This is the seventh installment in our series on how purchasing staffs at various companies implement strategic sourcing. You can find the other installments in the Strategic Sourcing channel at our website, www.purchasing.com.

This series is more of a conversation than a tutorial, and we invite you to join in on the conversation. Send your comments to pteague@reedbusiness.com and write "strategic sourcing" in the subject line.

Gene Brieck

When tracking performance, Gene Brieck, purchasing director at Ash Grove Cement Co. in Overland Park, Kans., makes it simple for suppliers. "I tell a supplier, all you have to do is do what you say you are going to do. You have the account, you have to follow through and make it happen."

Brieck, a member of Purchasing's MRO All-Star buy team for 2004, spends about $20 million annually on maintenance, repair and operations (MRO) items such as belts, bearings, hydraulics and industrial supplies used as spare parts for processing equipment.

He asks new suppliers to list services they're capable of providing the plants in a one-page letter that he distributes to the sites. He pulls out the letter at the supplier's annual PDR or performance development review and asks the supplier to rate its own performance. Suppliers are fairly aggressive with their targets, typically touting service levels of 98%.

Brieck rewards top performers with new business—from Ash Grove's subsidiary companies. When introducing a new location to the supplier, he asks the business to pick a plant that's not satisfied with its current supplier to give the new supplier a chance. Invariably, the new supplier wins over the plant, and, eventually, the rest of the business.

He and the purchasing team at Ash Grove routinely monitor suppliers using a dashboard report that each month tracks such key performance indicators (KPI) as number of units/lines/orders shipped on time. They discuss quarterly with suppliers.

—Susan Avery

Glen Larsen

Sun Microsystems, the Santa Clara, Calif.-based computer and storage systems maker, has been measuring the performance of its suppliers for years through a rigorous quarterly scorecarding process. But just as important, the company sets goals for suppliers, talks about areas for improvement and discusses corrective action.

Sun measures four areas, says Glen Larsen, strategic sourcing manager for Sun: cost, quality, availability and strategic and technical development.

"We measure them throughout a quarter and give them the formal scorecard at the end of the quarter," says Larsen. He says Sun also has quarterly management reviews with supplier management teams.

With cost, Sun wants to make sure it gets world-class pricing from suppliers. Larsen says Sun sets a benchmark price and suppliers are measured by how close they deliver products to that price.

With strategic and technical development, buyers make sure that suppliers' technology roadmaps are aligned with Sun's. The idea is for suppliers to be in lockstep with Sun both in technology and in manufacturing capabilities.

Quality is closely monitored. Sun measures how many "dead on arrival" systems it has in the field and which supplier parts caused the failure. Parts that cause failures result in supplier's score being lowered.

The company also measures defect per million (dpm) process data. It has dpm threshold targets for commodities that suppliers need to achieve to get a high score.

Availability means on-time delivery. Sun measures suppliers to what degree they meet the agreed upon leadtime for a commodity. The leadtime is based on the leadtime that Sun gives its end customer.

"If we guarantee three- or four-day delivery to our end customer, suppliers have also agreed to that timeframe for getting the product to the customer," says Larsen.

—Jim Carbone

Joel Mickelson

The supplier measurement and management program at Hearth & Home Technologies includes a measurement function, a supplier classification based on this measurement, supplier management teams based on material-type groupings, a scorecard to track supplier performance and an annual supplier meeting to connect senior management with suppliers and award top performers.

"Keeping a supplier measurement program running, active and current requires attention and priority," says Joel Mickelson, vice president of procurement at the manufacturer of hearth products—gas fireplaces, electric fireplaces, woodburning fireplaces and stoves—in Lakeville, Minn.

His staff uses scorecards for suppliers and develops a 12-month rolling-average score for each supplier. The score is used to categorize the suppliers: Preferred, 95% or above; Approved, 85–94%; Conditional, below 85%.

The plant procurement managers hold the buyers responsible for getting scorecards issued. The corporate commodity managers hold the plant procurement managers responsible to get scorecards done and to drive quality and cost improvement meetings with the suppliers. Mickelson holds the corporate commodity managers responsible to execute the program and to drive spend to the preferred suppliers.

About 140 suppliers are in the company's supplier challenge program. This constitutes about 80% of total spend.

"The supplier management teams, consisting of procurement, engineering, quality and manufacturing, also meet at selected intervals to review business and create opportunities to improve our mutual business," says Mickelson. At these meetings the supplier may bring in their technical, manufacturing and quality members. "These meetings may include product teardowns, value stream mapping, third party visits, and technical review."

—Tom Stundza

John Riley

Arizona State University uses local cooperatives to find a contract for resources that the university might need and uses that contract as a template for their own needs. Since the school works with 80,000 suppliers, it helps to have contracts in place that have already been through testing of sorts. With the contract in-hand, John Riley, executive director of purchasing and business services, uses his e-procurement system (SciQuest) to monitor the flow of supplies and make sure the supplier is shipping specified quantities on time. This is especially important for chemicals shipped to the university, many of which need to be tracked per the Department of Homeland Security. "We can go into the inventory system to see who has what, how much they have, and where it is," says Riley. "And everything's under contract."

Riley also sends out questionnaires to suppliers to monitor compliance with the university's Green initiatives. He asks them how they transport goods and the kind of packaging they use—even if the supplier doesn't have Green programs in place. It shows the supplier that the school considers sustainable practices a priority.

—Maria Varmazis 

Web exculsive:
Keep the metrics simple

When it comes to tracking suppliers there can be a tendency to create metrics that buyers think are important but are, in fact, not all that important in the big picture. Michael Higgs, supply chain manager at Synetics Solutions in Portland, Ore. says, “We purchasing folks sometimes need to be reminded we are really there to support the manufacturing floor and their requirements. And with that in mind, we changed what supplier metrics we tracked to measure only those things that mattered to the floor.” 

For example, in terms of late deliveries, tracking all late shipments from suppliers can create a lot of data that may not necessarily need to be measure. Higgs says shipments less than three days late really didn’t impact the production floor and therefore didn’t need to be tracked or acted upon. 

“We try to take what we think is reasonable and go beyond it by a bit and ask that of our suppliers,” he says. “Improvement is always possible. So even if they reach what they think is the best level they can, there’s always a little room for improvement. But you want to keep them realistic.” 

While Higgs endorses the keep it simple philosophy for supplier metrics and the fewer the better, he says there are clearly times when the same metrics cannot be used across the board. Defects measured in parts per million won’t apply to larger subassemblies because of the lower volumes and higher complexity of the products being sourced. In that case, he says Synetics has moved to a “defects per part” measurement. 

“In that scenario, we want to drill down to a more granular level to be able to track problem,” he says.
Synetics suppliers are reviewed in quarterly business meetings and shown how they score percentage-wise vs. their competitors, although company names aren’t revealed.

--David Hannon