Supplier Performance Evaluation

As Purchasing Manager for a leading manufacturer of high end wireless security monitoring systems, you've been challenged by your company's security systems. Recent complaints from your top customer has escalated supplier performance as a key strategy for the coming fiscal year. Coming out of a recent off-site strategy meeting, the executive tea, believes that a key step in the supplier improvement process will be to more fully evaluate and potentially rationalize the number of suppliers currently supplying the camera device.

You currently purchase camera devices fro, four (4) suppliers to ensure competitive pricing. However, despite the success you've realized in minimizing inflation for these devices and recognition you've received from your manager, in your last performance review you acknowledged to your manager that the number of complaints you've been receiving (formal and informal) has increased notably over the last 6 months. At the conclusion of your performance review, you and your manager agree that a more robust evaluation system is needed to more completely evaluate supplier performance and ultimately the true cost of doing business with them.

Your company has been tracking supplier performance measures for years in the categories of cost, quality, service, and innovation - the last 12 months' data for the 4 suppliers of digital cameras is in the table below. With the increased emphasis on total performance, you know the traditional metrics aren't going to be good enough to make a fully informed assessment of the supplier's performance. With the help of one of your peers on the Cost Accounting group, you were able to calculate costs of non-performance as well.

Assignment Questions

1) Calculate the supplier performance index (SPI) for each supplier, inclusive of delivery costs - round to 3 decimal places.

2) Applying the SPI from question #1, calculate the total delivered unit cost from each supplier, adjusted for inflation - round to 2 decimal places.

3) Produce a weighted point system evaluation matrix for these suppliers.

a) Use primary categories of Cost, Quality, Service, and Innovation - determine your own sub-categories

b) Determine your own weighting and scoring criteria

4) If your goal is to rationalize and consolidate your purchasing volume across only 2 supplier, provide at least 3 reasons to justify which 2 supplier you would recommend keeping? Based on your adjusted (for SPI and inflation) pricing from Question 2, what will be your annualized savings $ (split the full volume 60/40 between your selected 2 remaining suppliers)?

5) For the 2 suppliers that you choose, identify at least 3 areas (for each of the 2 suppliers) in which you can challenge them for further savings and/or continued performance improvement?

Vision Plus 700,000 9.35 0.55 Supplier Digicam ICU Tech 600,000 400,000 8.95 9.65 0.75 0.65 Clearpic 300,000 10.15 0.80 1.0% 2.0% 0.5% 1.5% 7 12 3 8 13 17 9 11 Performance Criteria Non-Performance Costs (last 12 months) Purchase Volume (units) Unit Price ($) Delivery Cost ($/unit) 3-Year Price Inflation (annualized %) Defect Rate (per 1,000) Rework / replace cost $23 / unit Received Damage Rate (per Disposal / credit recover cost $16 / unit 1,000) Every 1% point below 98% adds stock-out recovery cost Order Fill Rate (%) of $0.04/unit to all units (n/a if >= 98%) On-Time Delivery (%) Every 1% point below 95% adds expedite cost of $0.02/unit to all units (n/a if >= 95%) Process Improvements initiated by supplier (#) Technical Advances initiated by supplier (#) % electronic purchasing transactions 97 91 98 91 92 88 94 90 4 2 1 0 0 5 4 85 60 75 30 Vision Plus 700,000 9.35 0.55 Supplier Digicam ICU Tech 600,000 400,000 8.95 9.65 0.75 0.65 Clearpic 300,000 10.15 0.80 1.0% 2.0% 0.5% 1.5% 7 12 3 8 13 17 9 11 Performance Criteria Non-Performance Costs (last 12 months) Purchase Volume (units) Unit Price ($) Delivery Cost ($/unit) 3-Year Price Inflation (annualized %) Defect Rate (per 1,000) Rework / replace cost $23 / unit Received Damage Rate (per Disposal / credit recover cost $16 / unit 1,000) Every 1% point below 98% adds stock-out recovery cost Order Fill Rate (%) of $0.04/unit to all units (n/a if >= 98%) On-Time Delivery (%) Every 1% point below 95% adds expedite cost of $0.02/unit to all units (n/a if >= 95%) Process Improvements initiated by supplier (#) Technical Advances initiated by supplier (#) % electronic purchasing transactions 97 91 98 91 92 88 94 90 4 2 1 0 0 5 4 85 60 75 30