Supplier awards programs lift performance to new heights
When properly designed, implemented and pushed out, a supplier awards program can serve as an extension of a company's supplier performance and relationship management strategy.
By Purchasing Staff -- Purchasing, 6/18/2009 2:00:00 AM
Implementing a supplier awards program can bring benefits long after the hand shakes and photo ops are past. When properly designed, implemented and pushed out, a supplier awards program can serve as an extension of a company's supplier performance and relationship management strategy. With that in mind, Purchasing has selected four companies to provide a much deeper look at what works in supplier awards.
At Texas Instruments the awards program is seen as a way to give all suppliers a benchmark to aim for.
Cessna has expanded its awards to cover indirect materials, as well as direct materials.
Boeing's winners provide a good idea of what the aerospace giant expects from top suppliers.
And Celestica measures total cost of ownership in recognizing its top suppliers.
Case Study #1
Texas Instruments' CETRAQ scale gets suppliers on track
 Tom Thorpe, vice president of external manufacturing and development at Texas Instruments, giving the award to supplier UMC |
While the technologies that Texas Instruments develops have certainly seen their share of changes in the past quarter-century, the program the tech giant uses to award its suppliers has seen very few in that time. And if it ain't broke, why fix it?
Texas Instruments founded its Supplier Excellence Awards (SEA) program in 1983 with a clear goal that has not changed in the program's 26 years.
"Our technology enables our customers to develop innovative products," says Rob Simpson, vice president of worldwide procurement and logistics at Texas Instruments. "And our suppliers play a critical role in that process. So the Supplier Excellence Awards (SEA) recognize those suppliers that contribute most significantly to our business success through outstanding performance and continuous improvement in providing goods and services to TI."
Simpson emphasizes the SEA program—or any supplier awards program—is not just a way to pat suppliers on the back. It serves as a key vehicle for communicating what's required of suppliers and defines what Texas Instruments considers "excellent" supplier performance. "We have a supplier base of more than 14,000 companies," he says. "And having a company-wide definition of what makes a top supplier is critical for communicating and improving our standards and quantifying our ever-increasing expectations."
So just what does Texas Instruments evaluate suppliers on? Simpson says suppliers are evaluated across six primary areas: cost, environmental responsibility, technology, responsiveness, assurance of supply and quality. Or, in TI lingo, CETRAQ for short. Having those priorities clearly spelled out helps Texas Instruments' various business groups and category procurement teams rank the suppliers, measure progress and identify those that exemplify excellence.
When asked to point to a supplier that epitomizes the supplier awards program, Simpson cites its manufacturing partner UMC in Taiwan. "From our standpoint, UMC has done things to make them a benchmark in many areas, and they've implemented strategic changes in the way they do business," he says. Thanks to UMC, our manufacturing partners, or foundries, know that the standards are set extremely high, but achievable, and therefore know the value if recognized in this way."
Simpson strongly believes the awards program in place at Texas Instruments has improved supplier performance across the board. Not only does it give its thousands of suppliers a model to shoot for. "It also shows suppliers where their strengths and weaknesses are, as well as how they measure up to their competition," Simpson says. "We review the CETRAQ results with our top suppliers twice per year and develop detailed Supplier Improvement Plans to close gaps and increase TI satisfaction with the supply base."
—David Hannon
Case Study #2
Cessna expands scorecard to indirect suppliers
Supplier measurement programs are bringing such benefit to Cessna Aircraft that its purchasing organization decided to expand its use of such programs from solely direct materials suppliers to indirect as well.
Cessna Aircraft Co., a Textron Inc. company in Wichita, Kans., began recognizing its direct suppliers in 2000 and holds a supplier symposium to do so every two years. But a couple years ago, Ryan Doerksen, director of strategic sourcing and supply management, headed up an effort to use a supplier-performance-measurement system called ISTARS or Indirect Supplier Tracking and Rating System, which tracks the performance of indirect suppliers.
Cessna began formally measuring performance of its indirect suppliers with ISTARS in 2006, a program that Doerksen and his team model after STARS (Supplier Tracking and Rating System) which the supply team uses to evaluate, rate and monitor direct suppliers. The team uses ISTARS with most suppliers with which the company has long-term agreements and spends $50,000 annually. Currently, there are 230 suppliers representing 65% to 70% of indirect spending in ISTARS.
ISTARS also covers indirect suppliers to some Textron business units—Bell Texas and E-Z-GO golf carts. ISTARS measures performance in several areas: schedule, cost, rebate, discount terms, quality, customer satisfaction and supplier development. Each is weighted. Suppliers receive a scorecard, with scores ranging from one (outstanding) to five (unacceptable), every 60 days.
One area especially important to ISTARS and the success of any sourcing strategy for indirect goods and services is customer satisfaction. For it, the supply team routinely sends a survey to 1,000 end users so they can voice their opinion on their impression of a supplier's performance.
If a supplier receives a low score of a four or a five, then the team runs an indirect supplier corrective action notice (ISCAN), which is essentially a notification form. The supplier has an opportunity to respond in writing and the buyer responsible for the commodity reviews the response and determines whether suggested corrective action is acceptable. The supplier also may challenge its score.
