When John Martin took the job of global procurement manager for a major manufacturer of security products, he learned that supplier-delivery performance was poor. Suppliers on average were achieving only 80-85% on-time performance. There was also an average of 10-20 parts shortages weekly. The cost of production downtime and shortages was enormous. Martin wanted to improve on-time delivery to 98% and to implement a zero-tolerance program regarding parts shortages.

Problem. Suppliers were not motivated to improve their performance. They didn't know the full cost to the manufacturer or the manufacturer's customers of production downtime. Moreover, there were no programs in place to build relationships with suppliers.

Possible solutions: Adjust schedule of deliveries to customers to account for late delivery from suppliers; change suppliers; increase inventories of parts that consistently were short. 

Solution. Martin and his team identified the top suppliers who were consistently late on deliveries. The team instituted an Annual Supplier Forum and invited the suppliers to attend. At the forum, the team spent two days educating suppliers on the importance of on-time delivery, and its effects on the customer base. During this forum, the team introduced three programs that would be implemented within the year: Supplier Scorecard Program, Supplier Development Manual, Supplier Chargeback Program.

Supplier Scorecard Program: (March 2008)
A quarterly scorecard enabled Martin and his team to measure suppliers on price, delivery, quality, cost and service. The suppliers, who helped create the metrics, must obtain a score of 98% per reporting period. Each quarter, the team gives the suppliers their score, calculated by Ariba software from feedback created by the internal surveyors within Tyco. After the publication of the quarterly scorecards, the suppliers are brought in for a scorecard review with the procurement/quality department. The suppliers who fall below the 98% metric have to submit a recovery plan.

Results:
The company recently completed its 2nd round of scorecard results, with an overall average score of 97% from the existing supplier base.

Supplier Chargeback Program: (November 2008)
Under the supplier-chargeback program, suppliers are charged back for non-conforming shipments/late shipments that shutdown production lines. The purpose of this program is not to make money, but to create accountability within the supply chain.

Results:
The program has charged back in excess of $100K, and the company has recovered that amount through supplier debit memos and supplier full-payment.

Supplier Development Manual: (September 2008)
Supplier Development Manual (online) is currently under construction and will be online for September 2008.
Supplier on-going education is the recipe for success, says Martin. 

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