Main elements of the supplier measurement

Measurement should support audit and key areas of the development. Measurement Criteria’s are divided into four areas of criteria in the literature, chapter 3. This forms a base to performance criteria measured in dimensional supplier analysis. Indicators are selected to give an exact and a wide aspect of the total supplier’s performance.

Performance Criteria

Performance Measures

Scale Supplier X Actual Performance

Purchases and Forecast Increase= 2 Decrease= 1

2 2 2

Purchase Price Reduction/ Discount %

Price in Currency 25,50 25,00 -3

Quality

Number of Claims Number of Claims 45 50 -5

Response to Claims 1-3 2 3 4

Service Performance

Delivery Promptness (positions)

% on Time 96 100 6

Stock Programs 1-3 3 3 2

Response to Special Orders

1-3 3 3 3

Proximity to JOT plants Lead-Time 16 14 -2

Relations

Evaluation of Relationship

1-3 3 3 3

Ease of Ordering 1-3 2 3 2

Information System 1-3 2 3 2

Reporting 1-3 3 3 2

Table 2. Worksheet of Performance Criteria Measures and Relative Importance Weights for Supplier X. (Humphreys, 1998, p. 179)

In the Table 2 performance criteria are showed. Each indicator has its own performance measures and individual scales. Every supplier will have it’s own standard performance targets, which should be reached. These targets are based on previous performance and experiences in overall at the supplier base. Target value should be a to supplier goal, which can be reached with moderate actions. Table illustrates fiction supplier X’s performance.

Relative Importance Weights are selected based on JOT Automation Group Plc.’s requirements for suppliers. Relative importance weight can be changed during the time. Also different suppliers can have different weights. JOT Automation Group Plc. feels that delivery promptness is twice as important as purchase price reduction and response to special orders according to the weights. Notice that the attributes purchase price reduction, number of claims, proximity to JOT plants has a negative weight. Higher price and greater amount of the claims are less desirable thus negative signs are used. Proximity also has a negative weight because it is measured by an average delivery days. After listing measured results supplier performance index (SPI) can be calculated.

Calculation is made according to the formula (1), chapter 3

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SPI for the supplier X is 0,91. This means that supplier does fulfil requirements expected. In the literature (Humphreys, 1998, p. 178) it is suggested that the supplier should get more than 0,90 so that it could be deemed eligible. When supplier fulfils the level required SPI is then 1,0.

Performance measures indicators for criteria price are purchases and forecasts as well as purchase price reduction. The first aim is to show if the purchases from the supplier are increasing or decreasing. Good supplier will have continuous increase, if purchases are decreasing, some problems might occur, but cannot somehow be seen from the other indicators. Purchase price reduction shows the price in currency purchased and compares it to the last year’s price. Price reduction should have a continuous trend. Price standard ought to be adjusted individually to each supplier.

Standard does not have to be a single price; it can be a price portfolio. Portfolio approach can also be used in other cases. These cases can be situations in which, supplier is delivering a variation of products, which differs each other by price, delivery time, etc. Wise can support the data gathering for these indicators, but does not give any reports. This means that reporting must be done manually in present situation.

Quality criteria consist of indicators the number of claims and the response to claims.

The first indicates the amount of claims in present comparing it to the amount of claims in previous quarter. This indicator is similar to price reduction and like price;

amount of claims should be continuously decreasing. Response to claims indicates how seriously and effectively the supplier handles the claims and is ready to make corrective actions. There is no accurate way to measure response, because the evaluation must be based on a personal judgement. This means that persons, who are in contact with the supplier, give scores from 1 to 3. Instruction document supports decision-making, which includes some examples of the scores and how the scores should be given. At the moment number of the claims are collected manually and documented to the excel-file. Future development to Wise is needed, to make reporting easier and routine.

Service performance criteria consist of indicators the delivery promptness, the stock programs, the response to special orders and the proximity to Jot’s plants. At the present delivery promptness reports can be found from Wise. Stock programs and response to special orders are, like response to claims, influenced by a personal judgement. Proximity to Jot’s plants indicates the average delivery time taking after

the purchase order was given. Approximate time of the delivery is usually stated in the contract. In most of the cases product portfolio should be used in service performance indicators as well.

Relation criteria consist of indicators the evaluation of relationship, the ease of ordering, the information system and reporting. These indicators are scaled from 1 to 3 and scores are given based on performance and the systems. Ease of ordering scores are given based on how JOT Automation Group Plc.’s orders are handled, for example. For information systems and reporting scores are based on score tables, which are detailed in chapter 5.

4.1.2.3 Dimensional analysis as a supplier performance measurement at JOT