"When we see something is going on, we are willing to work with the supplier and fix it," Doerksen says. "But we also understand that we need to be prepared in case it can't be fixed. It's our job to ensure that we in no way interrupt the process of Cessna's businesses to produce the products they need to produce."
Doerksen highlights a specialty tool supplier, Galaxy Tool Corp. in Winfield, Kans., which has received high scores in delivery and quality as an example of how well the ISTARS program impacts supplier performance.
"Our internal customers said [this supplier] supports us in an outstanding way, and we are very impressed with that. They communicate with our internal customers regularly and they are innovative, helping us to remove costs from products and processes. When we look at a high-rated supplier, this is what we believe makes them a top performer."
—Susan Avery
Case Study #3
Boeing supplier award recognizes risk mitigation
Sequoyah electric has maintained a 100% quality and on-time delivery performance rating while providing Boeing Integrated Defense Systems with construction, electrical and installation services in support of F-22 training classrooms and labs at various U.S. Air Force bases around the country. That's why Sequoyah of Redmond, Wash., is one of Boeing's nine "Supplier of the Year Award" winners for 2008, chosen from among the company's 10,800 active suppliers worldwide.
"In a nutshell, we provide spare components, repairs of malfunctioning equipment and the installation of classroom infrastructure for F-22 training systems at multiple Air Force bases, providing logistics, and procurement and installation services," says Don Dessens, senior project manager at Sequoyah.
Sequoyah has been providing these services to Boeing's St. Louis-based defense systems organization for more than eight years, often within rigid customer imposed schedules.
Procurement personnel in Boeing's three major divisions—Commercial Airplanes, Integrated Defense Systems and Shared Services Group—judge suppliers on quality, delivery performance, cost, environmental initiatives, customer service and technical expertise for the Suppliers of the Year Award.
Details couldn't be highlighted because of military security regulations. However, the project manager says that "Sequoyah aggressively does prefabrication work for the projects to lower the cost and to reduce the on-site time necessary to complete the work." That's because the firm's newly renovated Redmond facility houses a testing lab, training center, prefab shop and project-specific warehouse space.
A Boeing spokesman says that Sequoyah "has proven its value in its ability to identify and mitigate potential risk." In fact, she says Sequoyah's planning capability has allowed Boeing to meet tight schedules within U.S. Air Force budget requirements. "With a mission to do the impossible for its customers, Sequoyah has a motivated and skilled team that strives to continuously improve its processes and costs," says the Boeing award citation.
The Boeing spokesman adds that the supplier company has worked proactively with Boeing to implement lean practices and create a collaborative business partnership.
Dessens says that his team, which varies in size depending on the task at hand, is in almost daily contact with Boeing. "This close collaboration between customer and supplier helps to alleviate many of the inefficient supply chain problems that could arise when customer requirements might not be fully understood," he adds. Also, since Sequoyah is brought in on many projects at inception, when supply requirements still are being identified, "discussions allow for our input to help identify cost-saving approaches that Boeing and its customer can apply," says Dessens.
—Tom Stundza
Case Study #4
Celestica rewards suppliers that reduce total cost
 “We have improved our inventory turns over the last 18 months,” says Harvinder Sembhi, chief procurement officer for Celestica. |
Suppliers that think they can win Celestica's supplier of the year honors by just having the best quality or the lowest price for parts are in for a rude awakening.
Celestica, an electronics manufacturing services provider in Toronto, picks its supplier of the year based on total cost of ownership (TCOO) criteria. The criteria include quality, market performance (price), leadtimes, flexibility of payment terms, strategic partnerships and technology.
This year, Gold Circuit Electronics of Taiwan won supplier of the year honors by having the best total cost of ownership score. The company received a high score for flexibility of payment terms and on market performance for reducing prices. It also excelled in Celestica's "ring" score, which is a leadtime performance measurement.
"They have come a long way and are supporting our business ventures and our short leadtimes strategy," says Harvinder Sembhi, chief procurement officer for the EMS provider.
Under Celestica's TCOO scoring system, a supplier, in theory, can receive a maximum of 100 points. Celestica starts each supplier with 50 base points. Then suppliers can have points added or subtracted based on their performance in the different categories that the company weighs. For example, if a company does well in leadtime reduction, it could receive a maximum of 15 points. Gold Circuit Electronics received 11 of 15 possible points in that category.
Key to the award criteria is a supplier's ring score. Celestica places suppliers in five rings based on their leadtime performance. Ring 1 suppliers deliver parts in less than one day. They will either have stock at Celestica's facility or right next door. Ring 2 suppliers have leadtimes of 1–14 days; ring 3, 14–30 days; ring 4, 30–60 days; and ring 5 suppliers have leadtimes of 60 days. Semiconductor suppliers have leadtimes of 60 days, but Celestica encourages those wishing to be in rings 1–3 to use vendor managed inventory programs or die banks, says Sembhi.
"We have improved our inventory turns over the last 18 months," says Sembhi. "A lot of that is credited to the focus on ring score." In addition, the better the ring score, the more responsive the supplier is when Celestica has an increase in demand.
Celestica says that the average ring score across the company was 64%. "That means 64% of everything I bought had leadtimes of less than 30 days," says Sembhi. "That was a tremendous improvement from a couple of years ago, when the number was about 30%."
—Jim Carbone
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