Leading global excellence in procurement and supply

Transforming Supplier Performance Management

Chris Kidd

20th March 2014

Leading global excellence in procurement and supply

Overview

• Introduction

• Why do SPM?

• Transforming the process

• The SPM process in reality

• Summary

Leading global excellence in procurement and supply

What’s the point of SPM?

Value creation & Risk management

80% of our costs 50% of our workforce

30% of our HSE incidents

Leading global excellence in procurement and supply

Transforming the process – Supply Chain Model

MRO

B A C D E F G H I J

Distributor “G”

Distributor “A”

Distributor “J”

Leading global excellence in procurement and supply

Transforming the process – Prerequisites

Buy-in from different stakeholders

Be clear - what is the value of SPM to your organisation?

Resource

Right people & behaviours

Continuous Improvement

Willing suppliers

Senior Management Commitment

Leading global excellence in procurement and supply

Transforming the process – The Approach

• Where did we start from?

• Timescales for transformation

• Segment suppliers & focus on the high value

• Establish KPIs and agree with all stakeholders

• The process and QPR schedule

• Migration to electronic system

Leading global excellence in procurement and supply

Transforming the process – Migration to e-system

Key Performance Indicators (KPIs)

Value Objective Area

Data Elements for KPI Data Element Type Calculation Method

(Delete / Update as

required)

Example: On-Time Deliveries, Total

Deliveries

(How will this data

element be captured/

displayed?)

Example: KPI = # of ontime deliveries / total

deliveries * 100

Number of HSSE incidents Whole Number Jeffrey Rijpkema Green = Zero

Red > 0

Value of invoices past due date Currency Jeffrey Rijpkema Green = Zero

Red > 0

Number of non-conformances Whole Number Jeffrey Rijpkema Green = Zero

Red > 0

Number of instances where paperwork was

incorrectWhole Number Jeffrey Rijpkema Green = Zero

Red > 0

Number of Complaints Whole Number Jeffrey Rijpkema Green = Zero

Red > 0

Total number deliveries Whole Number Jeffrey Rijpkema Red < 70%

Number of deliveries on time in full Whole Number Amber > 70%, <95%

Green > 95%

Total number deliveries Whole Number Jeffrey Rijpkema Red < 70%

Number of deliveries on time in full against

agreed dateWhole Number Amber > 70%, <98%

Green > 98%

Number of non-contract orders Whole Number Jeffrey Rijpkema Red > 50

Amber <50, > 20

Green < 20

Total spend Currency Jeffrey Rijpkema

Number of orders Whole Number

Value of additional freight cost Currency Jeffrey Rijpkema Green = Zero

Amber > 0

KPI Definitions & Targets

Value Objective KPIIs this KPI Mandatory or

Optional?

KPI Type

(How will the final

calculated KPI result be

displayed?)

Data Element Response Provided By:

Respondent Name - Required for Each Element

(Can be a different person or the same person

depending on the requirement for the KPI. User must

be listed in table on Supplier & Users Tab)

Frequency of Measurement

(if not montly / quarterly

please specify in which

quarters / months it will be

measured i.e. Q1 Only)

Target & Range for RAG

Example:

RED: 0

AMBER: >0, <2

GREEN: >=2

Attachment Required to

Support the Response?

What is the document that

needs to be attached to

Support the Response?

Are Comments Required to

Support the Response?

What is the question that needs to be

asked to support Support the Response

to the KPI?

Copy of the non conformance Optional

Quarterly No Attachment

Required Nature of the incident? (if value is > 1)HSSE Incidents Number of HSSE incidents Mandatory Whole Number N/A Quarterly No Attachment

OptionalDecimal NumberQuality & Efficiency Invoice Process Adherence Value of invoices past due date Mandatory

Delivery Delivery Schedule Adherence? On time in full deliveries vs agreed date Mandatory Percentage

Delivery Delivery Schedule Adherence? On time in full deliveries vs requested date/PO Mandatory Percentage

Number of deliveries on time agains agreed date/Total

number deliveries*100Quarterly Required

List of Pos with requested

delivery date, confirmed

delivery date and date of

delivery

Optional

Quarterly Required

List of Pos with requested

delivery date, confirmed

delivery date and date of

delivery

OptionalNumber of deliveries on time/Total number

deliveries*100

Cost Efficiency Value per order Mandatory Currency

Cost Efficiency Number of non-contract orders Mandatory Whole Number

Total spend/Number of orders Quarterly No Attachment Optional

QuarterlyN/A

Quarterly No Attachment OptionalN/ACost Cost Optimisation Additional freight cost Mandatory Decimal Number

Quarterly No Attachment

Quality & Efficiency Product Quality Number of non-conformances Mandatory Whole Number

N/A

N/A Quarterly Optional

Optional

Quality & Efficiency Delivery Compliance Correct paperwork for delivery not and CofC Mandatory Whole Number N/A Quarterly No Attachment Optional

Quality & Efficiency Service Delivery Number of Complaints Mandatory Whole Number N/A

Value Objective Area

Value Objective KPI

(Delete / Update as

required)

HSSE Incidents Number of HSSE incidents Quality & Efficiency Invoice Process Adherence Value of invoices past due date Quality & Efficiency Product Quality Number of non-conformances Quality & Efficiency Delivery Compliance Correct paperwork for delivery not and CofC Quality & Efficiency Service Delivery Number of Complaints

Delivery Delivery Schedule Adherence? On time in full deliveries vs requested date/PO Delivery Delivery Schedule Adherence? On time in full deliveries vs agreed date

Cost Efficiency Number of non-contract orders Cost Efficiency Value per order Cost Cost Optimisation Additional freight cost

Leading global excellence in procurement and supply

Transforming the process – Case study

• Valve distributor

0

10

20

30

40

50

60

70

80

Q1 2013 Q2 2013 Q3 2013 Q4 2014N

um

be

r o

f O

ff C

on

trac

t O

rde

rs

Valves Off Contract Orders

86%

88%

90%

92%

94%

96%

98%

100%

Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2014

% o

f D

eliv

eri

es

Re

ceiv

ed

On

Tim

e in

Fu

ll

Valves Delivery Performance

Performance

Target

Leading global excellence in procurement and supply

Transforming the process – Challenges & Barriers

• Demonstrating immediate benefit to the supplier.

• Training & educating suppliers on the process and systems.

• Buy-in from internal stakeholders – site procurement & end user engagement e.g. agreeing KPIs, attendance.

• Finding time for ourselves and the supplier to manage the process effectively (particularly using a manual process)

• Migrating a large number of suppliers in a short time frame proved to be a constraint on the system.

• Quantifying the tangible benefits performance management.

Leading global excellence in procurement and supply

The SPM Process in Reality

• With time the process drives itself

• Honest discussion with suppliers

• Open approach from both sides

• Good forum for end users to discuss real issues with suppliers

• Commitment for action and improvement

• Requires real time, effort and budget

• Benefits are real and tangible

• Suppliers love it!

Leading global excellence in procurement and supply

Summary

• There is potentially huge value to your organisation.

• Don’t underestimate the effort required from all parties.

• Risk management tool.

• Don’t let it substitute day to day management.

• All a question of ROI & deriving value for end users.

Leading global excellence in procurement and supply

Questions