The technical purchasing operation at the BMW Manufacturing Co. plant in Spartanburg, S.C., has developed an automated supplier rating system that tracks performance of maintenance, repair and operations (MRO) suppliers. It uses data generated by the BMW Procurement System, a custom SAP business add-on system.

In the year since purchasing implemented the rating system, supplier performance has improved. The system, which provides suppliers with performance ratings based on a score of 100% uses "traffic light" color coding of green for 90% and above, yellow for 80–89% and red for below 79%, showed 28 suppliers were performing below expectation and color-coded red in January 2007. By year end, the system showed no red suppliers.

"Suppliers really do take the ratings seriously," says Jason Trevison, the senior buyer who developed the concept for the automated system. "Account managers are measured on these ratings by their companies. We've seen improvements in all areas. Now we have to think about raising the bar."

BMW Procurement System. The automated supplier rating system tracks performance in these areas: on-time delivery/completion, fill rate, invoice accuracy, EDI/website responsiveness, cost savings and tier-two supplier diversity. Scores in each area are weighted and make up 50% of a supplier's rating. An end user evaluation provides data for the other 50%.

Purchasing uses the performance data to calculate cost to the plant of doing business with nonconforming suppliers.

The rating system is part of the BMW Procurement System which automates tactical purchasing activities and provides a consistent process for suppliers to do business with the automaker. In addition to the rating system, it consists of PO (purchase order) confirmation, auto expediter, storeroom MRP (material requirements planning), one-time E-RFQ (electronic request for quotation) and nonproduction freight optimization tools. The BMW Procurement System runs on SAP ERP 6.0 (enterprise resource planning).

The plant considers MRO to be those industrial supplies and parts used to maintain production equipment and plant facilities. They make up part of its nonproduction spend category. The plant buys about $500–600 million annually in nonproduction goods and services, including capital investments.

Trevison, who has worked in technical purchasing at the plant for seven years, recognized early on a need for an automated rating system for suppliers of nonproduction goods and services: Prior to implementing the automated system, the plant did not have a standard for measuring performance of these suppliers.

In August 2004, the vice president of purchasing decided to overhaul a rating system the plant was using for production suppliers and Trevison saw an opportunity for developing a similar standard system for nonproduction suppliers. At the time, he was working with IT (information technology) on the BMW Procurement System. "Back then, we were managing orders, not suppliers," he says.

After creating a business case and presenting the rating system to the purchasing team, Trevison needed to gain approval of the plant's IT steering committee. Again, he would be working closely with IT, collaborating with Marina Papenhuyzen, a programmer instrumental in creating the BMW Procurement System. Developing the rating system in tandem with production purchasing proved to be in his favor. Much of the workflow, mapping and programming for the purchasing processes are similar. "The timing was right," he says.

Purchasing and IT went live with the automated rating system with 200 suppliers in July 2006 for a six-month trial period. The system uses data automatically generated by the BMW Procurement System. For a supplier's rating on on-time delivery, for instance, it uses data on goods arrival at the dock as recorded by a freight optimization tool.

Customer satisfaction. As MRO buyers know, customer satisfaction is an important measure of purchasing performance. The automated supplier rating system sends an end user evaluation questionnaire to individuals who accept delivery of items provided by suppliers being tracked. Trevison says the survey takes respondents about one minute to complete, and has questions on product quality, product availability, responsiveness, technical expertise and assistance, competitiveness (which is measured by total cost and best value), value-added services (such as warranties), emergency assistance, flexibility (ease of doing business), collaboration, and openness to new ideas.

End users grade supplier performance in these areas using ratings of excellent (exceeds expectations) to fail (never meets expectations). Responses make up 50% of the supplier's overall score for the month. If the supplier doesn't have any completed questionnaires for the month, then the automatic criteria becomes 100% of the score. In return, the end user's department receives a summary of supplier performance for the quarter.

Now the automated supplier rating system tracks performance of 270 MRO suppliers. Of those suppliers whose performance it tracked in the first year since implementation, 53 were green at the beginning of the year. By year end, 63 were green. Sixteen started 2007 as yellow. Twenty-eight were yellow at year end. None were red at year end.

Suppliers receive a copy of their rating detailing their performance each month. Those that are not performing to BMW standards receive a letter from Trevison alerting them to this fact. Purchasing also uses the ratings in regular meetings with suppliers.

As important to purchasing is the supplier performance index (SPI) which tracks the cost to BMW of supplier nonconformance. The metric is calculated using time it takes employees to perform activities associated with nonconformance, such as placing phone calls and sending e-mails to the supplier in the case of a late delivery, and their wages. The purchasing team plans to use the SPI in the sourcing decision-making process.

It is also expanding the supplier rating system to support other indirect spend categories. Trevison is working to adapt it for suppliers of IT, HR and waste management services. In addition, the team is preparing for a migration to SAP SRM 5.0 (supplier relationship management).

The plant in Spartanburg is the only BMW Manufacturing plant in the U.S. It manufactures the X5 Sports Activity Vehicle, Z4 Roadster, M Roadster, Z4 Coupe and M Coupe, and the all-new X6 Sports Activity Coupe, producing about 600 vehicles a day, with each car built to customer order.