Improving Metals Sourcing Savings with Supplier Performance Management

If there were a manufacturing procurement technology Oscar for Best Supporting Actor at the Academy Awards, supplier performance management (SPM) would likely take the gold statuette. But this is not necessarily the award it deserves. That’s because SPM should take a leading role in any manufacturing procurement, materials management or supply chain organization. Over on Spend Matters, MetalMiner’s sister site, we’ve been exploring the role of SPM in manufacturing extensively over the past few days.

One of the arguments we make is that the process of engaging with suppliers outside of a sourcing or price negotiation exercise can be a very powerful means of both reducing costs and building better, more transparent relationships. In one column on the subject we note that “proper performance management initiatives should be at the core of a continuous program of identification, substitution and development of the best possible set of suppliers to meeting the ever-changing requirements of the business’ operational objectives.

Across a vendor base, SPM matters not just in working with producers or manufacturers, but also distributors as well. By defining a set of KPIs to measure and track, from the typical (e.g., on-time performance, order accuracy, etc.) to the specialized (e.g., commitment to innovative programs such as VMI, lean cost take initiatives, etc.) it’s possible to quantify not just how much a SKU or category is costing an organization and its trending over time, but the overall value the relationship is delivering to the organization, in both hard and soft dollar terms. Moreover, SPM can be transformative in improving overall quality.

In one case we researched, an industrial manufacturer, a supplier to both A&D and automotive OEMs, was able to develop specific supply strategies for each of their categories of materials based on procurement and operations objectives, along with overall market conditions for that category. Instead of sub-optimizing their SPM efforts, they were able to reduce material costs by 18 percent, reduce quality and delivery defects to near zero and triple their inventory turns. Yes, you read that correctly. I validated it during an on-site visit.

In another recent column tackling SPM we note that “manufacturers will typically get the best results from SPM efforts if they can weight performance metrics differently based on their specific strategies for various material categories. In a catalog category such as fasteners, the manufacturer might base its analysis entirely on price. For a category such as motors, quality and delivery are critical since warranty and inventory costs can easily outweigh initial purchase price.

What is the best way of getting started with SPM programs across your metals spend categories and supplier relationships, from raw materials to finished parts and components? We’d encourage you to download a new, free Spend Matters research report on the subject:

Beyond Basic Scorecarding — Supplier Performance and Development Approaches to Drive Competitive Cost and Risk Advantages

SPM can also help drive supply risk reduction as well, as another jointly authored Spend Maters / MetalMiner research paper shows:

Supply Risk Management and Supplier Performance Management Managing Your Supply Base in Real Time

–Jason Busch

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!

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