entity, including supporting the company with the required materials, supplies and services.

The title and duties purchasing agent in the legal of purchasing is the most important task that the purchasing officer is involved in is representing the principal in the development and negotiation of contracts with third parties. The title purchasing agent is a generic legal term. Recently, the term has been take place by vice president of purchasing, vice president of material management, and vice president of supply management.